In running a business, one thing is unavoidable: operational expenses. These costs cover all daily necessities for the business to continue operating. Although seemingly routine, operational expenses can be a determining factor in assessing the financial health of a business. Therefore, it is crucial to understand what is included in them and how to control them effectively.
What are Operational Expenses?
Operational expenses, often referred to as operating expenses (OpEx), are costs incurred by a business to conduct its daily activities. In other words, all routine expenditures that support business operations fall into this category.
Corporate Finance Institute explains that operational expenses are one of the important indicators in assessing a company’s operational performance. By understanding them, both analysts and management can identify key cost factors and evaluate the extent of business efficiency.
Indeed adds that while operational expenses are unavoidable, companies need to manage them wisely. Proper control can help reduce costs, increase profits, and maintain competitiveness without sacrificing product or service quality.
What Constitutes Operational Expenses?
Operational expenses encompass various costs arising from daily business activities, excluding cost of goods sold (COGS). Understanding these components is crucial for businesses to assess profitability more accurately and maintain long-term financial health. Here are some examples of operational expenses:
- Rent: Costs for renting offices, warehouses, or business premises.
- Salaries and wages: Including benefits, bonuses, and taxes for non-production employees.
- Advertising and marketing: Digital campaigns, print, consumer research, and promotional materials.
- Office supplies: Stationery, work equipment, and office cleaning supplies.
- Depreciation: Decrease in asset value such as machinery, vehicles, or office equipment.
- Maintenance and repairs: Costs for equipment servicing, renovations, or facility repairs.
- Utilities: Electricity, water, internet, telephone, and waste management fees.
- Insurance: Premiums for various types of business protection.
- Business travel: Reimbursement for transportation, accommodation, or work travel expenses.
- Professional fees: Accounting services, consulting, or legal services.
- Property taxes: Taxes levied based on the value of company property assets.
How to Control Operational Expenses?
Controlling operational expenses is a crucial strategy for businesses to remain healthy and efficient. There are many ways to reduce costs without sacrificing product or service quality. The following steps can be combined according to business needs to achieve optimal results.
1. Implement Remote Work Systems
Working remotely can significantly cut major costs such as office rent, electricity, and physical equipment. Additionally, work flexibility can also increase team productivity. Many small businesses and startups have proven to be more efficient with this work system—however, not all businesses are suited for this model.
2. Consider Building Rental Options
If face-to-face meetings are necessary, renting a building or a (coworking space) can be a more economical option than purchasing a permanent office, which requires significant investment and maintenance costs. This way, businesses can maintain professionalism without being burdened by fixed assets.
3. Postpone New Employee Recruitment
Employee salaries and benefits are among the largest cost items in a business. If operations can still run smoothly with the existing team, it is advisable to postpone recruitment. Focus on workflow efficiency until financial conditions are more stable.
4. Outsource Certain Services
Instead of adding internal staff, you can utilize outsourcing services for needs such as accounting, IT, or customer service. This approach provides access to professionals without the need for full-time salaries. As a result, costs are more controlled and flexible.
5. Implement Automation
Processes such as bookkeeping, email marketing, and customer service can be automated with software. In addition to saving time, automation also reduces the risk of human error. In the long run, investing in these tools can lead to significant savings.
6. Identify Inefficiencies
Any slow or repetitive process can be a source of cost leakage. Therefore, identify
7. Postpone Major Investments Temporarily
Major plans such as business expansion, expensive asset purchases, or new product development can be postponed if financial conditions do not yet permit. This step ensures business liquidity remains secure. However, ensure decisions are made with careful consideration and thorough calculation.
Benefits of Controlling Operational Expenses
Effectively managing operational expenses can significantly impact a business’s financial health. Furthermore, cost efficiency also allows companies to invest in more strategic areas. Here are some of the benefits that can be gained:
- Increase profit (bottom line) by reducing recurring cost burdens.
- Enhance competitiveness as businesses can offer more competitive prices.
- Open up expansion opportunities with more flexible funds for business growth.
- Improve financial resilience with healthier cash flow during market fluctuations.
- Strengthen budget planning by having a clear picture of monthly cost requirements.
Controlling operational expenses is not just about reducing costs, but also about creating a healthier, more efficient, and growth-ready business. With sound cost management, you can maintain profitability, face market challenges more calmly, and open up new opportunities for business expansion.
If you want to more easily record, monitor, and control your business expenses, use the Labamu application. With just one application, you can manage your business more easily from anywhere. Download now via Google Play or the App Store and start managing your business finances more intelligently and practically!
