A Complete Guide to Overhead Costs for Small Businesses

SNEHA HULL | July 29, 2021

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The first and crucial part of building your small business is setting up finance for your business. Overhead costs for small businesses are also included in this broad category of business finance. An old proverb, “You need to spend money to make money,” gels perfectly with the business notion.

Business owners spend a lot of money creating a product or service, which is considered “direct costs.” Some expenses are not directly related to the creation of a product or service but aid in the operation of your business; these are referred to as "overhead costs" or "indirect costs." However, from an accounting standpoint, overhead costs are not considered expenses at all.

Small business owners have a lot of costs to consider especially overhead costs. Here are a few examples of overhead costs: a business license, accounts payable, invoices, office supplies, accounting, and legal fees, bank fees, and many more to pen down.

Business owners are behooved to be careful and make sure that their expenses should not outweigh their income. Business overhead is one area that most businesses face, and it is worth investigating further and managing it accordingly.

Overhead expenses consume most of the remaining space on your profit and loss statement. However, cutting your overhead costs will improve your business finances.

Let us further discuss few aspects of overhead costs and how to reduce overhead costs for small businesses.


What Are Overhead Costs?

Overhead costs are the indirect but requisite expenses for running a business. These costs do not directly generate revenue for the company, but they do not change as your business grows. Overhead costs must be borne even if no products or services are produced or sold for a period and cannot be
be avoided.

Here are few examples of overhead costs for small businesses:
  • Electricity bill, gas, water, internet, etc.
  • Rent for office spaces, warehouses, etc.
  • Business licenses and permits
  • Marketing and advertising materials.
  • Office supplies
  • Lawyer fees
  • Salaries and wages
  • Loan interests
  • Insurance for vehicles, employees, and properties.
  • Property taxes
  • The key is to keep track of your overhead costs and not let them interfere with your efforts to grow your business and turn a profit.

Once your concept of direct and indirect costs is cleared, the calculation of overhead costs becomes relatively easy.


Types of Overhead Costs

The overhead costs are divided into three main categories that can directly affect your small business fixed costs, variable costs, and semi-variable costs. Fixed costs are easily trackable. Below are few types of overhead costs for small businesses.


Fixed Overhead Costs

The majority of your business expenses fall under fixed overhead costs and do not change regardless of the profit earned by the company or change in the level of output; it remains the same each month. Fixed costs are easily tracked and managed as well.

Fixed costs are pretty predictable and are required to keep a business running smoothly.

Few examples of fixed overhead costs
  • Renting a manufacturing facility or a corporate office.
  • Insurance.
  • Fixed asset depreciation expenses.
  • Mortgage payments.
  • Administrative salaries.
  • Property taxes.
  • Software subscription fees.
Fixed overhead costs are stable and do not deviate from the amounts budgeted for them. However, there are a few exceptions, such as if sales exceed what the company budgeted for, in which case fixed overhead costs may rise as new managers and administrative staff are hired. More employees are added to the company.

Similarly, if you decide to purchase a few additional pieces of machinery to increase production, this will result in a permanent change in fixed overhead costs.


Variable Overhead Costs

Variable overhead costs are those that change depending on the business activity, such as sales volume. Variable costs rise as your sales rise and fall as your sales fall. Variable overhead costs, as opposed to fixed overhead costs, vary from month to month.

Here are some examples of variable overhead costs:
  • Legal expenses.
  • Overtime.
  • Shipping costs.
  • Consultation fees.
  • Office supplies.
  • Commissions.
  • Maintenance of equipment.
Unless the number of workers increases or decreases with production volumes, the labor involved in the production, or direct labor, may not be a variable cost.


Semi-Variable Overhead Costs

Semi-variable overhead costs have qualities of both fixed costs and variable costs. A business may incur such costs at any time, though the exact cost will vary depending on the level of business activity.

