Business overheads are general expenses that a business pays to run.

These expenses typically include things like wages, rent, materials, contractors, equipment hire, insurance, advertisement, internet, etc. They’re ongoing expenses incurred from the normal day-to-day of running a business.

They are necessary to keep the business running and generate revenue, while non-operating costs (such as interest payments on debt, restructuring costs, inventory write-offs, and payments to settle lawsuits) are not directly related to the core operations of the business and may not contribute to revenue generation. All these costs can quickly add up and impact your profitability.

Profit and Loss reports highlight the level of expenses a business needs to make and generate revenue, which is the main goal of a business, and why it’s so important to monitor them closely. By keeping track of your expenses (and non-operating costs) you’ll be able to make informed decisions about how to run your business.

And here is a personal tip or trick of mine, especially for those sole traders and entrepreneur-type businesses. I had a huge reality check when I did this exercise on my own business maybe three or four years ago, for the first time. Using the profit & loss report, grab the bottom-line figure (your profit or loss) divide that by 52 weeks, and divide that by how many hours you genuinely put into your business every week. And ask yourself, does that figure bring me any joy? Too often, we judge a business or our businesses performance by the top line figure and we take no consideration into how many hours we put in to achieve that, how much sacrifice we’ve made, and how much expense really goes into running a business.

We have these reports at our fingertips, running a business blindfolded is a disaster waiting to happen.

E.g. – generate $150K revenue.

– minus the cost of goods sold $60K

– minus operating expenses/overheads $40K

– minus car lease $10K

= $40K per year

/ divide by 52 weeks

= $769.23 per week

Worked 45 hours per week

= $17.09 per hour is your rate

Contact Balanced Inline today to see how we can help and prepare your monthly Profit and Loss reports so you can better understand your business.