The sum of all your recurring monthly expenses makes up your overhead costs. Now that you know what you spend every month on electricity, insurance, wages, etc., add up those numbers to calculate your monthly overhead costs. The money you spend to buy a cake for your head waitress’s birthday isn’t this type of expense. Remember, overhead costs are what you spend just to keep your doors open. Here’s a basic example of monthly expenses: Other expenses - like electricity and natural gas - are pretty much the same from month to month, so you can base your overhead costs calculations off the bill they send you. Divide your premium by 12 and earmark that amount only for insurance at the end of the year. Your insurance bill arrives every twelve months, but you don’t want to leave it to chance that you’ll have enough money to cover this expense. Why look at a month and not just the year? Because even if you pay certain expenses on an annual basis, you should set aside money every month to cover the cost. They’ll give you a general idea of what you’re spending, but it’s more useful to reduce those numbers to a monthly component. The yearly numbers you see in step one are just totals. Or take a look at your income tax report to see what the IRS categorizes as expenses. If you use an accounting program, print out a report that lists these annual expenses. You don’t need every transaction, just the general categories. The easiest way to get started calculating your overhead costs is to look at a list of expenditures from the previous year. ADD_THIS_TEXT How Do You Calculate Overhead Costs? 1) Look At What You Spent Last Year Now that you understand what overhead costs are and why they’re important, let’s turn our attention to how to calculate and control them.
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