Overhead refers to the ongoing costs of running a business that are not directly tied to producing goods or services.
For example, a landscaping company calculates its monthly overhead at $14,500 — covering $5,000 in vehicle lease payments, $4,200 in insurance, $2,800 in shop rent, and $2,500 in management salaries. This fixed cost must be covered before any profit is generated, regardless of how many jobs are completed.
Why it matters: High overhead makes a business rigid and vulnerable to economic downturns; keeping overhead lean preserves agility.
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