Operating expenses are the day-to-day costs of running your business, excluding COGS. They include rent, wages, utilities, marketing, insurance and administrative costs.
Operating expenses (OpEx) are the costs incurred in the normal course of business operations, distinct from the direct costs of producing goods or services (COGS). They are sometimes called overhead or selling, general and administrative (SG&A) expenses. Common operating expenses include rent and lease payments, employee wages and salaries, utilities, insurance premiums, marketing and advertising, office supplies, professional fees, software subscriptions, travel and depreciation. Operating expenses are deducted from gross profit to arrive at operating profit (EBIT). Managing operating expenses is crucial for profitability - even a business with healthy gross margins can be unprofitable if overhead is too high. The operating expense ratio (OpEx divided by revenue) shows what percentage of revenue is consumed by overhead. Reducing this ratio (while maintaining quality) directly improves profitability. SortBooks accurately categorises all operating expenses in Xero and provides insights into spending patterns, unusual expenses and opportunities for cost reduction.
SortBooks helps with the bookkeeping behind operating expenses (opex) by connecting to your Xero account and using AI to suggest the right account for transactions sitting in catch-all accounts, learning from your own past coding. Instead of fixing operating expenses (opex) by hand, you review each suggestion, approve it, and SortBooks updates Xero, GST code included. Then ask the AI CFO about your numbers, using live Xero data.
COGS represents the direct costs of producing or purchasing the goods your business sells. It includes raw materials, direct labour and manufacturing overhead but not selling or administrative expenses.
Gross profit is your revenue minus the cost of goods sold (COGS). It shows how much money remains from sales after covering direct production or purchasing costs.
Net profit (also called net income or the bottom line) is your total revenue minus all expenses, including COGS, operating expenses, interest and tax. It is the final profit figure.
Fixed costs are business expenses that remain constant regardless of your sales volume. Examples include rent, insurance premiums, salaries of permanent staff and loan repayments.
Variable costs change in proportion to your business activity or sales volume. Examples include raw materials, direct labour, shipping costs and sales commissions.
Connect Xero, check the AI's suggestions and approve the changes. SortBooks updates Xero for you.