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THE MUSIC TRADE REVIEW
JANUARY 6, 1923
Where "Overhead" Begins and Ends
Difficulty of Determining Line of Demarcation Between'Expense That Is"Constant^andlFixed and That Which Fluctuates
With the Rise and Fall of Business Volume—The Danger of Cutting Too Heavily Into Overhead—An
Interesting Summary by M. L. Seidman, C. P. A. of Seidman & Seidman, C. P. A.'s
Overhead has been the business man's after- business. Commissions to salesmen may dis-
war bugbear. It has been discussed, feared, appear entirely, salaries of sales force may pos-
molested and operated upon. Its reduction has sibly be cut down to a point where the part
been held out as the only possible means of
time of a single individual is utilized in order to
retaining the life of a business in the light of
maintain business life. Newspaper advertising
post-war conditions. It has been the many- may increase or decrease, depending upon the
legged monster of the merchant and has prob- policy of the merchant under a given set of
ably been the cause of more loss of sleep in conditions.
the last two years than any other element in
Management and office expenses consisting
business. Yet, peculiar as it may seem, there usually as they do of salaries of management,
are very few indeed that have ever stopped to bookkeepers, stenographers, etc., may vary ma-
think about just where "overhead" begins and terially in proportion to volume of business.
ends. I have seen any number of splendid
Fixed charges and upkeep such as rent, light
articles on the analysis of business expenses, on and power, insurance, depreciation and the like,
their classification and their treatment in ac- on the other hand may be almost constant under"
counts. Minute lines of demarcation have been all circumstances. Yet it could not be said
drawn between one kind of an expense and that it is only this group of expenses that rep-
another. The business man has been shown resents the overhead of a business, merely be-
just what is and what is not cost of his goods. cause it consists of items that are little affected
But it is surprising how little light can be ob- by business volume, for even these would
tained on the generally discussed and mis- change to some degree at least in proportion
understood term "overhead."
to business done.
What Overhead Really Means
Various Ideas Regarding Overhead
"Overhead" to the going business, therefore,
Overhead has been usually referred to in the
is that amount of daily expense that would con-
books as the "cost of doing business." Yet, if
one stops to think a moment, it will be found tinue even if sales were suddenly stopped or
that the average business man looks upon over- were very materially and radically decreased.'
When the falling off in business is considered
head as the cost of not doing business. One
constantly hears of the necessity of doing busi- to be only a temporary affair not justifying the
ness in order to cover a certain "overhead." application of a "knife" toward its reduction the
The very word conveys the thought of some- overhead might be permitted to continue almost
thing hanging over the head of a business, in- to the full extent. To reduce overhead, how-
dependent of the volume of business done. It ever, and still continue to do business and
is that thought which I believe the average maintain an organization capable of performing
man has as his conception of "overhead." For efficiently upon the return of business volume,
in any business there is a certain amount and
class of expenses that cannot be dispensed with
if the business is to continue to operate. In
that case overhead expenses consist of all ex-
penses which are not directly chargeable either
to the customer or to particular sales.
The goal of business is profit. In order to
arrive at profit it is first necessary to make
two distinct outlays; first, the cost of goods,
and, second, the cost of conducting business.
The true cost of goods includes not only the
purchase price, but all expenses of transporta-
tion, drayage, etc., necessary to bring the goods
to a salable and deliverable condition. Then
come the costs of doing business—selling and
delivery expenses, administration expenses,
fixed charges, etc. I have always liked to pic-
ture the road to profit by means of steps, as
follows:
there must be a boiling down of each element
of expense to such a point where the manage-
ment considers it safe for prevalent conditions,
but not overlooking the possibility of early im-
provement.
It will be seen, therefore, that overhead is
a "pretty slippery sort of an animal," and in
trying to get at its beginning and its ending
one would almost conclude that it has neither
if applied generally. Yet if applied to a specific
business it certainly represents a definite bur-
den hanging over that business which must be
covered by a specific volume of sales before
profits can even be thought of. It is the "skele-
ton" of operating expenses and I suppose that
when one says that he has cut his expenses to
the bone he really means that he has reached
that skeleton.
Success is the reward belonging to that group
of business men that have learned to cut close
to the bone and yet leave enough recuperating
ability for the overhead skeleton to take on
plenty of flesh in the shortest possible time if
conditions require it.
MARK PIANO SERVICE CHARTERED
The Mark Piano Service Co., Cleveland, O.,
has been chartered in that State, with a capital
of $5,000. Incorporators are A. J. Mack, H. W.
Borgstedt, I L. Nichols, Monroe A. Loeser and
L. Dunmar.
A music store was recently opened in Chis-
holm, Minn., by Peter Grosso.
The Dealer
Who Handles
EST. 1856
| Fixed charges,
j upkeep and
I miscel. expense
Management and
Office expense
| Delivery expenses
| Selling expenses
Buying expenses
| Primary cost of goods
It is the steps between the primary cost of
the goods and the top step of profit that is
quite generally referred to as the cost of doing
business. Overhead lies somewhere between
those two points, but may be a small part only
of the total cost of doing business. Buying ex-
penses, which usually consist of salaries and
wages of buyers, traveling and other expenses
may be increased or decreased in proportion to
volume of business. Selling expenses may in-
clude such items as salaries of sales force,
premiums, commissions, etc. It may also in-
clude advertising of various kinds.
A number of these elements will be readily
seen to vary in proportion to the volume of
BUSINESS FOUNDED IN
EIGHTEEN FIFTY-SIX
51 SON
Pianos and
Player-Pianos
always has the assurance of the highest quality uni-
formly produced—a very comfortable feeling which
inspires the confidence of a prospect and ultimately
results in increased sales.
Let us know your 1923 requirements.
"Made by a Decker Since 1856"
DECKER & SON, Inc.
697-701 East 135th Street
NEW YORK