Business Overhead

Business overhead refers to the expenses of a company that are not expressly related to the production or distribution of a good or service. Business overhead may include rent, utilities, salaries and benefits, depreciation of capital assets, taxes, insurance and other fixed costs associated with a company's operations.

Business overhead may be evaluated as operating costs and accounted for inversely to the amount of goods or services sold. For example, if all business overhead equaled $100,000 for a period and unit sales for that period were 50,000, the cost of business overhead per unit would be $2.00. This is helpful in determining the value and effectiveness of business overhead in running a business. Managers may use this information to help decide whether a change in location or equipment is desirable or necessary. If cheaper rent or utilities are available and output can be sustained or increased, the change in business overhead would represent a greater value toward the earnings of the company.

Business overhead is a necessary cost of doing business and is unavoidable, yet can be minimized through utilizing certain processes depending on the nature of the company. For example, if a company sells customizable equipment it may be necessary to store large inventories on hand in order to fulfill customer orders quickly and efficiently. This may create the need to lease or purchase warehouse space specifically for large quantities of equipment parts. However, if relationships are developed with parts manufacturers it may be possible to avoid housing large inventories and simply distribute goods directly from the manufacturer's warehouse. This would cut down significantly on the business overhead of the company.