Are you stuck wondering how to calculate operating expenses?
If you’re running a small business, then you need to figure out how to reduce and account for your operating expenses. Doing so allows you to pay yourself appropriately and pay your due taxes. It will also allow you to run a more efficient business.
Read on to learn all about figuring out operating expenses and how you can reduce them.
How to Calculate Operating Expenses?
Operating expenses are one of the most important costs businesses have. Reducing operating expenses can significantly improve the bottom line. Here’s a step-by-step guide on how to calculate operating expenses and strategies to reduce them:
Gather Data
Collect all financial records and documents related to expenses incurred during the accounting period. This information is typically found in the income statement or profit and loss statement. This data should include expenses related to:
- rent
- utilities
- salaries
- insurance
- travel
Identify Operating Expenses
Separate the operating expenses from other financial components in the income statement. It should exclude non-operating items such as interest income, interest expenses, and one-time gains/losses.
Calculate Operating Expenses
To calculate them accurately, you must first take into account all the elements that make up the cost for each category. Then, add up all the operating expenses to find the total amount spent on running the business during the specific period.
Analyze Expenses
Examine each operating expense category to identify areas where costs can be reduced. Some common areas to focus on include:
- labor costs
- utilities and overhead
- marketing and advertising
- office supplies and technology
- rent and space utilization
- travel and entertainment
This will help you identify which areas are the major contributors to your operating costs. Once you’ve identified the operating expenses, you can begin to look for ways to reduce them.
Set Expense Reduction Goals
Create specific and achievable goals for reducing operating expenses. Involve relevant stakeholders and employees in the process to gain valuable insights and suggestions. Consider ways to increase efficiency or reduce costs, such as negotiating better terms with suppliers.
Adopting new technologies that are less resource-intensive is also a good idea. Consider using ERP Systems Malaysia. It helps companies accurately track and manage operating expenses.
Implement and Monitor
Put cost-cutting strategies into action and closely monitor the results. Regularly review financial statements to track the progress made in reducing operating expenses.
Evaluate the Impact on Quality
Reducing expenses is essential. But ensure that cost-cutting measures do not compromise the quality of products or services. Customer satisfaction should remain a priority.
Adjust and Optimize
Based on the results and feedback, refine the expense reduction strategies as needed. Be prepared to adapt to changing business conditions and explore new opportunities for cost-saving. Being aware of your expenses and making an effort to reduce them is a key step to achieving business profitability.
Strategies for Minimizing Operating Expenses
Reducing business expenses has numerous benefits. Knowing how to calculate operating expenses and reduce them can significantly improve the bottom line.
Utilize proven techniques such as cost-cutting, substitution, and outsourcing. These are just a few strategies to consider when looking to reduce operating expenses.