Utilities are classified as a semi-variable expense. These costs are only fixed up to a certain level of output. For example, the office’s electricity bill is a monthly cost but varies as per the season.

Semi-variable overhead costs include:
  • Utilities (power and water costs).
  • Company vehicle expenses (i.e., gas).
  • Travel expenses.
  • Hourly wages.

Ways to Reduce Your Overhead Costs

Go Paperless

Going paperless is a simple way to save money. Although it may not appear to be a high cost, paper and ink do add up. Instead, adopt technology such as a cloud-based system to store all of your vital corporate data online. This will save you time and money while also allowing you to keep track of details for a more extended period. In addition, going paperless is cost-effective too.

However, going digital also reduces clutter and makes it easier for business owners to stay organized. In the event of a computer or program failure, make sure you have a backup of all your documents.

Going paperless is an intelligent decision to reduce overhead costs for small businesses because of few advantages such as being environmentally friendly, easy access, and digital file system easy to organize.

Create a Systematic Purchasing Process

It's a good idea to appoint one person in the company to handle, examine, and authorize purchases so that he can see all the expenses that management plans to incur before they're paid. In addition, negotiating contracts and placing office supply orders should be the responsibility of this person.

By putting one person in charge of purchasing, that individual can devote all of their time to finding the most incredible deals. The individual in charge of purchasing should be a skilled negotiator who is not hesitant to ask for a discount. Request that your purchasing manager go shopping for better prices on the things you buy frequently. Consider rewarding your purchasing agent with a bonus if they achieve specific cost-cutting goals without sacrificing quality.

Lease Equipment

Purchasing equipment such as computers, photocopiers, and other necessities every year is a significant expenditure. As a result, leasing equipment is frequently the best option for businesses looking to reduce monthly costs. Renting or leasing equipment makes it easier to upgrade to newer versions of computers and other equipment. Additionally, while leasing, costs such as equipment repairs and maintenance will be reduced if not eliminated.

Tax benefits are frequently available for equipment leases. In addition, depending on the lease, you may be able to claim your payments as a business expense by utilizing specific legal provisions.

Leasing equipment is one of the most productive ways to reduce your overhead costs for small businesses.

Market to Your Existing Customers

Marketing to your existing customers can be a good strategy to reduce costs. This step reduces your marketing costs and shows that you care about rewarding loyalty, which gives your brand a boost.

Customers who are happy with your products or services are more inclined to tell their friends and family about them, and word of mouth is still the most effective marketing method.

Organic promotion from peers is more likely to be trusted by potential customers than paid advertising.

Choose a Business Credit Card That Suits You

Choose the best business credit card that suits you for your business expenses. Your company can benefit from credit cards in several ways. For example, Cash-back benefits, travel miles, or a point system are all available on cards targeted for corporate use.

When buying office supplies and paying for travel expenses with a credit card, these incentives can pile up quickly. First, examine the annual fees and interest rates associated with your credit card. Then, it could be time to apply for no-fee credit cards with lower interest rates.

Choose a credit card that is ideal for your company, particularly in credit limits, interest rates, and fees. This could be one of the methods to your cost-cutting.


Frequently Asked Questions:


What are typical overhead costs?

Overheads are business costs associated with the day-to-day operation of the business. Accounting fees, insurance, advertising, legal fees, interest, labor burden, rent, supplies, repairs, taxes, travel expenses, phone bills, and utilities are examples of overhead expenses.


How do you calculate overhead costs for a small business?

Divide the total overhead costs of the business in a month by the monthly sales to calculate the overhead rate. To calculate your overhead rate, multiply this figure by 100. A lower overhead rate indicates greater efficiency and profits.


Are overheads fixed costs?

Typically, overhead does not fluctuate with increases in product production, which is why it is a fixed cost. Mortgage or rent for buildings such as the corporate office are examples of fixed costs.

