As a diligent business owner or leader, you’ve been digging into the financials your accountant sends over, paying close attention to the various expenses you’ve incurred.
One of the line items you’re seeing repeating is General and Administrative Expenses.
Unlike other categories that are more explicit in what they refer to — sales and marketing expenses, say — G&A expenses seem a little, well, general.
In this article, we’re going to shine a light on general administrative expenses. We’ll explain what they are, what they include, common examples, and how to manage them more effectively.
What are general and administrative (G&A) expenses?
General and administrative expenses — typically shortened to G&A expenses — are your company’s operating expenses absent of overhead costs related to the production or sale of the goods and services your business makes and sells.
They fall under the umbrella of indirect costs. That is, they don’t go directly into creating the goods or services you sell. However, the business still tends to pay for them during the course of the year. G&A expenses are usually fixed costs, meaning they don’t fluctuate based on revenue or sales volume.
What’s included in general and administrative expenses?
So, what classifies a given operational cost as a G&A expense?
A good rule of thumb is to consider whether the expenses can be considered part of COGS (Cost of Goods Sold). That is, is it an expense that is directly tied to the production of the goods or services you sell, such as materials or labor?
From there, the remaining operational costs are divided into:
- Research and development expenses
- Sales and marketing expenses
- General and administrative expenses
Sometimes, two and three are combined into sales, general, and admin expenses. More on that later.
For now, you can use this rule of thumb: If it’s an operating expense but doesn’t fit into COGs or R&D, it's probably a G&A expense.
While it is technically possible to determine whether a given expense falls into “general” or “administrative’ (rent may be general while office supplies are admin, for example), this is rarely used in practice. More commonly, the two are lumped into one row on your financial statements.
Most common G&A expenses
Let’s dive a little deeper. What are some of the most common business costs that contribute to general and administrative expenses?
- Personal costs: Salaries and wages, payroll taxes, and employee benefits like retirement contributions and health insurance.
- Facility and utilities: Rent, office maintenance, and utilities like electricity and internet,
- Office and administrative suppliers: Office supplies like paper and computers, as well as furniture like desks and filing cabinets.
- Professional services: Legal fees, accounting costs, and consulting services like strategic planning or outsourced hiring.
- Insurance: The cost of insuring against loss to vehicles, property, or public liability.
- Depreciation: The declining value of vehicles, office equipment, and other administrative assets.
Why are general and administrative expenses important to track?
There are a few incredibly important reasons why small business owners and finance leaders should have a good grasp on G&A expenses:
- Cost management: Monitoring G&A expenses helps leaders identify areas where a business can improve profitability by reducing overhead costs.
- Budgeting: Keeping on top of G&A expenses helps finance leaders create more accurate, relevant budgets and create more realistic forecasts.
- Resource allocation: Being able to better budget and forecast G&A expenses allows businesses to allocate financial resources across departments, ensuring each has access to the funds they need to operate effectively.
- Impact on financial statements: G&A expenses directly impact a company’s financial statement performance. They are recorded under operating expenses on the income statement, being deducted from gross profit and directly influencing operating profit (EBIT). Improving G&A expense management helps business leaders improve the operating margin, demonstrating that the company can effectively manage its overhead relative to its revenue.
How to manage G&A expenses: 4 best practices
Let’s turn our attention to some best practices for improving how you manage general and admin expenses.
1. Improve your budget accuracy
Budgeting is the first step to improving G&A expense management.
Use your financial reporting tool to dig into historical data on key G&A expenses like salaries, rent, and office supplies.
Apply any expected growth trajectories (you might budget more for salaries knowing that you are expanding and hiring for a number of key roles), then establish specific spending limits for each category.
Monitor how actual spending stacks up against your budget, and adjust categories dynamically as the financial period progresses.
2. Track spending with financial operations software
If you’re not using one already, invest in a solid financial management software platform.
These powerful tools can help you report on G&A spending in real time, integrate with the rest of your tech stack (such as your ERP or accounting software), and open up a world of powerful reporting and insights.
3. Conduct regular expense reviews
Schedule regular reviews (quarterly or monthly) to go over your company’s G&A expenses. Compare actual costs to the budget, identify variances, and dig into the causes behind them.
Then, implement appropriate changes, which may involve adjusting the budget, adjusting spending behaviors, or finding opportunities to slash costs.
4. Look for opportunities to save on costs
Cutting costs is often seen as a synonym for cutting corners, but this doesn’t have to be the case.
Some strategies that can help lower costs without hurting performance or quality include:
- Renegotiating pricing with existing vendors or looking for alternative options
- Identifying opportunities to consolidate software licenses
- Embracing remote work to lower rent and utility expenses
Get on top of general and administrative expenses
G&A expenses are a broad category of operational expenditure that can cover anything from rent and utilities to salaries to office furniture.
As an entry on your financial statements, it doesn’t really give you enough information to effectively understand business spending behavior.
To dig deeper, you need a modern business expense management tool.
Well, let us introduce you to BILL Spend & Expense.
With powerful tools to support real-time budgeting, access business credit, manage employee spending and reimbursement, and forecast company expenses, you’ll reclaim control over business expenditures and have G&A expenses back within your grasp.
FAQ
Where do you record G&A expenses in your books?
General and administrative expenses are recorded on the income statement. You’ll find them in the operating expenses section of that statement since they are a subcategory of operating costs.
Operating expenses — and therefore G&A expenses — are listed after the gross profit (revenues COGS).
What is G&A vs. SG&A?
G&A stands for general and administrative expenses. SG&A adds sales expenses to the mix: sales, general, and administrative expenses.
This is a personal choice.
Some finance leaders prefer to break out sales expenses into a separate category, while others like to lump them in with general and administrative expenses.
Combining the two gives a more holistic view of the expenses required to keep a business running at its current level. That said, it does reduce granular visibility on financial statements, especially if a company’s expenses are sales-heavy.
Reasons for bloat in general and administrative expenses
What might lead to G&A expenses becoming overly bloated?
Here are a few common causes:
- Overstaffing. Some businesses simply have too many admin staff than is required or maintain excessive layers of management, pushing G&A costs up.
- High salaries and benefits. Companies that pay above-market compensation or have excessive benefits will likely have higher G&A expenses.
- Inefficient processes. Organizations that rely on legacy processes and software and don’t take advantage of modern tools like automation and AI will have higher than necessary general and administrative expenses.
- Excessive office space. Many companies today are experiencing this issue. They’ve embraced remote work but maintained the large office spaces they previously had, which re now overkilled.
- Uncontrolled travel and entertainment expenses. Businesses without proper control and approval processes in place for travel and entertainment expenses may see this spend category make up an unnecessarily large portion of their G&A expenditure.
- Technology mismanagement. Companies that don’t look for opportunities to consolidate software licenses or cancel those subscriptions that they no longer use or receive value from will inadvertently raise G&A expenses to an unnecessary level.
