Legal Definitions - operating expense

An operating expense refers to the costs a business or organization incurs through its regular, day-to-day activities to generate revenue or fulfill its mission. These are the expenses necessary to keep the entity running and deliver its primary goods or services, excluding the direct cost of goods sold (for manufacturing or retail) or major capital investments (like buying a building or new machinery).

Here are some examples illustrating operating expenses:

• Imagine a local coffee shop. Its monthly rent for the shop space, the salaries of its baristas, and the cost of electricity to run the espresso machines and lights are all operating expenses. These are regular, recurring costs essential for the coffee shop to open its doors, serve customers, and earn revenue. Without paying rent, staff, or utilities, the shop cannot operate.

• Consider a software development company. The salaries for its software engineers and customer support staff, the monthly subscription fees for specialized development tools, and the cost of internet service for its office are all operating expenses. These expenditures are directly tied to the company's core function of creating and supporting its software products, making them necessary for the company to develop, maintain, and deliver its services to clients.

• For a non-profit animal shelter, the wages for the animal care staff and veterinarians, the utility bills for heating and cooling the kennels, and the cost of purchasing food and medical supplies for the animals are operating expenses. These are the essential, day-to-day costs required to care for the animals, maintain the facility, and fulfill the shelter's mission of providing refuge and care.