What are operating expenses?

Operating expenses are the costs that a business incurs as part of its regular, day-to-day operations to maintain its business and generate revenue. This includes expenses such as rent, utilities, salaries, and office supplies, which are necessary for the functioning of the company on a daily basis. These costs do not include cost of goods sold (COGS) or expenses related to long-term investments.

While marketing and advertising costs are important for driving sales, they are typically categorized separately as part of operating expenses but do not encompass the full range of day-to-day operational costs. The focus on what it takes to keep the business running smoothly and efficiently on a daily basis makes the definition of operating expenses specifically aligned with the activities necessary for ongoing operations.