Total operating expenses meaning11/10/2023 ![]() ![]() Luckily, since operating expenses cover so many business costs, there are a lot of ways to experiment and try to reduce them. Therefore, operating expenses are generally where you’ll look when it’s time to save some money in your small business. And while you may be able to increase your prices to make more money, you may also jeopardize sales at a higher price point. Plus, while a reduction in production costs might also be able to help your bottom line, it could be at the expense of quality. That’s because they frequently are less fixed than, say, production costs. Well, an increase in operating expenses cuts into your profits, while reducing operating expenses allows your business to make more money.Īs a business (and especially if you’re small business), when you’re looking to improve the bottom line, operating expenses are the first place to turn. So why focus on reducing operating expenses? Want to dig deeper into your numbers? For your software expenses, try using our new cost of ownership calculator to see how much you can save not only by lowering software expenses, but also through an increase in productivity among your employees so you can stop losing money to lost opportunities.ĥ tips to reduce your business’ operating expensesĮxpenses are an unavoidable part of doing business-you need to keep the lights on, after all. Now you can look up average operating expense ratios for your industry to see how your business is doing in comparison. Then, divide by your revenue to get a percentage of revenue that you’re spending on these expenses-an operating expense ratio. To get an operating expense ratio (OER), add your cost of goods sold (COGS) to your operating expenses. Once you know your operating expenses, examine them within the context of your revenues. Obviously, now that you know what is and what isn’t an operating expense, it should be pretty easy to categorize your expenses, as long as you keep good records or use a software that helps with bookkeeping.īut, like all numbers in business, your operating expense total only makes sense within a larger context. Now that we know what is and what isn’t an operating expense, you’ll need to calculate your OpEx. These are usually the easiest to reduce to make a real impact on your bottom line.īut we’re getting ahead of ourselves. Plus, as we’ll discuss later, when you’re looking to save money in business, the best way to do so is to actually look at your operating expenses separately from other expenses. But there is a distinction in the way these costs are handled when you file your taxes, so it’s important to keep track of operating expenses separately. That doesn’t mean that these aren’t costs your business has to deal with-they absolutely are. Neither do capital expenditures like buildings or machinery. But there are some technicalities to be aware of, and a few expenses don’t fall under this umbrella.įirst of all, the cost of goods sold (including materials and manufacturing) does not qualify as an OpEx. Most of what automatically comes to mind as you think about the costs of running a business qualify as operating expenses. What is not included in operating expenses? If your business files taxes in the United States, you’ll want to track and document your OpEx because they are tax deductible! □ What WFH expenses should you look for when you’re managing your finances? We collaborated with Bench, an online bookkeeping service, to create this guide that’ll come in handy as you’re looking through your operating expenses. ![]() 5 tips to reduce your small business operating expenses.How do you calculate operating expenses?.What is not included in operating expenses?.Want to fast-forward to the money saving part? No problem-just skip ahead: That’s why today we’re clearing up exactly what is (and isn’t) an operating expense, and how you can calculate yours.Īnd, because we know you’re probably here not only to learn about operating expenses, but to try to reduce yours as well, we’ve got five tips to help you do exactly that. From the costs associated with an office or shop location to insurance fees, payroll, and even office supplies, there are a lot of expenses associated with running a small business.īut if you really want to understand your bottom line, you need to organize and understand your operating expenses. The old saying goes “you’ve got to spend money to make money,” and, of course, it’s true. ![]()
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