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Fetch Inbound Marketing Benefits for Small Businesses – 2022

Article | November 16, 2021

Are you a small business owner and still stuck with an expensive form of traditional marketing? Don't be; here is one of the effective solutions for your dilemma ‘inbound marketing.’ So now the question arises - what is inbound marketing? How can small businesses fetch inbound marketing benefits? Inbound marketing, according to Miles Anthony Smith, is the practice of drawing customers to your company. Can accomplish this via content marketing, search engine optimization (SEO), and other strategies. Unfortunately, traditional marketing techniques have been deemed "disruptive" and are no longer employed. In addition, traditional marketing has several problems, including high costs, difficulty in maintaining, and difficulty attracting consumers and generating leads. According to HubSpot, inbound marketing generates 54% more leads than traditional paid marketing. 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CRYO adopted inbound marketing in 2016 for more focused and data-driven approach to pitch to prospective clients. However, as a digital marketing business, prior to adopting inbound marketing they lacked an end-to-end solution. They observed a significant increase in their company KPIs after implementing inbound marketing. 146% increase in revenue 44% increase in website traffic 128% increase in leads Benefits Of Inbound Marketing Efficient Than Traditional Marketing Inbound marketing, in contrast to typical advertising approaches, targets the appropriate clients who are already interested. According to invespcro, a professionally implemented inbound marketing approach converts leads ten times faster than typical outbound marketing methods. "If you have more money than brains, you should focus on outbound marketing. If you have more brains than money, you should focus on inbound marketing."- Guy Kawasaki, Chief Evangelist of Canva. Here are a few more inbound marketing benefits; it is more responsive than most traditional marketing techniques and increases website traffic. In the age of digitization, inbound marketing platforms are critical for achieving the most remarkable results. Cost-Effective Than Other Forms of Advertising Inbound marketing strategy is unmatched when it comes to cost-effectiveness. This is because inbound marketing focuses on enticing prospective consumers; by doing so, you save time and money by avoiding uninterested people in your products or services. According to Invespcro, content marketing costs 62% less than traditional marketing and triples lead generation. Inbound marketing helps marketers to get a greater return on investment and create more leads on a shoestring budget. The most significant inbound marketing benefit that this technique may give small business owners is cost-effectiveness. Simultaneously, an inbound marketing strategy has better value for your business as well. Long-Term Investment Inbound marketing aims to build a relationship with customers that leads to long-term investment. Assume you have a popular video/blog on a social media network such as Facebook. Your followers will see your posted content and respond with likes, comments, and shares. This manner, your material reaches a bigger audience and retains its visibility for an extended period. As a result, traffic will blossom and expand over time. Unlike other forms of marketing and promotion, inbound marketing does not have a time limit for attracting visitors to your website, thus the long-term investment. As a result, it is one of the most valuable inbound marketing benefits for small businesses with restricted marketing budgets. Builds Brand Awareness and Loyalty In today's society, the majority of purchases begin with an internet search. Therefore, if you have an online presence and are highly active on search's social media platforms, you have a good chance of increasing brand recognition. Interacting with prospective consumers develops their trust and increases the likelihood of choosing your brand when making purchases. Therefore, attract, engage, and delight are the three pillars of the inbound technique. When inbound marketing is done correctly, it fosters consumer loyalty and improves your brand's impression. Final Thought Inbound Marketing is here to stay and is the best marketing strategy for small businesses. Looking at the above-mentioned inbound marketing benefits, you can figure out the tremendous value it holds in marketing. It is vital to have content of high quality and targeted towards the right audience. If you are a small business owner and are interested in a more cost-effective marketing method, we encourage you to implement an inbound marketing strategy. It is not easy as it sounds; it takes time, money, practice, and lastly, a lot of effort to understand your customers. But it is worth all the endeavors.\ FAQs: What are the examples of inbound marketing? Here few examples of trending inbound marketing: Viral videos Blogs Social media campaigns Webinars Infographics Ebooks Whitepaper Podcast What are inbound marketing strategies for start-ups? Below are listed some inbound marketing strategies that start-ups can take advantage of. Create and share free content Write compelling headlines Leverage blogs to the fullest Create an email course Have compelling landing pages Invest in influencer marketing Sprinkle some SEO magic { "@context": "https://schema.org", "@type": "FAQPage", "mainEntity": [{ "@type": "Question", "name": "What are the examples of inbound marketing?", "acceptedAnswer": { "@type": "Answer", "text": "Here few examples of trending inbound marketing: Viral videos Blogs Social media campaigns Webinars Infographics Ebooks Whitepaper Podcast" } },{ "@type": "Question", "name": "What are inbound marketing strategies for start-ups?", "acceptedAnswer": { "@type": "Answer", "text": "Below are listed some inbound marketing strategies that start-ups can take advantage of. Create and share free content Write compelling headlines Leverage blogs to the fullest Create an email course Have compelling landing pages Invest in influencer marketing Sprinkle some SEO magic" } },{ "@type": "Question", "name": "What are the typical benefits of inbound marketing?", "acceptedAnswer": { "@type": "Answer", "text": "Inbound marketing provides many benefits; below are a few listed ones: Efficient than traditional marketing Cost-effective than other forms of advertising Long-term investment Builds brand awareness and loyalty Reach new markets and audiences Better lead generation Boosts ROI" } }] }

