There is one constant that small businesses endure every day: operating expenses.
Operating expenses, otherwise known as OPEX, are expenditures that small businesses face each hour their doors are open in order to perform everyday operations. Every business owner examines their operating expenses, such as wages, development and utilities, and determines how they can be lower to enhance the bottom line.
At the same time, operating expenses can be a primary source of frustration, stress and headaches. These types of costs never end. With the cost of doing business going up every single year, these operating expenses continue to climb, and can eventually become a tremendous burden to the growth of the company.
Here are five of the most common operating expenses a business faces:
- Payroll
- Overhead
- Inventory
- Delivery
- Bookkeeping
In addition, small businesses put forward significant amounts of funding to remain a competitive force in their respective marketplace. They put this towards new marketing initiatives, investing in new technologies and renovations.
When the tough business decisions are made, the entrepreneur will figure out what operating expenses can be slashed to save money and give operating income, a measurement of profitability, a shot in the arm. According to Investing Answers, analyzing operating income can provide useful information about the company's operating performance, particularly for lenders, investors and others with exorbitant interest in the private firm.
"Operating income provides investment analysts with useful information for evaluating a company's operating performance without regard to interest expenses or tax rates, two variables that may be unique from company to company, and enables one to analyze operating profitability as a singular measure of performance. Such analysis is particularly important when comparing similar companies across a single industry where those companies may have varying capital structures or tax environments."
Moreover, businesses have to be smart and prudent about how much they can cut while staying competitive. You can't cut back on office supplies to the point that you don't even have a pad of paper and pens; you can't slash marketing budgets so drastically that customers don't even know who you are.
As Investopedia writes: "there are only so many operating expenses that management can cut before the quality of business operations is damaged." Laying off workers and reducing marketing budgets may offer a temporary boost in the next quarterly earnings report, but it may harm your business model in your end-of-year summary.
The solution for some business owners can be seeking out business funding to provide additional cash to cover everyday expenses and perhaps offer more money to expand their brand, initiate a mobile marketing campaign or invest in new staff members.
One funding alternative is a business cash advance – a method of business funding that can cover short-term expenses and make it easier and simpler to payback the money. This is gradually becoming one of the most popular financing methods for small- to medium-sized businesses in the United States today.
