Successfully managing a small business requires a constant juggling act of monitoring
day-to-day operations, expenses and revenues. Every business owner should have their finger on the pulse of their company's operating expenses. But what about the non-operating expenses? At Peak Utility Brokers, we know these costs don’t easily figure into your operating profit, it can be easy to overlook them. However, non-operating expenses play a vital role in a business’s bottom line. That means it’s important to integrate non-operating expenses into your accounting framework and financial statements if you want a clear picture of your business’s financial health.
What are Non-operating Expenses?
Non-operating expenses, sometimes referred to as peripheral or incidental expenses, are any costs unrelated to your company's core operations. Businesses in different industries may have disparate non-operating expenses and the expenses may vary by company size. But there are certain types that are typical for most businesses. For instance, monthly expenses such as debt interest payments or investment losses would count as non-operating expenses. The most common types of non-operating expenses are interest charges and losses on the depreciation of assets. Some examples include:
● Business Relocation Expenses
● Business Restructuring Expenses
● Expenses from Lawsuit Settlements
● Expenses from Weather Damage
● Fire Damage Expenses
● Inventory or Receivables Write-Offs
● Losses on Sale of Assets
● Obsolete Inventory Charges
● Preliminary Expenses Amortization
● Write-Offs of Intangible Assets
Non-operating expenses should be recorded at the bottom of a company's income statement. This allows financial statement users to assess the direct business activities that appear at the top of the income statement alone.
The Benefits of Recording Non-operating Expenses
Non-operating expenses are a substantial part of expense management for any business large or small. Keeping clear and accurate records of each non-operating expenses will help you gain a more accurate picture of your company’s financial health. For larger company’s internal partners (such as employees) and external partners (such as investors) will look favorably on this act of transparency. Once you gain a complete understanding of your business’s non-operating expenses it can be fairly easy to reduce them, since they don’t have a direct relationship to your core operations. In contrast, cutting down on operations-related expenses is considerably more difficult.
Calculating Non-Operating Expenses
A company’s income statement (also called a profit and loss statement or P&L) reports the amount of revenue earned during any defined period of time. In addition, the P&L statement details the expenses that can be linked to the generation of revenue. When looking at a company's P&L statement from top to bottom, operating expenses should be the first costs displayed just below revenue. The firm's cost of goods sold or COGS can then be subtracted from its revenue to arrive at its gross income. After gross income is calculated, all operating costs are subtracted to acquire the company's operating profit, also referred to as earnings before taxes or EBT. Once operating profit has been derived, all non-operating expenses are recorded on the financial statement at the bottom. By using this breakdown, you can better evaluate a company’s true operations performance.
Always Stay on Top of Your Expenses
According to Small Biz Genius, only about 40 percent of small businesses actually make a profit. To move your company in a profitable direction, it’s important to understand the role of non-operating expenses in your company’s financial cycles. If you’re looking to lower your non-operating expenses, a great place to start is by assessing your credit card processing fees. Payment processing fees can cost a business hundreds, if not thousands of dollars a month. Peak Utility Brokers offers card processing with no monthly fees. Reduce your non-operating costs and keep 100% of your payment processing sales. Request your savings proposal today!