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Small Business Cybersecurity Best Practices - Now Is the Time to Explore Them

Article | November 15, 2021

As the online world gets popular, cybersecurity is a hot topic for discussion. In today's B2B industry, the new work trend of working from any location has supplanted the traditional working approach. However, fewer security procedures have raised the cybersecurity risk for all organizations, particularly small businesses. As a result, small business data is highly vulnerable to such cyber-attacks. As stated by Brand Essence Research, the worldwide cybersecurity industry will reach $403 billion by 2027, growing at a 12.5% compound annual growth rate (CAGR). For every Cybersecurity Magazine, small and medium-sized enterprises account for 43% data breaches. “As cybersecurity leaders, we have to create our message of influence because security is a culture, and you need the business to take place and be part of that security culture.” - Britney Hommertzheim, Director, Information Security, AMC Theatres, at SecureWorld Kansas City Here are the top cybersecurity challenges that small businesses face and need to be considered while setting cybersecurity best practices for small businesses. The business relies on several manuals and informal processes for cybersecurity The business struggles to handle the complexity of numerous disconnected cybersecurity technologies The business lacks the skills necessary to cope with a current type of cybersecurity attack Managers lack an understanding of or commitment to good cybersecurity No employee is technically trained, and the firm provides no cybersecurity training to its employees While small business owners have successfully adapted to new work processes, they do encounter certain obstacles regularly. This blog highlights a few cybersecurity best practices that your small business may adopt. But before that, let's have a quick glance at a few of the cyber security threats faced in the recent past. Cyber Security Threats in Small Businesses Emotet: Emotet is one of the most damaging and expensive malwares available. It is a sophisticated, modular banking Trojan mainly used to download or dump other financial Trojans. SMS phishing: SMS phishing has become one of the most prominent trends in the world of small business cyber security. Due to the evolution of the media, phishing attempts are now distributed using brief text messages rather than email. Sophisticated ransomware attacks: Complex Ransomware assaults occurred because of the introduction of new, sophisticated types of malware that were a step above anything previously observed. Hence, small organizations should consider using an effective cloud backup solution to protect against data loss. Deepfake videos: Deepfake videos have recently emerged as a significant cyber security concern to small enterprises. These films are designed to dupe company owners into disclosing vital information. Spoof accounts: Spoof accounts is another sort of danger that has developed in recent years. The attacker created a plausible Facebook profile and befriended the employees, using this relationship to collect critical, sensitive, and valuable information from them. It's critical to review your small business's existing cybersecurity best practices. Thus, the following is a list of the top five cybersecurity solutions for small businesses. Top 3 Small Business Cyber Security Practices Strong Password and Authentication Password attacks were the most prevalent type of cyber-attack seen during COVID-19. The attack occurred as a result of insecure passwords and login credentials. Therefore, small businesses should verify that their password policies adhere to the FBI's standards for creating strong passwords. Utilize password managers such as RoboForm, NordPass, DASHLANE, and KEEPER regularly to ensure the security of small company passwords. 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Businesses that choose to allow their workers to work from home should search for VPS alternatives that fit with their business's security requirements and cybersecurity resources. "Organizations are ramping up security monitoring to try to know what is happening on endpoint devices. It's a unique opportunity for security to advocate for the employee experience." -David Etue, Nisos's Chief Executive Officer, (claimed in an interview with a Media 7 team) Final Thought Cyber security is an integral part of small businesses today. It helps companies to protect and safeguard their sensitive and confidential data against cyber theft. However, given the dynamic nature of cybercrime, you need to develop comprehensive and effective cybersecurity solutions for small businesses. As a result, it is vital to verify that these procedures are appropriately applied. FAQs: How can small businesses improve cybersecurity? 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Cyber security is important for small businesses because they cannot afford to lose critical data and information. { "@context": "https://schema.org", "@type": "FAQPage", "mainEntity": [{ "@type": "Question", "name": "How can small businesses improve cybersecurity?", "acceptedAnswer": { "@type": "Answer", "text": "Here are a few tips for small business cybersecurity improvement: Provide cyber awareness training to your employees Utilize VPS and security Strong password and authentication Protect your Internet connection with a firewall Protect your wireless networks Utilize excellent practices when it comes to payment cards" } },{ "@type": "Question", "name": "What are the top cybersecurity threats facing small businesses?", "acceptedAnswer": { "@type": "Answer", "text": "Read out to the top cybersecurity threats small businesses are facing: Emotet SMS phishing Sophisticated ransomware attacks Deepfake videos Spoof accounts IoT attacks" } },{ "@type": "Question", "name": "Do small businesses need cyber security?", "acceptedAnswer": { "@type": "Answer", "text": "Information technology has developed into a significant role in the success of small enterprises. 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Article | October 23, 2021

