What are general and administrative expenses and how to manage them?
Expenses are the by-products of anything you do in your business, whether generating sales or filing tax reports. Every business activity churns out its own sets of expenses. And so do they deserve their category because not every expense is operating, and not every expense is recurring.
Classification between these expense categories is critical in understanding the spending patterns, which inherently impact the cash flow. The major portion of business expenses is general and administrative expenses.
Let’s dive deeper into the G&A expenses of a business and which costs fall under it.
General and administrative expenses, or G&A expenses, are your company’s expenses incurred while running the business and earning profits. In simple terms, these are the daily expenses for conducting business.
General and administrative expenses are independent of any department, function, or process. These expenses are represented as a whole; they are not associated with a specific department like product or sales.
Also called Indirect Costs include overhead costs like rent, electricity bills, salaries, and office supplies. Broadly, these expenses are bound to happen irrespective of whether production or sales occur.
For example, the company must pay the rent for the leased land, even if it's profiting or incurring losses. Such expenses are considered fixed expenses for a business.
From an accounting perspective, one can find G&A costs in the Income statement below costs of goods sold (COGS) are merged with selling expenses, forming general and administrative costs.
Companies usually prevent differentiating G&A expenses and operating expenses. This arises merely because of the fact that the general expenses of a business are a subset of operating expenses.
Companies report non-production costs like pensions, after-sale costs, insurance, and more to provide an in-depth and detailed expense description. As a result, they combine all the expenses into a single line item of SG&A expense.
G&A costs sometimes include selling expenses and general and administrative expenses. But it’s up to the company's policies on how they want to break down their costs.
Though every company has its expense list, some expenses are standardized across all companies. Not every expense is meant to go under G&A costs; there are specific categories.
Below mentioned are the general and administrative expenses list common for all companies:-
This category includes every cost related to the office space. It consists of rent, electricity and water bill, cleaning and maintenance costs, and other miscellaneous charges.
The rent of the building is a fixed cost rest is a variable cost (changes with the change in production level).
Employee salaries and workers’ wages are also included in G&A expenses. Moreover, expenses like employee health insurance, training, development expenses, and traveling charges also contribute here.
A business needs to be protected from the unforeseen events of the future. Hence, business owners safeguard it with insurance. Examples include general liability insurance, commercial property insurance, and business income insurance.
Protecting the interests of the workforce is also required. Insurance for employees provides worker’s compensation, disability insurance, and health and life insurance.
Day-to-day office expenses include that printing, stationery, and other office equipment. The fixed assets like furniture, table, chairs, desk, computers, mouse are one-time investments that require maintenance from time to time.
Businesses always require legal guidance and assistance for many reasons. From filing contracts to tackling tax cliche, companies need all-around advice from their legal team. Thus, legal advisory fees like lawyers, notary publics, and tax officers are the ongoing expenses for any company.
Companies offer their human capital additional perks and fringe benefits besides employees' usual pay. Typically it includes paid sick leaves, performance bonuses, employee stock options, paid vacations, office lunches, and dinners.
Generally, this includes annual party expenses, SaaS subscriptions, tools and supplies damages, and small business purchases.
Related read - 8 types of business expense categories to include in budget
Often G&A expenses are considered secondary expenses, which adds no value to the company’s growth chart. But, the bottom line is that you have to spend money to make money.
These expenses might not be your operating expenses that help you grow and expand, but your business might cease to exist without them.
Additionally, general expenses are also tax-deductible. The prerequisite is they were utilized and deducted in the same financial year. But not all costs are deductible; this varies mainly from region to region.
Consult your chartered accountant or tax advisor to get more information on this matter. These deductions should save you a good amount of money if carefully practiced.
Managing your company’s general expenses is not a challenging task. But if not done systematically, they can cost the business an arm and a leg.
For efficiently managing your general and administrative expenses, your company should aim to:-
Your operating expenses are indirectly proportional to the efficiency ratio. Hence, the lower your operating costs, the higher your efficiency ratio.
Deliberately missing out on expenses won’t lower your costs. Find a mechanism to allow smooth rotation of your expenses. Don’t complicate the expense reporting process.
Safeguard your business from unnecessary spending by creating and implementing budgets. This is by far the most efficient and reliable way to monitor spending.
Debt payments like interest and EMIs are considerable money misspend. Try to limit your debt to as low as possible. Do not avail your business of loans for satisfying the luxuries.
Implement spending policies across the company. Having a standardized set of rules helps in the unidirectional flow of expenses.
If you struggle to make ends meet, it’s time to adopt a robust and vigorous spending strategy. Optimizing your spend culture and habits is one of the most effective ways to build walls against overspending.
General and administrative expenses are supposed to be mentioned below costs of goods sold(COGS) in your company’s income statement. To avoid any confusion, separate G&A costs from your operating expenses.
Include G&A expenses like salaries, wages, rent, maintenance, repairs, advertising costs, interest on loans, office supplies, and more. Keeping expenses separated allows you to narrow down your payments into one category only.
Add all the general and administrative work expenses to know the final amount, including outstanding expenses, and deduct prepaid expenses. This increases the accuracy of your result.
The process of reducing your general expenses begins with monitoring your spending. Due to the massive amounts of expenses made daily in a company, it is practically impossible to track each expense manually. Often, this leads to wrong interpretations of expenses.
An efficient spend management system does the work of expense tracking in almost no time. Your expense management software smartly captures the expenses in your organization and immediately routes them into your accounting system.
With intelligent AI codes, the expenses are classified into various expense categories so- you’ll know how much has been spent behind which cost in real-time.
Moreover, linking your bank account to your spend management software allows the payment to be reflected in your software immediately. Making the process more efficient and preventing overlapping.
Volopay is the one-stop destination to meet all expense management needs. Our automated AI-based platform lets you perform a multitude of accounting and financial tasks with minimum effort and great accuracy.
Volopay gives you complete control and visibility over your spending, ensuring you miss no data entry.
Close your accounting books 10x faster with automated workflows and smart processing.
All the transactions are automatically synced into the general ledger. You can integrate your accounting software with our integration like Xero, Quickbooks, and Netsuite.
Use the accounting inbox to prepare and label transactions, verify information, and export it in PDF or CSV.
Vendor, category, and transaction tag input fields in the ledger will be auto-categorized. Create mapping rules for every accounting field, from merchant to department, by simply importing your chart of accounts.
Implement your company expense policy by creating your approval policy. Set approval limits for individual budgets and transaction limits.