Free Overhead Training - Lesson 1
Lesson 1 | Separate out your expenses from your Profit and Loss Statement
Your Free Overhead Training from MyOverhead.com
Starting up any business is tough. Starting up and being profitable is even tougher. While you may have the best idea or service imaginable – the “best thing since sliced bread” – so many factors weigh into the success of a company, some of the greatest inventions never take flight.
One of the main factors is managing the business itself. Operational procedures are just as important as the product, and uninformed business decisions can lead to disaster.
Often, companies will start up, and think things are running smoothly, but the bottom line is always negative due to operational expenses. The fact is, many entrepreneurs are unaware of the total cost for running a business – they don’t know how to factor their company’s overhead.
To calculate your company’s exact overhead rate, it is an easy 5 step process.
- Separate out your expenses from your profit and loss statement
- Total your Indirect Labor Costs
- Count your Direct Labor Employees
- Total your Direct Labor Hours
- Calculate your Overhead Rate
Lesson 1: Separate out your expenses from your Profit and Loss statement
The first thing that you need to do is to look at your Profit and Loss Statement. It is best to have a years’ worth of data but if you do not take the total amount in each chart of accounts and divide it by the amount of month data you have. Then take that amount and multiply it by 12 months to get a yearly total for each account.
I know this is very basic but here is an example:
For example: let’s say you only have only 3 months of data for your rent and it totals for the 3 months $3,000.00. Take $3,000.00 and divide it by 3 months gives you $1,000.00. Then multiply $1,000.00 by 12 months to give you $12,000.00 for the year.
You will want to do this on every line in you profit and loss statement.
Next you will want to go through your profit and loss statement to determine everything that should be an expense.
You can use a yellow highlighter to make it easy.
Highlight anything that is an expense for your company.
DEFINITION of ‘Business Expenses‘ Any expenses incurred in the ordinary course of business. Business expenses are deductible and are always subtracted from your business income.
Basically it is any money spent or cost incurred in a company’s efforts to generate revenue.
Rent or Mortgage
Equipment (Computers, Printers, Copy Machines, Etc…)
(Not equipment that is charged to a customer)
Postage and Shipping
Insurance (General Liability)
(Not medical, heath or workers comp. these costs are considered Labor Burden – Labor burden is the actual cost of a company to have an employee, aside from the salary the employee earns. Labor burden costs include benefits that a company must, or chooses to, pay for employees included on their payroll.) Your burden is used in calculating your Break-Even Rate.
Vehicle (Payments, Gas, Repairs, Maintenance, Etc…)
Professional Fees (Accountant, Attorneys, Etc…)
Do not highlight any labor cost for now, we will go over that in step 2.
After you have all of your expense highlighted. Total all of your expenses.
Congratulations you have completed the first step in calculating your overhead.
I recommend you do these calculations every month or at least every quarter for your company.
With MyOverhead.com calculating your expenses is quick and painless and updating your information monthly can be done in minutes instead of hours. Give MyOverhead.com a try today by clicking the Get Started Now button below.
P.S. Next we will go over Lesson 2 in calculating your company’s overhead so keep watching for the next Free Training email.