Table of Contents
- What Are General and Administrative (G&A) Expenses?
- Key Takeaways on G&A Expenses
- Understanding General and Administrative (G&A) Expenses
- Examples of General and Administrative (G&A) Expenses
- What Qualifies As an Overhead Expense?
- How Do I Calculate Cost of Goods Sold (COGS)?
- What Is a Decentralized Management Structure?
- The Bottom Line
What Are General and Administrative (G&A) Expenses?
Let me explain what general and administrative (G&A) expenses really are. These are the costs you incur in the everyday running of your business, and they're not directly linked to any specific function or department. Think of general expenses as the operational overhead that affects your entire operation, while administrative ones are those that don't tie straight to things like manufacturing, production, or sales. You'll see items like rent, utilities, insurance, legal fees, and some salaries falling into this category. They're part of your overall operating expenses, but they exclude selling costs.
Key Takeaways on G&A Expenses
Here's what you need to know upfront. G&A expenses aren't connected to a particular business unit or function; they benefit the whole company. You'll find them on your income statement right below the cost of goods sold (COGS). Some of these are fixed—they hit you no matter your production or sales levels. As management, you'll want to cut the variable parts as much as possible since they don't directly affect what you're delivering to customers.
Understanding General and Administrative (G&A) Expenses
When you look at your income statement, G&A expenses sit below COGS. The top part shows your revenues for the period, then subtract COGS to get gross margin, and from there, deduct G&A to reach net income. Not everything gets lumped into one line—fees and interest might stand alone. Even if there's no production or sales, some G&A costs persist; they're fixed and hard to reduce. Others are semi-variable, like a base level of electricity you can't avoid, but you can trim excess spending. You can cut these without hurting production or sales, so there's real incentive to minimize them. Companies with centralized management often have higher G&A than decentralized ones. The sales-to-administrative expense ratio helps compare your sales to these support costs. Most G&A expenses are deductible on your tax return if they're reasonable, ordinary, and necessary, and you deduct them in the year incurred.
Examples of General and Administrative (G&A) Expenses
Consider these common examples: building rent, consultant fees, depreciation on office furniture and equipment, insurance, supplies, subscriptions, and utilities. Salaries and benefits for corporate management, legal, accounting, and IT staff also count as G&A. You might allocate these to business units based on revenue percentage, expense, square footage, or another metric to see full costs. This helps you make decisions on expanding or shrinking units. For instance, if your monthly electricity bill is $4,000 under G&A, and your spaces are production at 2,000 sq ft, manufacturing at 1,500, accounting at 500, and sales at 500—totaling 4,500 sq ft—you allocate like this: production gets about $1,777.78, manufacturing $1,333.33, and both accounting and sales $444.44.
What Qualifies As an Overhead Expense?
Overhead expenses are hard to avoid, like rent and utilities for your business space. If you own the property, property taxes count too. Advertising, supplies, insurance, and employee salaries and wages are also overhead.
How Do I Calculate Cost of Goods Sold (COGS)?
COGS is the total cost to produce goods or services you've sold. Calculate it by adding beginning inventory and purchases, then subtracting ending inventory: COGS = beginning inventory + purchases - ending inventory. Stick to the current period's figures.
What Is a Decentralized Management Structure?
In a decentralized structure, mid- and low-level managers have authority to decide on employees and projects without always waiting for top directives. It's not ideal for highly regulated industries like finance.
The Bottom Line
General expenses tie to your business's overhead and core running costs. Administrative ones stand somewhat apart, not linked directly to specific functions. Together, they form G&A, appearing below COGS on your income statement. Most are tax-deductible if reasonable, ordinary, and necessary.
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