In business learning to effectively manage your expenses (aka overhead) is one of the biggest challenges when you are just getting started. It is definitely not the glamorous part of your success story. You don’t often read the stories where the famous entrepreneur talks about the key to her success being “effective cash management” (boring). However, we do hear that nearly 50% of all new business is doomed within their first 5 years
And why is that?
Well if you were to ask me, the answer I would have for you is that knowing how to keep your business afloat is common sense that really is not common at all. It’s actually really effing hard. It took me years to get a system in place that worked and that was consistent and predictable.
When I was in high school I did a co-op placement with a local reflexologist. I had to write a report on her business based on an interview between the two of us. I remember it so distinctly because one of the first things she said was that her business model was great because it has relatively low overhead. And there I was thinking to my 16 year old self, what the hell is overhead? Fast forward 5 years and I am out on my own starting my new Massage Therapy practice all by myself and let me tell you how quickly I learned that overhead is everything!
If you are anything like me you started your business because you wanted to make a difference in the world. I was going to heal, I was going to be amazing, and I would be the best most successful Massage Therapist ever! I did not realize I was going to have to learn: marketing, accounting, taxation, time management, paper management, and run my own laundromat to top it off. Leaving school and entering the working world was like being in the middle of your shower when the hot water runs out and you have a head full of soapy hair. I was totally caught off guard and unprepared. Thankfully I’m a quick study.
So what is overhead anyway?
The short story is that overhead consists of all of the expenses that you incur that are absolutely necessary to run your business month to month. In more technical terms you will hear it called “operating expenses”. The reason I say overhead is everything is because you absolutely need to know what that number is. At no point in time should you ever not have enough cash to cover these expenses. All additional expenses should be added only if they save you time and or money, and if you can afford them.
Each business is unique and what is a necessary overhead expense for one business will not be needed in another. That said I am here to help you figure this out.
Typical Overhead Expenses Include:
- License and registration fees necessary to practice or operate in your profession.
- Insurance to cover your ass
- Rent (if you are a brick and mortar)
- Telephone and internet
- Utilities (if not included in rent)
- Equipment, which could be as little as a laptop and a camera, or as extensive as a full kitchen of appliances.
- Basic Supplies, when I started my massage practice it didn’t occur to me that I would have to spend about $500 on sheets! Duh, yeah you need sheets when you are a Massage Therapist.
- Wages but only if you have the income to cover them.
- Annnnnnd a bank account! This is in my experience the single most overlooked yet necessary expense.
Write that down
Got a pen? No? Okay go get one. Don’t forget the paper either. I’m going to need you to write something down. Ready? Alright, I want you to make a list of what you think your overhead expenses are. Just make a list, write it out, and put it on paper. It doesn’t have to be perfect. The point is to just get started. When you are done you will have created a “projection” which is a fancy work for an estimate. Whew, was it hard? No it wasn’t was it?
Your next step is to book an hour with yourself to gather your most recent bills and make a list of what your actual expenses are then total that number. And there you have it the number that begets all other business numbers (yeah)! I’m so proud of you; this is the first step in taking ownership of you finances.
Now tell me, how did that feel? Was it scary, empowering, eye opening, freeing? My best guess it that it was a lot less difficult than what you thought and I am so proud of you for doing this!