Discovering the overhead rate and percentage of small business benefits is an essential process that involves dividing indirect expenses by direct expenses. It’s ok; I know it seems overwhelming already, but it’s not. Once the company pinpoints its overhead costs, it becomes easier to establish fair prices for products and services. This step is crucial for the company as it can potentially lead to lower prices, enabling it to maintain a competitive edge. The ultimate goal of determining the overhead rate and percentage of expenses is to make well-informed decisions about the right and appropriate cost of products. This strategic approach will contribute to the company’s overall success and growth.

Determining the overhead rate and percentage for a small surveying business is a multi-step process that requires careful consideration. Don’t worry; I’m here to help you through each step.

## Step 1 – Calculate the Sum of the Company’s Direct and Indirect Expenses

This is the primary step in determining the overhead rate for any company, no matter how big or small. To calculate the direct expenses, align the cost of direct labor and direct material required to manufacture the products or services the company offers. For example, if the company sells mobile phones, the cost of material, labor costs directly paid to the workforce, and everything else involved in manufacturing the mobile phones will be included in the direct expenses. The number of products manufactured each year directly correlates with the cost increase. This financial dynamic underscores the importance of efficient cash flow management for sustainable business growth. However, determining indirect expenses aligns all the costs involved indirectly with manufacturing the products, such as the sales and customer services department, taxes, marketing and administrative fees, insurance, etc.

## Step 2 – Calculate the Overhead Rate

Once you have calculated the company’s direct and indirect expenses, the next step is to divide the sum of all direct expenses by the sum of all indirect expenses. This results in the overhead rate.

## Step 3 – Calculate the Overhead Percentage

Once you have calculated the overhead rate of a small surveying business, you must multiply it by one hundred to determine the overhead percentage.