What Are Operating Expenses? Definition and Examples

operating expenses definition

Amortization refers to non-physical assets like a patent that becomes less valuable as it gets closer to expiry. This table is a shortened version of Tesla’s 2020 income statement from its Form 10-K. All figures, except percentage changes, are in millions of dollars.

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Distribution costs include storage, inventory management, packaging, and shipping. Then add up those expenses to calculate your business’ operating expenses.

How to calculate operating expenses

Use Klipfolio PowerMetrics, our free analytics tool, to monitor your data. Choose one of the following available services to start tracking your instantly. Discover the products that 32,000+ customers depend on to fuel their growth. Look for energy-efficient investments, such as motion-sensor lights or HVAC upgrades. While that formula is pretty straightforward, it’s not always immediately obvious whether, for instance, a transportation-related cost should be placed under COGS or OpEx. Brainyard delivers data-driven insights and expert advice to help businesses discover, interpret and act on emerging opportunities and trends. They are not fully tax-deductible in the year they are purchased; rather, they are deductible over time.

Is an example of an operating expense?

Examples include rent, travel, utilities, salaries, office supplies, maintenance and repairs, property taxes and depreciation (see below for a more comprehensive list).

The value of the investment may fall as well as rise and investors may get back less than they invested. Or other costs of borrowing, one-time settlement, accounting adjustments, taxes paid, etc. Accounting and financial management software are essential for monitoring revenue and expenses, generating financial reports and tracking other metrics that ensure the financial health https://www.bookstime.com/ of the business. Automation reduces errors borne of manual data entry and makes a time-consuming process much more efficient. Travel expenses incurred by a company that go toward reimbursing all business-related travels are part of OpEx. Utilities include business expenses from public services such as water, electricity, internet, telephone, sewage, heating and waste disposal.

Operating expenses on an income statement

With NetSuite, you go live in a predictable timeframe — smart, stepped implementations begin with sales and span the entire customer lifecycle, so there’s continuity from sales to services to support. Once a business knows its OpEx, it can use more complex formulas that lend insight into overall profitability, such as operating profit margin. operating expenses definition These are real estate taxes that vary based on the assessed value of a property. For example, business cards, social media, brochures, websites, and TV, print and digital campaigns. In the meantime, start building your store with a free 3-day trial of Shopify. Some categories, such as depreciation, are governed by strict rules.

  • Operating Expensemeans measurement of actual controllable and fixed operating costs divided by budgeted amounts.
  • Small Business Administration’s list of “Ten Basic Bookkeeping Steps” is to purchase accounting software, which is ahead of opening a separate business checking account, reconciling that account and even tracking sales.
  • Amortization refers to non-physical assets like a patent that becomes less valuable as it gets closer to expiry.
  • Operating expenses are the costs of running a business, but they don’t include the costs of making or delivering a product or service.

Examples of non-operating costs include obsolete inventory charges, lawsuit settlements, losses on investments, damages caused by natural disasters and fires, restructuring costs and interest expenses. Any costs related to making goods or delivering services are also not part of OpEx.

Calculating Operating Expenses – A Business Case:

This cuts down on the actual physical space needed for staff at the office. Management may also try implementing money saving techniques such as automating parts of the business or reducing salaries for new hires. Operating income is a company’s profit after deducting operating expenses such as wages, depreciation, and cost of goods sold. Beyond capital and operating expenses, business expenses can be divided into several other categories like deductible and non-deductible expenses, direct and indirect costs, overhead costs, and more.

operating expenses definition