Overheads

Also called Fixed costs, Operating expenses, Opex

The costs that turn up whether or not you sell anything this month.

What it means

Overheads are the costs of being open: rent, rates, insurance, utilities, software subscriptions, accountancy, the salaries of people who are not directly delivering work, bank charges, your phone bill.

They are sometimes called fixed costs, which is nearly true and worth being careful about — most of them are fixed in the short term and negotiable over a year.

Why it matters

Overheads set your break-even point: the amount of gross profit you must generate every month before the business earns anything at all.

They also creep. Nobody ever decided to spend £900 a month on software; it arrived £29 at a time over three years, and the only way it ever gets noticed is somebody printing the list once a year and reading it.

What it looks like in practice

Add your monthly overheads up and divide by your gross margin percentage. That is the sales you need every month to break even. At £8,000 of overheads and a 40% gross margin, you need £20,000 of sales a month before a penny is yours.

That single number is more use day to day than almost anything else in your accounts, because it converts "are we doing all right?" into a question you can answer from the sales figure.

What to watch out for

Treating a rising overhead as a fact of life. Insurance, energy, card processing fees, software and telecoms are all renegotiable, and almost none of them get renegotiated unless somebody diarises it.

Hiring against a good month. A salary is an overhead for as long as the person is employed, and reversing it involves a redundancy process, not a decision.

Where to get proper advice

A bookkeeper can produce a monthly overheads list in the format above. For energy and insurance, a broker is usually worth their fee at least once.