If you are standing in a closet, overhead includes anything on that top shelf beyond your reach that can come crashing down at any moment. In business, overhead looms all around you ready to come crashing down. It may include rent, utilities, labor, and an endless list of other expenses. Best advice: avoid overhead. It is nice to have a huge store with loads of space, but at $3.50 a square foot -- that is overhead. Keeping the place at 76 degrees is cumfy, but ouch! Insurance is essential, but how much? Every choice made by the business owner has consequences. A series of procrastinations or bad decisions can sink the boat.
As you plan your business, consider the burdens of overhead. The lower your overhead, the more money you keep in your pocket. What overhead is worth the cost? If you determine that $1,000 a month in overhead enables you to produce $10,000 in revenue, it may be worth it. Do the math.
Example, a technician started his business working on his kitchen table. The space was a poor fit for the job, but it cost nothing except frustration. When he found himself servicing five machines a week, he decided to build a small (12' x 20') shop in his back yard. It was expensive. With electricity, a bathroom, heat and air, the costs reached $25,000. That translated to $500 a month in overhead. At 5 machines a week, that meant it took one week to cover his overhead, but it gave him room enough to grow. As he reached 10 machines a week, the overhead was now a really good investment.