Operating expenses are the heartbeat of every business — the necessary costs that keep operations running smoothly. Yet, many small businesses struggle to track, manage, and optimize these expenses effectively.

The good news? With the right tools, like Expensify, you can gain better control, automate expense tracking, and unlock insights that drive smarter financial decisions.

Whether you're managing a small business operating account or scaling your company, understanding and optimizing your operating expenses is crucial to long-term success.

What are operating expenses? Understanding the foundation of business costs

Before we get into the nitty gritty, let’s look at the operation expenses definition. Often referred to as OPEX, operating expenses are the day-to-day costs a business incurs to keep running. Some operating expenses examples include rent, utilities, salaries, office supplies, and marketing — basically anything essential to maintaining operations but not tied directly to production.

Operating expenses vs. other business costs

Operating expenses differ from cost of goods sold (COGS), which are directly related to the production of goods or services. They also differ from capital expenses (CAPEX), which are investments in long-term assets like property or equipment.

Why tracking business operating expenses matters

Tracking operating expenses ensures healthier cash flow, accurate financial reporting, and better budgeting decisions. It also helps you understand profitability beyond just sales.

Operating expenses typically show up on a company's financial statements. To better understand their impact on cash flow, check out our guide on how to read a cash flow statement.

Expensify simplifies the tracking process by automating expense entries, categorizing transactions, and generating reports — saving you time and reducing manual errors.

The operating expenses formula: Calculating costs that keep your business running

Understanding the operating expenses formula is key to accurate financial planning:

Operating Expenses = Selling, General & Administrative Expenses (SG&A) + Research and Development (R&D) Expenses + Other Operating Costs

To calculate operating expenses:

Identify all non-production related expenses.
Sum all selling, administrative, and general expenses.
Add research and development (if applicable).
Include other costs such as rent, utilities, and salaries.

Common mistakes to avoid:

Forgetting to separate capital expenditures.
Misclassifying variable production costs.
Not updating expenses regularly.

Automation through Expensify reduces these risks. Plus, understanding the basics of debit vs. credit accounting helps maintain accurate books.

Essential operating expenses every business must track

Not all operating expenses are created equal. Here's a comprehensive operating expenses list with examples:

Rent and utilities: Office space, electricity, internet.
Salaries and wages: Employee compensation.
Marketing and advertising: Promotions, social media, paid ads.
Insurance: General liability, workers' comp.
Office supplies: Computers, furniture, software subscriptions.

Other examples of operating expenses often overlooked include:

Professional services (legal, accounting)
Bank fees
Licenses and permits
Employee training

Proper categorization boosts insight into financial performance. Tools like Expensify’s expense management system ensure that no expense is overlooked.

Types of operating expenses: Breaking down your business costs

Operating expenses can be grouped into key categories, like the following:

Fixed operating expenses: Costs that stay the same month-to-month (e.g., rent, insurance).
Variable operating expenses: Costs that fluctuate with business activity (e.g., utilities, sales commissions).
Controllable vs. uncontrollable expenses:

Controllable: Expenses management can influence (e.g., marketing budgets).
Uncontrollable: Costs outside direct control (e.g., regulatory fees).

Understanding these types helps tailor your management strategies. Learn more about strategic spending approaches with spend management tools.

What’s included in operating expenses? Creating your master list

Ever stared at your financial statements wondering which costs belong where? You're not alone. Operating expenses—the day-to-day costs of running your business—can be confusing to categorize, but getting them right is crucial for accurate financial reporting and smart decision-making.

Whether you're preparing financial statements, planning your budget, or analyzing profitability, having a clear understanding of what qualifies as an operating expense will keep your financial house in order. Let's break down what belongs on your operating expenses master list.

Operating expenses typically include:

Administrative costs
Sales and marketing expenses
Research and development
Facility costs
Employee benefits

Excluded from operating expenses:

Loan repayments
Income taxes
Depreciation (often listed separately)
Capital expenditures

Industry-specific considerations also apply — for instance, software companies may have larger R&D costs, while retailers have higher rent expenses.