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In addition, marketing helps to convey your product/service message to potential customers and achieve sales goals. { "@context": "https://schema.org", "@type": "FAQPage", "mainEntity": [{ "@type": "Question", "name": "How can I grow my business in 2022?", "acceptedAnswer": { "@type": "Answer", "text": "Here are few promising strategies that can help your business grow in 2022: Utilize artificial intelligence (AI) and machine learning Utilize video social media platform Utilize influencer marketing to its full potential B2B email marketing is crucial Think global, stay local Optimize for Voice Search" } },{ "@type": "Question", "name": "Why do we need marketing strategies for small businesses?", "acceptedAnswer": { "@type": "Answer", "text": "Marketing strategies help small businesses to plan their business and achieve the goals set. Proper marketing strategies enable your business to reach a suitable customer base. The success of the business has a lot to do with your business plan and marketing strategies." } },{ "@type": "Question", "name": "How does marketing affect small businesses?", "acceptedAnswer": { "@type": "Answer", "text": "Marketing is the basis for the success of small businesses. Marketing is essential for customer engagement and is used to attract customers and the right time and place. In addition, marketing helps to convey your product/service message to potential customers and achieve sales goals." } }] }

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MARKETING AND NETWORKING

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Article | October 23, 2021

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Conversion-based Dialogues Advertisements Conversion-based dialogues marketing is one of the latest trends in internet marketing for small businesses. Live chat, chatbots, voice assistants, and other conversational artificial intelligence (AI) are all used in conversational marketing. Listening to customers' concerns and assisting them in resolving them leads to a more positive encounter where the customer feels heard. With conversation-based dialogues, advertisements, and engagement, conversions with customers becomes more accessible than ever before. Personalized one-on-one interactions have the potential to strengthen customer connections, enhance loyalty, and create exceptional consumer experiences. As a result, we can determine its significance in small business online advertising. Focus on Social Media Influencer Marketing Another significant shift and growing trend in small company online advertising is the increased emphasis on social media influencer marketing. With Influencer Marketing Customers develop a sense of trust with their brands. According to Tomoson statistics, influencer marketing surpassed organic search, sponsored search, and email marketing as the fastest-growing client acquisition channel. Additionally, it was the most cost-effective marketing strategy. Small business owners are attempting to leverage influence marketing to reach smaller but more active audiences. Again, pandemic played an important role in initiating this trend. During the pandemic, most customers spent most of their online time on social media and actively engaged with content providers, which pushed small company owners to adopt this marketing method. Social media platforms Influencer marketing is a very effective method of marketing for startups. This is an example of a startup influencer campaign. As a fashion store startup, JustFab entered the eCommerce market. They