Most business owners know what they make. Fewer know what they keep. And almost no one knows where it all disappears.
That’s because the problem isn’t always sales.
It’s what happens after the sale—when overhead quietly eats away at your margin.
Let’s change that.
Every business, no matter how complex, boils down to one simple formula:
Sales – Cost of Goods Sold = Gross Profit
Gross Profit – Overhead = EBITDA (what’s left for you)
Gross profit is what you earn from the work you do. Overhead is what it costs to keep doing that work.
If your gross profit looks strong but your EBITDA feels weak, the problem isn’t top-line growth. It’s the drag in the middle—the creep of overhead that scales faster than your margin.
Overhead is everything that isn’t directly tied to producing your product or service—rent, insurance, marketing, IT, admin costs, and those “small” subscriptions that somehow add up.
There’s nothing wrong with spending money on these things.
The problem starts when you stop measuring whether those dollars are working for you.
The goal: keep overhead flat—or falling—as a percentage of gross profit.
If overhead rises faster than your gross profit, you’re growing, but not getting more profitable.
After analyzing hundreds of P&Ls, we’ve found most overhead issues fall into three categories.
Are you using your space effectively? Do you have storage you don’t need or offices that sit half-empty? Many companies overpay for space that doesn’t generate revenue. Downsizing, subleasing, or shifting to hybrid operations can trim facility costs without hurting performance.
Marketing should be results-driven. If your spend goes up but gross profit doesn’t follow, your dollars aren’t working. That doesn’t always mean “spend less.” It might mean “spend smarter.” The goal is correlation—when you invest more, you should see more profitable sales.
Technology should make your business faster and leaner. If your IT budget grows but your processes don’t improve, that’s overhead bloat. Ask whether new software or systems are truly improving output or just creating more digital noise.
1. The EBITDA Coverage Test
Your EBITDA should be at least 1.25x your total debt payments plus owner distributions. That extra .25 is your cushion—enough to cover timing gaps, customer delays, or unexpected expenses.
2. The Profitability Ratio
Your EBITDA should equal at least 20% of sales.
At BGW, we’ve yet to see a well-run company that couldn’t hit that mark.
If you’re below it, you don’t have a sales problem. You have an efficiency problem.
When your P&L isn’t adding up, start at the top.
Step 1: Check Gross Profit
Is it trending up or down? If gross profit is falling, the issue is likely in pricing, waste, or labor efficiency.
Step 2: Check Overhead
Compare overhead as a percentage of gross profit over the past few quarters or years.
If it’s climbing, your operating costs are outpacing your performance.
The goal isn’t to cut recklessly—it’s to align overhead growth with gross profit growth. Spending more isn’t bad if your margins scale with it. But when they don’t, every extra dollar of overhead eats away at what should be yours.
Healthy profit margins don’t happen by accident. They’re managed through three ongoing disciplines: benchmarking, budgeting, and forecasting.
Compare your numbers to the industry—COGS %, labor %, rent %, etc.
Don’t aim for the average. The average business isn’t your goal.
Aim for best-in-class.
You only need to benchmark every few years, but the goal should always be progress—moving from below average to average, then from average to top quartile.
Budgets turn insight into action. Once you know what “good” looks like, set your numbers accordingly.
Build your annual budget from the bottom up—realistic sales projections, costs aligned to your target profit. Lock it in by December, and don’t base it on what you spent last year. Base it on what you should spend to hit your goals.
Budgets are the plan. Forecasts are the steering.
Each quarter, compare actual results to your budget and adjust. If revenue dips or costs rise, revise early.
The companies that treat forecasting as a steering tool—not a report—stay profitable, even when the market shifts.
The most efficient companies aren’t necessarily the biggest—they’re the ones that can grow revenue and gross profit without letting overhead climb alongside it.
When overhead stays flat as a percentage of gross profit, you’re gaining leverage. You can scale without feeling squeezed, hire without losing sleep, and invest in growth knowing your foundation is solid.
That’s when your business starts to feel lighter—faster, more flexible, and more predictable.
Gross profit pays the bills. Overhead decides how much you keep.
You don’t have to cut your way to success—you just have to keep overhead honest. Measure it. Manage it. Make sure it earns its keep.
When overhead stays flat and gross profit rises, your business finally hits its stride—growing stronger, not just bigger.
Let us know how we can help.