With Expensify, expense categorization is seamless, and expense reports are automatically generated, keeping you audit-ready.

How to optimize your operating expenses without sacrificing growth

Smart cost optimization isn’t about cutting corners — it’s about strategic savings. Here’s how:

Negotiate with vendors: Lock in better rates on recurring expenses.
Maximize tax deductions: Ensure you capture all eligible business expenses.
Analyze spending patterns: Identify wasteful spending and reallocate resources.
Automate administrative tasks: Save hours (and money) by reducing manual work.

Tools like Expensify provide valuable insights and reporting that highlight opportunities for savings.

In fact, small businesses using Expensify have reported reducing administrative costs by up to 40%, freeing up cash for growth initiatives.

Tracking operating expenses with Expensify: From manual to automated

Remember the last time you sorted through a shoebox of crumpled receipts at tax time? Or chased down missing expense documentation from your team? Traditional expense tracking isn't just tedious — it's costing your business real money through wasted time and missed deductions.

Modern businesses are ditching spreadsheets and paper receipts for smart automation that transforms expense tracking from a dreaded chore into a seamless background process. Here's how the expense management landscape is shifting.

Many businesses struggle with:

Lost receipts
Manual data entry errors
Inefficient approval workflows

Expensify transforms expense management with:

SmartScan receipts: Snap a photo, and the app auto-categorizes it.
Custom approval workflows: Speed up reimbursements.
Real-time syncing: Expenses update across teams instantly.

For mobile-first businesses, theExpensify mobile app offers on-the-go expense tracking, and theNew Expensify platform unlocks even more capabilities.

Get started with Expensify today

Reporting and insights: Turning expense data into business intelligence

Gone are the days when expense tracking was just about balancing the books. Today's smartest businesses are mining their expense data for strategic insights that drive growth and efficiency. When properly organized and analyzed, your operating expenses become a goldmine of business intelligence that reveals opportunities hidden in plain sight.

How proper expense tracking creates valuable insights

Well-categorized, thoroughly tracked expenses reveal patterns invisible in messy data. When each expense has a proper home, you can identify exactly where money flows through your organization—and where it might be leaking unnecessarily.

Using Expensify's reporting tools for better decision-making

Expensify's reporting tools transform raw expense data into actionable intelligence, allowing you to:

Spot trends in spending over time
Compare actual versus budgeted expenses
Identify departments or projects with unusually high costs
Generate custom reports for specific business questions

Spotting trends and opportunities in your expense data

Smart analysis reveals questions worth asking: Why did travel expenses spike last quarter? Which office location runs most efficiently? Which client projects consistently exceed budget estimates? These patterns often reveal both problems and opportunities that would otherwise remain hidden.

Connecting operating expenses to business performance metrics

The ultimate value comes from connecting expense data to business outcomes. Track expenses against revenue growth, customer acquisition costs, or project profitability to understand the true ROI of your spending decisions. With Expensify, you can create customized reports that align expenses with your most important business metrics, turning finance from a cost center into a strategic advantage.

Strong operating expense management directly connects to improved profitability and smarter budgeting—but only when you have the right tools to extract meaningful insights from your data.

Common questions about optimizing your operating expenses

Add up all non-production-related costs such as salaries, rent, utilities, marketing, and administrative expenses.
Use the formula: Operating Expenses = SG&A + R&D + Other Operating Costs
1. Fixed operating expenses
2. Variable operating expenses
3. Semi-variable expenses (costs with both fixed and variable components)
Loan payments, income taxes, and capital expenditures are not considered operating expenses.
Operating expenses are recorded on the income statement as period costs, separate from cost of goods sold (COGS) and capital expenses.
Negotiate better vendor contracts, optimize tax deductions, analyze expense reports for inefficiencies, and automate expense tracking processes.

Take control of your operating expenses with Expensify

Managing operating expenses doesn’t have to be overwhelming. With Expensify, you can streamline tracking, gain financial insights, and free up resources for what matters most: growing your business.

Ready to optimize your operating expenses? Fill out the form below, and we'll help you get started today.

Optimize your operating expenses with Expensify