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Operating Expenses

Operating expenses are the daily expenses of a company that are necessary for it to carry out its functions. The ability of the company to engage in its standard activities depends on its operating expenses. Operating expenses include:

  • employee salaries;
  • purchase of raw materials for the production of goods;
  • rent for offices and other premises;
  • advertising budget;
  • utility payments;
  • repair and maintenance of equipment;
  • fees for using programs and services;
  • taxes.

It is important for an entrepreneur to distinguish which expenses should be considered operating and which should not. If a store buys a car for delivering goods, this is a capital expense. However, servicing the car, buying spare parts, and fuel for it are operating expenses. It is also important to distinguish between operating and overhead expenses. Overhead expenses are not directly related to the performance of business functions. For example, buying a backup internet connection "Starlink" in case of problems with wired internet. The functioning of the enterprise and the fulfillment of obligations to clients depend on operating expenses.

Operating expenses can be fixed or variable. Fixed expenses occur monthly and always amount to the same sum. For example, rent for office space. Variable operating expenses vary depending on the circumstances. For example, in one month, the company spent more money on packaging goods than in another month because there were more orders.

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