What are overheads?

Definition of overheads

Overheads are the day-to-day running costs of a business that do not relate directly to its individual sales.

Running costs that do relate directly to the individual sales a business makes are called 'costs of sales'.

A business that sells services rather than goods may not have any costs of sales; all its day-to-day running costs would then be overheads.

Overheads may also be described as 'administrative expenses' because they are costs that relate to the administration of the business.

Examples of overheads:

Examples of overheads would be legal and professional fees, such as accountants' fees; the cost of printing stationery for the business, such as letterheads; and the cost of travel for non-sales staff.

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FreeAgent's Chief Accountant Emily Coltman is available to answer your questions in the comments.