Ask yourself this: Why would a high-growth tech startup struggle to keep up with mounting rent payments and costly marketing campaigns? Why would a bustling bake shop not be able to turn a profit despite selling out each day?
Welcome to the world of operating expenses. Also called “OpEx,” operating expenses are the ongoing expenses a business incurs from its day-to-day operations — and they can significantly impact a company’s profitability and long-term viability.1
From rent and utilities to employee salaries and office supplies, understanding and effectively managing operating expenses is essential for businesses, big or small. Learn more in this guide.
Operating expenses are what keep a business up and running. These regular, recurring expenses are necessary for maintaining the essential functions of a business. If they’re not managed correctly, they may cause financial instability and hinder growth.
It’s important to note that operating expenses can cover a range of day-to-day expenditures and often differ between industries. They also exclude costs directly associated with producing goods or services (cost of goods sold) and long-term investments or physical assets (capital expenditures).
So what are considered operating expenses? Here’s a general list of operating expenses that many businesses may incur:
When business owners learn how to manage operating expenses, they can work to bolster profitability and sustainability.
Here are some key areas that can be positively impacted when operating expenses are managed effectively:
Looking to cut costs? Once you’ve listed and analyzed your operating expenses, you can better understand where your money is going and identify ways to reduce or eliminate certain expenses.
Here are some quick strategies to help get you started:
Remember: It’s important to regularly monitor your progress and adjust your strategies as needed.
As you strategize ways to reduce certain operating expenses, consider building a realistic budget and financial forecast to keep your business on track. These tactics can provide a structured approach to planning, allocating resources, and tracking performance.
Plus, budgeting and forecasting can align financial goals with strategic objectives. In other words, ensuring that expenses are directed toward activities that contribute to an organization's success.
Not sure where to start? Several software and tools are available to streamline the tracking and management of operating expenses, with features like budgeting, expense categorization, and reporting. When choosing a tool, consider factors like your business size, budget, desired features, and integration capabilities with your existing systems.
When it comes to setting practical expense targets, best practice is to contact a financial services professional like an accountant or strategic planner to create a tailored approach for your business.
Managing operating expenses can be challenging for new and small businesses, as they often encounter common pitfalls that can affect financial stability — from poor cash flow management to unexpected expenses.
To navigate these challenges and make informed decisions, consider the following solutions:
Operating expenses are the backbone of a business's day-to-day operations. With a strategic approach and careful attention to detail, businesses can take charge of their operating expenses and pave the way to profitability and success.
Discover more helpful strategies for running a business and explore the benefits of a PayPal Business account.
In partnership with three expert business owners, the PayPal Bootcamp includes practical checklists and a short video loaded with tips to help take your business to the next level.
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