Learn about calculating your company’s operating income margin to master financial health, experience growth, and attract investors.
You’re going over your expenses for your startup's first full accounting period. Of course, the spending is high – you just started. Then you notice there are two categories of expenses.
Non-operating and operating.
Technically, all expenses are operating, right?
Not all expenses are created equal, and lumping them together can lead to confusion and missteps. The difference impacts tracking your startup’s performance, budget alignment, and future forecasting.
Fully grasping where non-operating expenses lie and separating both categories will help you view your finances accurately. However, many different facets of your startup’s finances exist. Working with a professional –and reading this article– puts you at an advantage.
This article will explore the concept of non-operating expenses and how they differ from operating expenses. We will also provide examples and explain why separating them is crucial when gauging the health of your startup.
Non-operating expenses are not directly related to the company's core operations. They are often considered one-time or infrequent expenses, including interest payments, income taxes, and gains or losses from investments or divestitures.
Because these expenses are not recurring, you may pay less attention to how they affect your company's bottom line. However, a series of unrelated one-time expenses can be just as damaging to your startup's savings as your monthly operating expenses.
Operating expenses, also called OpEx or operating costs, are directly related to your company's core operations. Examples include wages, rent, and utilities – any (typically) reoccurring expense necessary for the business's day-to-day function.
To find non-operating expenses on your financial statements, look near the bottom of the income statement. Many businesses separate the two types of expenses when reporting.
If this is the case for you, non-operating expenses should be listed after operating expenses. They will usually be marked "other income and expenses" or "non-operating income and expenses."
Separating both types of expenses lets you get a more accurate picture of your company's financial performance. Without separating non-operating costs, it can be challenging to identify trends or patterns in business performance per accounting period or for forecasting.
As a startup founder, it's essential to understand the different types of non-operating expenses and have strategies to manage them. You don't want your boat to sink before it's left the harbor.
Here are a few key strategies to consider:
As a startup founder, it's essential to thoroughly understand your company's expenses. By separating non-operating expenses and understanding how they affect your startup's financials, you can make more informed decisions and better manage your company's finances.
However, it's necessary to remember that managing non-operating expenses can be complex and requires a certain level of expertise.
For this reason, it's always a good idea to seek professional advice when managing your startup's non-operating expenses. Advanced business accounting software and an expert finance team can streamline your financial operations so you can focus attention on on other aspects of the business.
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