operating expenses

Phone and utilities

Examples: phone, Internet, and electricity

examples of operating expenses

Rent, advertising, equipment, fixtures, improvements, insurance, inventory, licenses, payroll, phone and utilities, professional services

Inventory

The cost of inventory also varies depending on the business Example: A retail store will have a higher inventory cost than a babysitting service

Operating expenses (OPEX)

The monthly expenses acquired when running a business

Fixtures

These cost will depend on the type of business Examples: Lighting, checkout counters, shelves, and showcases

Improvements

These costs can vary • examples: New flooring, installing a security system, and updating a bathroom

Advertising

This cost is usually calculated by estimating how much a business is projecting to sell and multiplying it by 2 to 5%

Insurance

This is the cost of keeping a business insured

payroll

This is the cost of paying salaries and wages to employees

Rent

Usually a business owner is expected to provide the first months rent plus the security deposit sometimes the last months rent is also required

What does revenue equal

Whatever is left after expenses are paid

General and administrative expenses

Will be from 10% to 15%

Payroll expense ratio should fall

Within 20% of 25% of the total operating expenses on average

Professional services

examples: accountant and lawyer fees

equipment

All equipment necessary to efficiently operate a business should be included in these cost • example: Office equipment

Sales and marketing expenses will usually fall

Between 30% and 50% of operating expenses • so 30% of operating expenses is about 7.5% = sales and marketing

Licenses

Businesses are usually required to obtain various licenses or permits • these costs vary depending on the requirements of where a business is located

To start out, general operating expense should not exceed

No more than 20% of 25% of gross revenue

Estimating operating expenses

•Make a list of all the operating costs for the business • estimate how much each expense will cost a business every month • add a list of estimated operating cost to reach a monthly estimate for running the business. At the end of the month, the actual operating cost could be compared with the estimate to see how accurate the projections were, and adjustments can be made for the next month -when starting out, it is important for entrepreneurs to estimate on the high side and calculating our project expenses -A special savings account should also be taken into consideration for any unforeseen expense that might arise -it is always beneficial for entrepreneurs to be prepared, which in turn will give the business a better shot of being successful in the first year