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How to calculate and track overhead costs for your business 2022 | Start your business - YouTube
Channel: QuickBooks
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There are a lot
of different
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business costs
to keep up with.
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Fixed, variable,
operating, product,
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period, sunk,
out-of-pocket,
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indirect— thankfully
you're a smart
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willful small
business owner
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so no cost goes
over your head.
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Well, except for one.
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That's right, today
we're talking about
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overhead costs.
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If you want the full
lowdown on overhead
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costs, check out the
article below and
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don't forget to hit
like and subscribe
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for more videos
from our series,
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"Ready, Set, Goals."
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Before we calculate
your overhead costs,
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we have to figure
out what they are.
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There are two factors
that can help us
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determine if a
cost falls in the
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overhead category.
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One, it's a
fixed cost.
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And two, it
doesn't directly
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result in sales.
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Overhead costs are
the constant expenses
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that always have to
get paid regardless
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of how much revenue
you're pulling in.
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It's those costs
that just come with
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running a business.
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So let's play a
game called, "Is
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That Overhead?"
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You'll see some
common expenses
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show up on the
screen and we'll
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decide if they're
overhead or not.
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Rent and utilities:
If your business has
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an office space, you
have to pay the rent
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and utilities that
come along with it.
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This is a constant
cost that you know
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will pop up every
month and that
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makes it overhead.
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How about insurance?
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You know you'll
be paying it.
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It protects your
business from
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different risks like
natural disasters,
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theft, and damage.
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Definitely an
overhead cost.
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Repairs and
maintenance,
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overhead cost.
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If your business
uses a lot of
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machinery, you'll
need to factor in the
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maintenance costs.
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Most machines need a
checkup once a month
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to make sure they're
running smoothly.
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Is your machine
running?
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Well, you better go
catch— nevermind.
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Did someone say
office supplies?
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Your printer,
computers,
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refrigerators.
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Okay, these aren't
exactly recurring
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fixed costs,
but they don't
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result in sales.
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That's an
overhead cost!
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Accounting.
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Whether it's an
accountant or
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accounting software,
fixed accounting
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costs don't directly
result in sales.
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So, overhead.
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Taxes: most common
property taxes
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are fixed costs.
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They don't change
and don't result
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in sales, overhead.
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Spoiler alert!
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This next one is not
an overhead cost.
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Whether you have
one employee, ten
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employees, or it's
literally just
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you, direct labor
is not considered
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an overhead cost.
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Why?
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Because your
employees help in
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the production of
goods or services.
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The same goes for
outsourced work
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directly related
to producing the
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goods so they're
operating expenses.
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Now that we're
familiar with some
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common overhead
costs, let's
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do some math.
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You'll want to
figure out your
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business's overhead
percentage as a
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percentage of sales.
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To do that, use
this formula.
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Take your monthly
overhead costs,
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divide by monthly
sales, and multiply
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by a hundred.
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That will give you
your overhead costs
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as a percentage of
sales for each month.
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Now, if you're in
over your head in
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overhead costs,
here are some ways
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to reduce them.
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Cut unnecessary
expenses.
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Maybe you're
spending too much
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on office supplies.
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Consider buying in
bulk or switching
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up to a less
expensive ink.
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Trust me, it adds up.
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Office space.
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If your rent is
eating at your
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profits, consider
looking for a
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less expensive
place or consider
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going remote.
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No office
space, no rent.
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Review and
negotiate contracts
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with suppliers.
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Think of this as
a cleanse for your
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company; go through
all of your contracts
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and pricing.
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Cancel the contracts
you don't need
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and negotiate
outdated ones.
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This is a big
way to reduce
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overhead costs.
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That about does it.
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You can now
identify, calculate,
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and cut overhead
costs to keep your
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business running.
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So, you better
go catch it.
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