What are operating expenses (OPEX) and how are they reported?
Operating expenses (OPEX) are the ongoing costs required to run a business day-to-day—costs that support operations rather than directly creating products (that’s more “cost of sales” or “cost of goods sold” in many models). OPEX is a core part of performance reporting because it tells you how efficiently the organisation is being run.
What typically counts as OPEX?
OPEX often includes:
- Staff costs (salaries, employer taxes, benefits)
- Rent and utilities
- Software subscriptions
- Marketing
- Professional fees (legal, audit, consultants)
- Insurance
- Travel and entertainment
- Repairs and maintenance
- Office/admin costs
Some businesses also include depreciation within operating expenses; others show it separately. What matters is consistency and clarity for decision-making.
Where does OPEX appear in financial statements?
On the profit and loss statement (income statement),OPEX is usually shown below gross profit, in lines such as “administrative expenses,” “selling and distribution,” or “other operating expenses.”
Because formats vary by framework and industry, finance teams often standardise OPEX internally using:
- cost centres / departments (Sales, Marketing, Finance, Operations)
- natural accounts (rent, payroll, software)
- Sometimes projects (implementation, expansion, R&D initiatives).
Why OPEX matters for forecasting and control
OPEX is where budgets live—and where overspends can hide. Common drivers include headcount growth, vendor renewals, foreign-exchange exposure (for SaaS contracts), and “death by a thousand cuts” purchases.
A robust OPEX approach usually includes:
- pre-approved budgets by department,
- purchase approval workflows,
- accruals for month-end completeness,
- regular variance analysis (actual vs budget/forecast).
OPEX vs CAPEX
A classic point of debate is whether something is operating expense (expensed immediately) or capital expenditure (capitalised and depreciated/amortised). The rule of thumb: if it creates a benefit over multiple periods and meets the framework’s criteria, it may be capitalised. If it’s just keeping the business running, it’s likely OPEX.
- Is payroll always OPEX?
Usually, yes. But some payroll may be capitalised in limited cases (e.g., directly attributable to building an asset), depending on rules. - Are software subscriptions OPEX or CAPEX?
Subscriptions are typically OPEX; implementation costs can be more nuanced depending on the arrangement and framework. - What’s the best way to analyse OPEX?
Combine “by department” and “by type” views so leaders can see both ownership and cost drivers.
