Operating Expense Breakdown

OPEX vs CAPEX OPEX (Operating Expenses) vs. CAPEX (Capital Expenditures) 1. Definition: • OPEX (Operating Expenses): Ongoing costs incurred during regular business operations to maintain the day-to-day functioning of the company. • CAPEX (Capital Expenditures): Expenditures made to acquire, upgrade, or maintain physical assets like property, equipment, or technology, which are expected to provide long-term benefits. 2. Examples: • OPEX: • Rent • Salaries and wages • Utilities • Office supplies • Marketing expenses • Insurance • Maintenance costs • CAPEX: • Purchase of machinery, buildings, or land • Equipment upgrades or replacements • Software development costs • Vehicle purchases • Construction of new facilities 3. Accounting Treatment: • OPEX: Deducted as expenses in the income statement in the period they are incurred. • CAPEX: Capitalized as an asset on the balance sheet and depreciated/amortized over time. 4. Impact on Cash Flow: • OPEX: Impacts short-term cash flow immediately, as it is an ongoing expense. • CAPEX: Spreads the financial impact over multiple years due to depreciation or amortization. 5. Tax Implications: • OPEX: Typically tax-deductible in the year they are incurred. • CAPEX: Depreciated over several years, and the tax benefits are spread out over the asset’s useful life. 6. Financial Reporting: • OPEX: Reflected in the income statement, directly impacting operating profit. • CAPEX: Initially recorded on the balance sheet as assets and then gradually expensed via depreciation/amortization. 7. Impact on Profitability: • OPEX: A higher OPEX reduces the net income and profitability in the short run. • CAPEX: Does not immediately affect the income statement but can increase profitability in the long term through improved efficiency or capacity. 8. Flexibility: • OPEX: Generally more flexible, as businesses can adjust or scale back operating expenses as needed. • CAPEX: Less flexible, as it involves a significant investment in long-term assets. 9. Examples in Different Sectors: • OPEX: • In tech: Cloud hosting fees, software subscriptions • In manufacturing: Wages for factory workers, utility bills for machines • CAPEX: • In tech: Purchasing servers, building data centers • In manufacturing: Buying new production lines or factories 10. Risk and Reward: • OPEX: Lower risk due to predictable costs, but may hinder profitability if not managed well. • CAPEX: Higher risk, as the investments might not always yield the expected returns, but can lead to substantial rewards (e.g., increased capacity, competitive edge). Conclusion: • OPEX is essential for day-to-day operations and can be adjusted quickly, but impacts profitability directly in the short term. • CAPEX is a long-term investment in the company’s future, requiring careful planning and significant financial commitment. While it does not impact profits immediately, it can lead to greater returns over time

"Why are you raising money?" It's easily my most asked question, and to be honest I usually know the answer before I've asked it, but it's great hearing the responses. If you’ve ever wondered where the money REALLY goes between pre-seed and Series A, here’s the breakdown, based on real data across Europe. 1. People dominate the budget Salaries, hiring, and recruitment costs eat up 50%+ of early funding. The founders often pay themselves modestly, but key hires (engineering, product, and leadership roles) make this the single biggest expense. 2. Building product is next 30–40% of funding goes into product development and R&D — especially for deep tech and SaaS companies. This includes dev work, design, infrastructure, prototyping, and testing. I wonder how low this will go over next few years due to AI? 3. Marketing is where things shift At seed, most startups spend very little on marketing. But by Series A, 20–30% of the round can go straight into customer acquisition. Startups are expected to scale growth quickly — so this is where paid ads, content, CRM tools, sales hires, and GTM strategies show up. 4. Operations and Infrastructure Think cloud hosting, SaaS tools, dev software, IT setup. Thanks to startup credits and modern tooling, most startups keep this lean — around 5–15% of total spend depending on complexity. 5. Legal, Compliance, Admin This includes legal fees, accounting, insurance, data protection, and any regulatory requirements. These costs spike during fundraising or contract negotiation, but typically stay in the 5–10% range overall. 6. Office and admin overhead is shrinking Pre-2020, rent was the #2 cost. Now? It’s closer to 3–5%, with remote work, coworking spaces, and lean ops setups being the norm across Europe. → Your budget isn’t infinite — treat marketing and hiring like high-leverage investments, not default checkboxes. → Get clear on your business model before scaling spend. → Make sure your burn reflects your actual stage — not what others are doing. → A great product still needs great distribution — spend accordingly. → Keep legal, admin, and ops tight — they matter, but they shouldn't steal runway. This is how funding gets spent...whether you plan for it or not. So plan for it.

