10 Things to Know About Rural Hospitals

When evaluating technology expenses, consider the total cost of ownership (TCO) rather than just the initial purchase price. Also assess whether technology investments are delivering expected productivity improvements or competitive advantages. Each marketing and selling expense should be evaluated based on its return on investment (ROI).

Commercial Lease Overview: Lease Types, Management, Accounting, & More

• You’ll be better equipped to make strategic decisions that drive growth and profitability.
• This can be done in a way where you can achieve desired returns and efficiency for your business.
• By mastering the calculation of operating expenses, you’ll gain valuable insights into your business’s financial performance.
• The small number of studies that have evaluated the association between consolidation with rural hospital closures and service eliminations have had mixed results.
• Remember to consult with accounting professionals to ensure your financial reporting practices align with current accounting standards and best practices.

Capital expenses, or CapEx, can include things like patents, machinery, and business real estate. According to the IRS, operating expenses must be ordinary (common and accepted in the business trade) and necessary (helpful and appropriate in the business trade). In general, businesses are allowed to write off operating expenses for the year in which the expenses were incurred. A company can better manage its operating expenses when its managers understand the difference between its fixed and variable costs. Yet, we know that we calculate the operating expenses because we want to know and assess the entity operating income. And operating income is calculated by eliminating both costs of goods sold and sales and administrative expenses.

However, in general, a lower OER is often considered more favorable, as it suggests that a company is operating efficiently and has better control over its costs. With a complete list of transactions, accountants can separate operating expenses from non-operating costs and identify fixed what is operating expense and variable costs. It’s important to understand how operating expenses differ from capital expenses (CapEx).

Selling, General, and AdministrativeExpenses (SG&A)

Operating expenses are typically fully tax-deductible in the year they were incurred. Operating expenses are categorized as Selling, General, and Administrative (SG&A) costs on a company’s income statement. This grouping separates the day-to-day business running costs from the direct costs of creating a product. SG&A expenses represent the overhead required to support the entire business operation.

Best practices for OpEx management

• Michelle Payne has 15 years of experience as a Certified Public Accountant with a strong background in audit, tax, and consulting services.
• A well-balanced approach allows companies to reduce unnecessary costs without compromising the quality or integrity of their operations.
• When finance teams understand not just how much they spend but when those expenses hit their accounts, they can build more accurate cash flow models and improve the company’s financial health.
• The most successful businesses don’t just react to expenses—they actively manage them.
• The USDA Economic Research Service (ERS) maintains multiple definitions of rurality, including Rural-Urban Continuum Codes (RUCC), Rural-Urban Commuting Areas (RUCA), and Urban Influence Codes (UIC).

Regular, recurring expenses affect your day-to-day cash management, while large, unexpected operating costs can strain your cash reserves. To maintain healthy profit margins, it’s essential to regularly review and optimize your operating expenses without compromising the quality of your products or services. Non-operating expenses are costs not directly related to the primary business activities. Consider using accounting software or expense management tools to simplify the process of tracking and calculating operating expenses. These tools can automate much of the data entry and calculation work, reducing errors and saving time. Understanding these categories of operating expenses is crucial for effective business management.

Let’s explore the process of determining your operating expenses and how to use this information effectively. Operating Expenses (OpEx) represent the indirect costs incurred by a business to continue running its day-to-day operations. While not directly tied to the revenue generated from the products/services, operating expenses are an essential part of a company’s core operations.

Organizations are increasingly using process optimization, automation, and advanced analytics (including AI) to reduce operating expenses and improve efficiency. While competitors make decisions based on incomplete cost information, businesses with strong operating expense management can target their investments precisely where they’ll create the most value. When classifying expenses, it’s important to distinguish between operating and non-operating items. Non-operating expenses, such as interest payments or losses on asset sales, should be categorized separately as they don’t relate to core business operations. Operating expenses are recurring costs necessary for the daily operations of a business, while capital expenditures are investments in long-term assets that provide future economic benefits. Either you can add all operating costs at once or you can take off operating costs and cost of goods sold (COGS) from the revenue.

Grasping this fundamental aspect of business finance empowers entrepreneurs to make informed decisions, optimize costs, and drive profitability. Selling, general, and administrative (SG&A) expenses include costs related to selling goods & services and managing the company. A company’s operating expenses are costs required for everyday business operations, while non-operating expenses are other costs a business incurs that are not directly related to primary business operations.

You can usually find industry benchmarks from industry associations, trade organizations, or your chamber of commerce. A rising OER may signal a decline in your business’ operating efficiency from year to year, so you’ll want to take a close look at your business operations to determine the cause. Maintaining consistency in how you report operating expenses from one period to another is crucial. It allows for accurate trend analysis, meaningful comparisons between periods, and enhanced credibility of financial reports. Analyzing operating expenses can reveal opportunities for improving operational efficiency.

Understanding the tax effects of operating expenses is crucial for business owners. Proper management of these expenses can significantly impact your tax liability and overall financial health. Your ability to scale your business is closely tied to how well you manage operating expenses. Fixed operating costs can create economies of scale as you grow, while variable costs may increase proportionally with growth.

Consumer-focused businesses often spend more heavily in this category than B2B companies. The largest operating expenses vary by industry, but certain categories consistently rank among the most significant for most businesses. Understanding variable cost patterns helps businesses forecast expenses more accurately. While truly variable costs should scale linearly with activity, many expenses exhibit “step” patterns—remaining stable within certain activity ranges before jumping to a higher level. For example, a business might maintain the same customer service team until reaching a threshold where additional staff becomes necessary. Operating expenses can help you drive a profitable business, ensuring you spend only what is actually required rather than overspending business expenses.

While these costs can be substantial, they often drive future growth and competitiveness. These expenses help maintain the value and functionality of your business property. The cost of these activities can vary greatly depending on your industry and target market. Below is a break down of subject weightings in the FMVA® financial analyst program.

A manufacturing plant has regular expenses for repairs and maintenance of machinery, ensuring the smooth running of production operations. Insurance premiums and legal fees for protecting the company’s assets and interests are considered OpEx. Consider a retail store paying monthly rent for its space and needing to cover utilities such as electricity, water, and internet services. CapEx reflects asset investments contributing to the company’s growth and earning potential. The most successful organizations maintain this cost-consciousness even during prosperous times, creating financial resilience that helps them weather future challenges and invest in growth opportunities. Schedule regular expense review meetings where responsible parties discuss variances, explain trends, and present cost optimization ideas.

At the same time, more than half (56%) of all rural hospitals had positive operating margins. Further, while about one sixth (15%) of all rural hospitals had margins less than -10%, about one fifth (19%) had margins greater than 10% (data not shown). In other words, financial conditions as measured by operating margins varied substantially across rural hospitals. Rural hospitals in states that have not adopted the Affordable Care Act (ACA) Medicaid expansion were more likely to have negative margins than rural hospitals in expansion states. A company should compare the current OER to historical data to provide insights into a company’s cost management efforts. An operating expense refers to the type of regular expenditure a business incurs while undertaking regular business operations.