In this series on the elements of your financial statements we’ve looked at the income, cost of sales and gross profit, all parts of the selling aspect of your business. Today, we’re going to look at the operational side – the costs associated with the infrastructure that enables you to sell your product.

In the olden days, the travelling salesman’s operating costs consisted of his mode of transport and his suitcase full of products. Nowadays, the costs of running a business are much greater, and grow as your business grows, to support the increased sales volume. Operating costs can fall into one of the following categories:

  • Physical infrastructure – costs relating to the office, the warehouse or the shop, costs relating to vehicles and other assets, as well as the costs associated with running the machines and equipment used to produce your product or service
  • Human infrastructure – the people costs, not just salaries, but welfare and development as well
  • Protection of the infrastructure and assets – such as insurance, security, data storage, liability cover
  • Compliance requirements – the cost of complying with accounting requirements, labour laws and SARS legislation, as well as governance rules
  • General running costs – the cost of items consumed by the process of running the business, such as telephone, data, stationery, food, amongst a host of others
  • Growth activities – costs associated with plans to grow sales and the business could include marketing, consulting, and anything else that the strategy requires

Operating costs are the first area to come under the microscope when the business profits need improvement. While there are sometimes a number of areas that can be reduced, there are also some critical elements. It is short-sighted to skimp on the maintenance of the equipment to save on costs when replacing the equipment is a much higher cost, for example.

Do you know what it really costs you to run your business? Do you know what the monthly operating costs are that need to be covered without fail? If you’d like a better insight into your business give us a call to walk you through the information available.