Line-by-Line Expense Analysis - 13 Analyses with Examples I recently helped a client analyze their expenses to identify cost optimization opportunities. We went deeper into each account, analyzed transactions, and documented why, what, and by whom. It was enlightening for the client to review expenses in much deeper detail. Some transactions were a bit surprising for them: "Why are we incurring this cost? Didn't we decide to terminate that contract?" When did you last conduct the line-by-line analysis of COGS and OPEX? We focus on generating and analyzing revenues, which is great. However, it is only half the battle won. How are you spending that hard-earned revenue? That's the real question that needs to be answered through line-by-line expense analysis. For instance, in the F&B example, the analysis of COGS is critical to assess the profitability by dish. Once you have the analysis, it can be benchmarked against the industry. The same goes for manufacturing. This is why conducting line-by-line expense analysis is so important. By analyzing expenses through 13 different types of analysis, businesses can better understand where their money is going and identify areas for cost optimization. By examining expenses more closely, businesses can make informed decisions about where to cut costs to maximize their profits and grow. Several other analyses can help you deep dive. What else can you add? Here's what I have covered: 1️⃣ Expense Analysis - Product/Service Level COGS Analysis - Gross Margin Analysis - Supplier and Vendor Analysis - Inventory Management - Production Efficiency - Expense Category Breakdown - Variance Analysis - Fixed vs. Variable Expenses - Employee Productivity - Marketing and Advertising ROI - Lease and Rental Analysis - Energy and Utility Efficiency - Technology and IT Expenses 2️⃣ Four Industries Examples - Hospitality - Shopping Malls - Manufacturing - SaaS #MAKAlpha #TheFinanceMasterclass ------------------------------------------ - I'm Abdul Khaliq - Sharing 20+ years of experience. - I provide Fractional CFO/Controller services to SMEs. - Download my work in PDF by visiting my profile.

𝐀𝐧𝐚𝐥𝐲𝐳𝐢𝐧𝐠 𝐎𝐩𝐞𝐫𝐚𝐭𝐢𝐧𝐠 𝐒𝐭𝐚𝐭𝐞𝐦𝐞𝐧𝐭𝐬 𝐟𝐨𝐫 𝐂𝐨𝐦𝐦𝐞𝐫𝐜𝐢𝐚𝐥 𝐑𝐞𝐚𝐥 𝐄𝐬𝐭𝐚𝐭𝐞   I suggest organizing the property’s historical expenses on a grid into their appropriate categories. It’s good for presentation and it helps to see everything on one sheet. This way we can easily see if there are any outliers in the expense data. While doing this, what we are trying to figure out is: Do all these expenses represent typical day-to-day operations for a property of this type? Are there any expenses that are not reoccurring? An example of what to look out for would be capital expenditures. If you saw an expense line item in one of the years labeled as “Roof” for $25,000, this likely represents a roof replacement rather than typical R&M. A new roof has a significantly longer useful life and should not require another replacement in the short-term. Therefore, it would be appropriate to categorize this particular expense item into capital expenditures instead of repairs & maintenance. Understanding how to analyze operating statements will help with more accurate expense estimates for the proforma. This is important because it will have a direct impact on the net operating income, valuation, and potential maximum loan amount. How do you like to analyze operating statements? Let me know in the comments.