Part of being a business owner is dealing with all kinds of expenses. One of the expenses you incur and manage are general and administrative (G&A) expenses. Never heard of G&A expenses? Need a brief refresher? Here’s the rundown on what is G&A and how it works in your business.
What are G&A expenses?
So, what are general and administrative expenses? Well, we already know the G&A meaning: general and administrative. But what exactly does that all entail?
General and administrative expenses are costs associated with running a business that aren’t related to products or sales. In short, these are the expenses you incur while conducting business day-to-day, like rent and salaries.
G&A is part of SG&A expenses or selling, general, and administrative expenses. A business’s SG&A is the total of all direct and indirect selling expenses and all general and administrative costs. General and administrative expenses are indirect costs that have no direct impact on your business’s profit.
Unsure if an expense is considered G&A? Pro tip: Ask yourself, “Does the expense bring in revenue?” If your answer is “no,” the expense is generally G&A.
G&A expenses vs. overhead costs
How do general and administrative expenses differ from overhead costs? Good question.
General and administrative expenses can include overhead costs. Overhead costs come into play with general expenses (aka, the “G” in G&A). However, they do not fall under administrative expenses.
Overhead costs include the costs of producing a good or service (e.g., supplies). Therefore, you must produce a good or service to incur overhead costs.
Examples of G&A costs
Again, general and administrative costs include the day-to-day costs of running a company. Here are some G&A expense examples:
- Office furniture
- Technical and office supplies
- Legal fees
- Subscriptions to services and tools
Any costs that don’t directly impact the business’s profit are considered G&A costs.
How to calculate G&A expenses
Your general and administrative expenses are on your income statement. To calculate G&A expenses for a certain time period, all you have to do is add them up. And if you want to calculate your total SG&A, you simply include selling expenses in your calculation.
Here’s the G&A formula:
G&A = General Expenses + Administrative Expenses
That’s right—it’s as easy as that!
Let’s say you have $1,000 in rent, $250 for utilities, $100 for insurance, $30 for subscription fees, and $50 for office supplies during the month. Your total G&A costs for the month would be $1,430 ($1,000 + $250 + $100 + $30 + $50).
Keep in mind that your general and administrative expenses may differ from other companies’ costs. So, yours may be higher or lower depending on your expenses and business’s needs.
Tips for managing general and administrative expenses
As a business owner, it’s your responsibility to manage (and hopefully reduce) G&A expenses to keep things shipshape.
To manage G&A expenses and keep them as low as possible, you can:
- Use accounting software
- Go through your business budget on a regular basis
- Limit business debt wherever possible
- Implement a spending policy
- Find ways to reduce expenses (e.g., go paperless)
- Go remote or create a hybrid workplace
- Move to a more affordable business location or office
- Have an organized system to track business expenses (e.g., file paperwork)
Not sure where to start when it comes to managing your general and administrative costs? Take a look at your current costs. Then, rank them from most important to least important. For the least important expenses, see where you can slash or eliminate costs.
G&A expenses: The bottom line
As the saying goes, “You have to spend money to make money.” This phrase is oh-so-true when it comes to G&A expenses.
Sure, your general and administrative expenses don’t go toward making a profit or production. However, they can make or break your business because you need them to run your company.
General and administrative expenses can help you:
- Retain top talent
- Boost your business bottom line
- Enhance efficiency
- Improve your business cash flow
G&A expenses are necessary for your business to operate smoothly. Without them, you wouldn’t be able to run your business.
Are you tracking the transactions you need to calculate your general and administrative expenses? Patriot’s online accounting software makes it a breeze to record income and expenses. Plus, we offer free, USA-based support. Start your free trial today!
This is not intended as legal advice; for more information, please click here.