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Ask Dave

Control the Overhead

Josh owns a small business he's having trouble scaling up and keeping expenses down. Dave has a warning for him.

QUESTION: Josh on Twitter owns a small business he’s having trouble scaling up and keeping expenses down. Dave has a warning for him.

ANSWER: You’d better keep the expenses down, because if you don’t, you’ll be chasing expenses the rest of your life. Overhead kills businesses. Overhead is the death knell of a business. You have to keep your expenses down. And you have to especially watch fixed expenses.

There are two types of business expenses: fixed and variable. Variable expenses go up as the volume and the size of your business grow. Fixed expenses are there regardless of your income. Shipping . . . the more stuff you ship, the higher your shipping bill is. That’s a variable expense. Rent is a fixed expense. You have to pay it whether you make any money or not. It’s not based on the volume of your business. The ones you want to avoid are those fixed expenses creeping up. That’s overhead. Again, that’s the death knell—that’s the thing that will gut your business. It’ll take it apart.

We cover a lot of that stuff in the book EntreLeadership. It’ll unpack that for you and show you what to do there and how you’re doing that. But just be willing to grow slowly. Be willing to grow steadily. And stay away from the subtle growth and these fixed expenses. They’ll just sneak up on you. They really will.