If you are into business, you know that there are many expenses you have to bear when it comes to business costs. One of the major types of costs is, undoubtedly, labour cost. However, do you know that only 20%-35% goes to the labour cost account? The majority of expenditures are caused by non-laborious things. It is quite visible that business owners and administrators pay more attention to these labour costs when starting or functioning a business. More aspects require your attention!
In this article, we explore the different types of non-labor costs and how they affect the finances of a business.
What are Non-Labour Business Costs?
Non-labor business costs are also known as operating expenses in the business arena. These are the costs a business experiences on a daily basis that are not related to paying employees’ salaries or wages. These expenses are necessary for upkeep and effective operation of an organisation, but they have no influence on the production of a company’s products or services. Instead, they aid with the running and maintenance of the entire company.
Non-labor business costs spread towards a wide range of expenses. This includes rent or lease payments for office space or facilities, utility bills such as electricity, water, and gas, insurance premiums to protect against various risks, property taxes on owned real estate, and maintenance and repair costs for equipment and machinery, etc. Again, marketing and advertising expenses, licensing and permits, interest on loans, office supplies, technology and software costs, and legal and regulatory fees are included when it comes to non-labor business costs.
It is visible that these costs have a direct influence on profitability and the capacity to make investments in growth and development. That is why monitoring and understanding them is highly important for a company’s financial stability and sustainability in the long run. Non-labor business costs should be carefully managed and optimised to extend its capabilities towards business growth.
Types of Non-Labour Business Costs
Hospitality and Rooms Hiring
These are the sorts of expenses that are considered non-labor business costs because they represent essential expenditures connected with the operation of certain types of businesses. That is particularly those in the hospitality and accommodations industry businesses.
These costs range from rent or lease payments for the physical space where guests are accommodated to various utilities, maintenance, upkeep expenses, etc. They are important to provide a comfortable and safe environment for customers.
Event Hosting
Event hosting is considered a non-labor business cost because it represents a vital expenditure for companies that organise and manage events. Most companies host various events to stand out from the competition as well as to promote their own services. These expenses vary from renting event venues, securing necessary permits and licences, setting up facilities, providing catering services, managing technical requirements like sound and lighting systems, etc.
Although staff are engaged in the design and execution of events, the majority of these expenditures are related to the facilities and procedures required for successful events rather than labour costs. Businesses in a variety of industries, including entertainment, hospitality, and marketing, depend on successful event hosting. That is because it enables them to interact with people (customers), advertise brands or services, and foster beneficial networking possibilities. If a company is conducting a correct financial analysis and planning, it is crucial to recognise event hosting as a non-labor cost for sure.
Admin Support
These represent those essential expenditures linked with administrative tasks and infrastructure that support the overall operations of a company. These costs include expenses related to office space, utilities, office supplies, office equipment, and various administrative services like legal and accounting support. Although workers can utilise these tools and services in their jobs, the major purpose of these costs is to keep the business’s operational infrastructure in place rather than paying workers directly.
When it comes to the planning and financial analysis, properly taking admin support costs into account is highly essential. The reason is that it guarantees that the company can use resources efficiently to maintain a functional workplace in the end. Is that all? No, it helps adhere to regulatory standards without mixing these costs with direct labour expenditures.
Travel Expenses and Accommodation
Even though the employees are working on-site, there are certain times that they might need to travel for official purposes. This point represents the expenditures for companies that require employees to travel for work-related purposes. These costs vary from airfare, transportation, hotel stays, and meals, to other related expenses incurred during business trips. We know that employees usually receive a travel allowance for such scenarios. Although workers are the ones who travel, these costs are separate from normal compensation payments. They are mostly related to the logistics of conducting business outside of the company’s offices.
It is crucial to understand that these costs are also essential for financial planning in a company. This enables businesses to manage and optimise their travel budgets effectively while distinguishing these expenses from direct labour costs. It is also important to have a clear view of the true costs associated with business-related travel and accommodation for a company at the end of the month or year.
Technology Related Costs
How can a company run without acquiring, implementing, and maintaining software systems necessary for a company’s operations? These costs encompass software licensing fees, subscription charges, customisation, integration, maintenance, and support services. The majority of these costs are related to the purchase and maintenance of digital assets rather than paying employees directly.
Yes, it is challenging for a company to properly calculate the expenses linked with software and technology-related aspects. In the meantime, these software-related costs are crucial for budgeting and financial analysis, as they enable businesses to manage their software investments efficiently. It ensures they have the necessary digital tools and resources to function well. However, no need to confuse them with direct labour costs as these are different from them.
Hardware Purchasing
When talking about software, then eventually pops up the topic on hardware. At this point, we are exploring the expenditures related to acquiring and maintaining physical computing equipment and infrastructure. These costs include purchasing computers, servers, networking devices, and other hardware components essential for a company’s technological needs.
When the finance departments keep these costs separate from the labour expenditure, it provides an overall understanding of the company’s technological operations and its development. This enables businesses to manage their technology investments efficiently as well. Plus, the latter is the better way to make sure that they have the necessary physical tools and infrastructure while differentiating these expenditures from direct labour costs.
Training and Courses
These are the costs that include fees for external training programs, course materials, and related travel expenses. Keeping your employees awake on the industry trends and cultivating them with knowledge is highly vital for a company to retain employees. It is true that employees directly benefit from these educational opportunities. On the other hand, companies also benefit them while maintaining their standards and competitiveness.
Let us explain to you why keeping these two aspects away from each other is required for healthy financial stability. Obviously, this separation provides a clear understanding of the resources allocated to improving the capabilities and competencies of the workforce which will contribute to overall organisational growth and competitiveness.
Third-Party Expenses
It is true that you have a knowledgeable workforce in your company. But sometimes you will require external help for certain chores. Do you agree? These third-party expenses and payments should be categorised as non-labor business costs because they are expenditures related to external products and services set to support a company’s operations. But what exactly are those things? These costs include payments to suppliers, contractors, consultants, and other external entities for various products and services such as raw materials, equipment, legal services, marketing, and more.
What you need to keep in mind is that while these external resources play a crucial role in a company’s functioning and growth, they are distinct from direct employee costs. Accurate calculation of third-party expenses is highly essential for financial analysis and budgeting of each year. This measure can ensure that businesses effectively allocate resources to meet their operational needs without any barriers.
Utility Bills
In the last point, we discover one of the main aspects when it comes to non-labor costs. These are the types of expenditures that are associated with maintaining the operational infrastructure of a company. These costs vary from payments for electricity, water, gas, and heating, to cooling services that are essential for creating a conducive and functional workspace. Though these do not directly imply employee expenditures, these are top priorities in an office scenario.
When you consider these utility bills when analysing your total costs, you will realise how important it is to function as a business. Plus, this overview ensures that businesses can allocate resources effectively to cover these essential services and gain an overall look into the complete operational expenses within a company.
Taking Care of Every Business Aspect Innovatively
It is vital for a finance department to consider every aspect when handling the overall financial background of a business. No matter what size your company is, you will have to face various expenditures which you can not turn your head away from. What you require to address these challenges is an innovative way. That is where technology comes to your rescue with various software tools. While it can streamline your work, it helps you to accomplish the growth you desire very soon.