co-founded their athleisure label Fabletics with actress Kate Hudson. As a consequence, the brand and its products received widespread recognition and the company successfully expanded to become a diverse worldwide corporation. Hyper-personalization and Targeting the Customers Small business owners aggressively go for a hyper-personalization approach and experience to attract customer's attention and increase customer engagement. Big data has made hyper-personalized customer experience easy. Small firms use developing technology to identify precise consumer needs and requirements and target the correct customers. As a result, small businesses will surpass their competition via hyper-personalization. In a fast-paced age where customers often face cluttered and complicated shopping experiences; hyper-personalization reduces the customer's effort by removing obstacles in the sales funnel. Hyper-personalization interprets customers' intent by analyzing behavioral and real-time data. As a result, communication is more thoroughly examined, and conversion is increased. Winding Up As a result of the pandemic, the word "Marketing" and its activities have taken a wild trip during the last two years. As a result, online marketing for small businesses has drastically changed. The change has made small business owners come up with new strategies and, at the same time, think locally and globally to engage their target customers. In addition, internet marketing for small businesses has opened an array of smart and innovative opportunities and channels for marketers to explore. . Frequently Asked Questions: How do small businesses use online marketing? Small businesses can use online marketing in many ways. Following are few marketing tips. Build a strong social media presence Focus on using video marketing Use email marketing Expand your website Focus on using AI or cloud-based technology Utilize influencer marketing for better engagement What are the main online marketing strategies? The main online marketing strategies are: Search engine optimization (SEO) Pay per click (PPC) Content marketing Social media marketing Email marketing Affiliate marketing How small businesses benefit from digital marketing? Small businesses benefit in many ways through digital marketing. Wider reach Increases brand awareness Cost-effective Time-effective Easier to target the audience Increases customer engagement { "@context": "https://schema.org", "@type": "FAQPage", "mainEntity": [{ "@type": "Question", "name": "How do small businesses use online marketing?", "acceptedAnswer": { "@type": "Answer", "text": "Small businesses can use online marketing in many ways. Following are few marketing tips. Build a strong social media presence Focus on using video marketing Use email marketing Expand your website Focus on using AI or cloud-based technology Utilize influencer marketing for better engagement" } },{ "@type": "Question", "name": "What are the main online marketing strategies?", "acceptedAnswer": { "@type": "Answer", "text": "The main online marketing strategies are: Search engine optimization (SEO) Pay per click (PPC) Content marketing Social media marketing Email marketing Affiliate marketing" } },{ "@type": "Question", "name": "How small businesses benefit from digital marketing?", "acceptedAnswer": { "@type": "Answer", "text": "Small businesses benefit in many ways through digital marketing. Wider reach Increases brand awareness Cost-effective Time-effective Easier to target the audience Increases customer engagement" } }] }

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