One aspect that significantly impacts business stability is operating expenses. The size of operating expenses will impact business profitability. Therefore, you must understand how to calculate operating expenses properly.
Excessive operating expenses will burden a company's cash flow, making it difficult to meet obligations such as employee salaries, operating bills, and debt servicing. Conversely, if operating expenses are managed well, cash flow can be smoother.
Therefore, every business owner should strive to reduce operating expenses without compromising the quality of products or services. Managing expenses wisely allows a company to save costs, which will impact margins.
To help you calculate operating expenses effectively, here's some information on how to calculate operating expenses that you should consider. Let's take a look!
Types of Operating Expenses
Before learning how to calculate operating expenses, you should first understand the components of operating expenses. Here are the types of operating expenses you should understand.
1. Selling Expenses
Selling expenses are all costs incurred to generate revenue from the sale of products or services. These expenses are directly related to marketing and distribution activities. Components of selling expenses include:
Marketing and Promotion Costs
All costs incurred to market a product or service, such as advertising, promotional costs, discounts, and sponsorships.
Sales Commissions
Costs paid to salespeople as a commission based on sales revenue.
Distribution Costs
Costs associated with delivering products to consumers, including transportation, shipping, and packaging costs.
Other Selling Expenses
Other costs directly related to the sales process, such as intermediary fees, exhibition fees, or costs for attending marketing-related events.
2. Administrative and General Expenses
Administrative expenses are costs required to carry out general administrative and operational activities of a company, which are not directly related to production or sales. Components of administrative and general expenses include:
Employee Salaries and Wages
Salaries of permanent employees, contract employees, and freelance workers who are not directly involved in the production process but play a role in the company's administrative and managerial functions.
Rent Expenses
Costs for renting business premises, offices, warehouses, or other facilities necessary for company operations. This rent can be in the form of office building rent or production space rent.
Utility Expenses
All costs related to the use of facilities, such as electricity, water, telephone, internet, and fuel for the company's daily operations.
Insurance Expenses
Costs incurred for insurance premiums used to protect the company from potential risks, such as asset insurance or employee insurance.
Depreciation and Amortization Expenses
Costs related to the depreciation or decline in value of fixed assets, such as machinery, vehicles, or equipment used in company operations.
Maintenance and Repair Expenses
Costs incurred to maintain or repair company equipment, machinery, or facilities to ensure they remain in good working order.
Office Expenses
Operational costs related to office administrative activities, including the cost of office equipment, cleaning supplies, and other costs that support administrative activities.
Tax and Levy Expenses
Payments for tax obligations related to business activities, such as corporate income tax, value-added tax (VAT), or other applicable taxes.
Professional Service Expenses
Fees incurred for professional services used by a company, such as fees for accountants, auditors, consultants, or lawyers.
3. Finance Expenses
In addition to expenses directly related to operations, companies often also have expenses related to financing activities, such as interest on debt. These finance expenses include:
Interest on Debt
If a company has a loan or line of credit, the interest paid to the lender is part of its operating expenses.
Bank Administration Expenses
Fees charged by banks for account management, transfers, and other financial transaction fees related to the company's operations.
How to Calculate Business Expenses
Business expenses are all costs incurred by a company to run its operations. Here's how to calculate business expenses.
The formula for business expenses is: Business Expenses = Selling Expenses + General and Administrative Expenses
Here's a simple example of the calculation:
Selling Expenses:
Distribution costs: Rp 5,000,000
Promotion costs: Rp 3,000,000
Administrative and General Expenses:
Employee salaries: Rp 10,000,000
Office rent: Rp 4,000,000
Utilities (electricity, internet, etc.): Rp 2,000,000
Total:
Operating expenses = (5,000,000 + 3,000,000) + (10,000,000 + 4,000,000 + 2,000,000) = 26,000,000
So, the total operating expenses per month are Rp 26,000,000.
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