What is an operating expense?

Last Updated on 24/07/2025
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Operating expenses (OpEx) are costs related to normal business operations. Operating expenses are essential for a business to run on a daily basis.

Managing operating expenses

Part of owning a business is maximising profit while minimising operating costs. Managing operating expenses involves striking a balance: if you cut costs too much, you could cut corners and compromise the quality of your goods and services, but if you leave costs unchecked, it could hamper your profitability.

Fixed and variable costs

Operational expenses are divided into two departments: fixed costs and variable costs incurred.

Examples

Fixed costs Variable costs
office supplies raw materials
rent cost of labour
insurance sales commissions
employee salaries credit card fees
marketing expenses freight and shipping
administrative expenses utility costs
property taxes  

 

Operating expense ratio

To calculate your operating expense ratio, add all your business’s operating expenses to your cost of goods sold (COGS) and divide by your net sales.

The lower your operating expense ratio, the more efficiently you manage business costs. A higher OER will provide you with an opportunity to find areas where you can reduce your costs to run a more efficient business operation.

Non-operating expenses

Non-operating expenses are costs that have been incurred and don’t fit either operating expenses or capital expenses. These appear below operating expenses on the balance sheet. Some examples include:

  • Interest expenses
  • Inventory write off
  • loss on asset sales

Operating expenses (opex) vs capital expenditures (Capex)

Operating expenses and capital Expenditure definitions

While operating expenses are typically recurring, capital expenditures are investments in either physical or intangible assets designed to provide growth opportunities for a business.

Capital expenditures are related to how your business can generate income over time, whereas operating expenses indicate your business’s financial health.

About the Author

Oliver Gye

Content Writer
Oliver Gye is a content writer and publisher who is passionate about creating engaging content for the small business community. He specialises in UX, business support & compliance, and small business journalism in fintech and accounting.

Oliver Gye

Content Writer
Oliver Gye is a content writer and publisher who is passionate about creating engaging content for the small business community. He specialises in UX, business support & compliance, and small business journalism in fintech and accounting.

Additional resources

Disclaimer
This glossary is intended for small business owners and contains definitions suited to their needs. For more comprehensive explanations, we recommend consulting an accounting or bookkeeping professional. Reckon does not offer accounting, tax, business, or legal advice.

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