An operational expenditure (OPEX) is the money a company spends on an ongoing, day-to-day basis to run a business or system.

They are the costs that a business incurs while turning its inventory into an end product. Hence, depreciation of fixed assets that are used in the production process is considered operational expenditure. OpEx is also known as operating expenditure, revenue expenditure or an operating expense.

Depending upon the industry, these expenses can range from the ink used to print documents to the wages paid to employees. The counterpart, Capex, is the money spent on the improvement or purchase of fixed assets.

Operational expenditure is essential to consider as they accurately reflect the costs of doing business since no future benefits are gained.

If the Opex is too high, a company can quickly lose money.

Unlike Capex, the debt of which can be offset by future benefits, suffering deficit to pay for operational expenditure is always a problem.

Operating expenses are necessary and unavoidable for most businesses. Some firms successfully reduce operating expenses to gain a competitive advantage and increase earnings.

However, reducing operating expenses can also compromise the integrity and quality of operations. Finding the right balance can be difficult but can yield significant rewards.

The Internal Revenue Service (IRS) allows businesses to deduct operating expenses if the company functions to earn profits.

However, the IRS and most accounting principles distinguish between operating expenses and capital expenditures.

Often abbreviated as OPEX, operating expenses include rent, equipment, inventory costs, marketing, payroll, insurance, and funds allocated for research and development.

One of the typical responsibilities that management must contend with is determining how to reduce operating expenses without significantly affecting a firm’s ability to compete with its competitors.

You might be interested in CAPEX training as a next step.