What are the types of operating expenses?
Management expenses, operating expenses, administrative expenses, or general expenses, all of which indicate the total expenses incurred by the company in running its business on a daily basis, but these expenses do not include the expenses that are paid in the production process. Profitability increases if expenses are low and vice versa. Therefore, various companies try to reduce operating expenses, and operating expenses include several aspects, and during this article we will discuss aspects of operating expenses.
Types of operating expenses
Management expenses differ from one company to another, depending on the nature of its commercial or industrial activity. There are also fixed expenses such as wages and salaries, and variable expenses such as sales incentives and transportation fees. We can review the following the most prominent aspects of management expenses:
Employee salaries, excluding employees working in production lines.
Insurances.
License fee.
Rents of buildings, machinery, vehicles, etc.
Research expenditures.
Marketing, including expenses paid for social media platforms.
accounting fees.
Building maintenance work.
Office supplies and services.
lawyer’s charge.
Travel and vehicle expenses.
Property and real estate taxes.
Sales incentives.
The importance of reducing operating costs
When companies try to increase their profitability, they have several ways, which are either by raising the prices of the products, but this may lead to a decline in sales due to the high price, or by reducing production costs by using lower quality materials and less experienced workers, but this may lead to a decrease in the quality of the products. And the decline in its sales, and therefore the reduction of operating costs is one of the best ways through which the profitability of the company can be increased, as the reduction of operating expenses does not affect the price of the products or even their quality.
What is the operating expense ratio?
It is one of the analytical methods through which companies look at the feasibility of spending on running establishments, and it is usually used in the real estate sector, so that the total running expenses are divided by the total returns, and the lower the ratio, the higher the profitability, and some companies that operate more than one establishment use For example, exhibitions to sell products, this percentage to compare the productivity of its facility.
Other types of expenses related to operating expenses
The following are some types of expenses that intersect with operating expenses in corporate accounts:
Non-operating expenses: These expenses are found along with operating expenses in the income statement, and they are expenses that are indirectly related to operating, which are usually represented in financing or investments, such as paying loan interest.
Cost of Goods Sold: It refers to all expenses incurred by the company in the production of goods or services, such as the purchase of raw materials, manufacturing processes, wages and salaries, and other expenses.
Capital expenditures: unlike the rest of the expenses mentioned earlier, these expenses do not appear in the income statement, but rather appear in the balance sheet, and they are expenses that are paid only once, and represent tangible and intangible assets, whose operating life is at least one year.
