Overhead costs are ongoing expenses required to maintain a business, including rent, utilities, supplies, marketing costs, and taxes. Rent and utilities are the most common and necessary overhead costs, while supplies and marketing costs can vary between businesses. Taxes are an operating cost that applies to almost all businesses.
In the business world, ongoing expenses are generally required to maintain a business and keep it running. The common name to describe these expenses is called overhead costs. To better understand overhead costs, it’s important to know what some of the most common types are. These include rent, utilities, supplies, marketing costs, and taxes.
The cost of renting a facility to operate a business is one of the most common overhead costs. Unless the business is operated entirely online, you will have to continually pay rent or purchase a facility. As a result, this is often one of the most necessary and costly overhead costs. Rent can be particularly expensive when operating a large-scale business or renting in a competitive location in a large city.
Utilities are another expense that goes hand in hand with paying rent. To power a business with basic necessities like electricity, lighting, plumbing, and Internet access, you’ll have to pay utility costs on an ongoing basis. Otherwise, the business would be unable to function in most cases. Generally speaking, the larger the facility, the higher the utility costs.
Supplies are one of the overhead costs that can vary considerably from business to business. For example, a computer repair business would likely have minimal supply costs, while a convenience store would have significantly more supply costs. The computer repair shop would only need to order computer parts, while the convenience store would need to order a large number of items such as snacks, drinks, cigarettes, and newspapers frequently. Consequently, supplies can be a major overhead for some businesses and only a minor cost for others.
Marketing costs are another expense that can vary between different businesses. In order to attract new customers, most businesses will implement some form of marketing strategy. Some small-scale examples include placing ads in local magazines and setting up a website. Large-scale examples include placing an advertisement on a billboard or running commercials on television. As a result, these can generate minimal or potentially huge overhead costs.
Also, taxes are another operating cost that applies to almost all businesses plus some non-profit organizations. Each time payroll is done, the designated percentage of the tax dollars must be paid. Otherwise, legal complications and fines or imprisonment may occur. Consequently, almost all companies are responsible for paying taxes.
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