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What Is 'Overhead'?

Overhead is the minimum ongoing resources required for your business to continue operations.

The lower your Overhead, the less revenue you need to keep going.

Overhead is critical if you're building your company on a fixed amount of capital. The faster you spend it, the more quickly you'll need to bring revenue.

A lower Overhead means more flexibility.

Josh Kaufman Explains 'Overhead'

The larger your rent or mortgage payment, the more money you need to make each month to pay your expenses. The same general principle applies to businesses.

Overhead represents the minimum ongoing resources required for a business to continue operation. This includes all the things you need to run your business every month, regardless of whether you sell anything: salaries, rent, utilities, equipment repairs, and so on.

The lower your Overhead, the less revenue the business requires to continue operation, and the more quickly you'll reach your point of financial Sufficiency. If you don't spend much, you don't have to make much to cover your expenses.

Overhead is critically important if you are building your company on a fixed amount of capital. Venture capitalists and other forms of investment can provide "seed capital"-a fixed amount of money you can use to start the business.

The more money you raise in capital and the more slowly you spend it, the more time you have to make the business work. The faster you "burn" through your capital, the more money you need to raise and the more quickly you need to start bringing in revenue. If you burn through all of your startup capital and can't raise more, game over. That's why investors watch your "burn rate" very closely-the slower the burn, the more of a chance you have to create a successful business.

The lower your Overhead, the more flexibility you have, and the easier it will be to sustain your business operations indefinitely.

Questions About 'Overhead'

• How much are you spending each month, even if you don't sell anything?
• How can you minimize your business' expenses without decreasing critical capabilities?

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"Beware of little expenses; a small leak will sink a great ship."

Benjamin Franklin, early American political leader, scientist, and polymath

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