Expenses

Expenses reduce profit. The way expenses are categorized has a significant effect on how useful your financial statements are. Two businesses with the same revenue and total expenses can have very different pictures of financial health depending on how those expenses are structured.

COGS vs. operating expenses

The most important distinction is between cost of goods sold (COGS) and operating expenses (OpEx). COGS are the direct costs of delivering your product or service. OpEx covers everything else: rent, admin salaries, marketing, insurance, software. Mixing these up makes your margins meaningless.

Fixed vs. variable expenses

Fixed expenses stay the same regardless of revenue. Variable expenses scale with activity. Understanding this split matters for break-even analysis and for knowing which costs you can actually control in a slow month.

The Simple Numbers view on expenses

Greg Crabtree's framework is blunt: most small businesses have too much overhead relative to revenue, and the first place to look is total labor cost. The salary cap metric is one of the clearest signals of whether a business is spending within its means.