General and administrative (G&A) expenses are a byproduct of a company's day-to-day operations. They aren't closely linked to profit but are necessary to maintain a company's daily operations while administering its business.
General expenses are the operational overhead expenses that impact the entire business. Administrative expenses aren't directly tied to a specific company function or department like sales or production. The usual G&A expenses include utilities, insurance, rent, and legal fees.
Businesses have three main expenses on their books: manufacturing costs, sales, general and administrative expenses, and investment costs. Investing in G&A costs is essential for the company to run a comfortable, high-functioning environment. They also speak directly to a company's efficiency and are often one of the first areas cut back to increase profits.
Corporate staff salaries —management, finance, accounts, and IT—are often a G&A expense. However, a company's design, development, sales, and marketing staff contribute directly to selling, so they are usually not included in these expenses.
Practically, staff are paid the same way, but this is a technical distinction to separate operational costs from revenue-generating ones.
READ MORE: Best Practices for Controlling Operating Costs in Business
Rent is a significant G&A expense. Companies looking to cut costs often move to remote work because it's a cheaper option. This practice has become commonplace since the mainstreaming of remote work during the COVID-19 pandemic.
However, most companies still maintain a fixed office address, citing the benefits of in-person work. For many employees, work is a chance to socialise outside their home, so hybrid work is incredibly popular.
Most companies offer employees food and drink for breaks during office hours to keep them fuelled while working. Tea and coffee are usually the bare minimum. Biscuits, fruit, and cake aren't uncommon to keep employees at their best.
Most office furniture costs are one-time, upfront payments—for example, bulk orders of 100 desks, chairs, lamps, and a few sofas. There are also small, ongoing expenses, like standing desks for employees with back injuries or replacements for worn-out sofas.
These once-off expenses are more difficult to manage. Companies must move quickly to install the new furniture while keeping clear records and paying for it through the correct channels.
Companies can't operate without computers and laptops. In most companies, every staff member needs a computer, screen, mouse, and keyboard. Many staff will also need a work phone to stay connected during trips.
Technical costs also cover sales and office expenses. Intranet and financial data servers are standard G&A expenses, while websites for marketing and sales are production costs.
Legal fees result from the necessary assistance to set up employment contracts and handle tax situations and disputes. Most companies lack the in-house expertise to cover these situations, but it's a G&A expense even for those who do since it doesn't contribute to sales.
Legal fees can be regular, ongoing costs or one-off. Companies may have a lawyer on retainer for a set number of hours each month to ensure compliance. There are also occasional costly specific legal challenges essential for keeping companies above water.
Companies concerned about their spending on G&A need to calculate operating costs against company revenue. This efficiency ratio has a simple formula: G&A expenses / Revenue x 100. Only typical, ongoing company expenses should be included in the calculation.
The result reveals the company's operating costs as a percentage of its revenue. From there, they can monitor changes in this percentage to monitor G&A Expenses. Smaller companies usually have lower administrative costs than larger enterprises, so it's important to consider them in context.
Significant rises in G&A expenses indicate that investment in them isn't as cost-effective as it should be. Finance teams should aim to increase the efficiency to keep costs under control. By keeping costs down, value is created for the company.
The biggest goal regarding these expenses should be efficiency. Reducing the overall efficiency ratio means lower operating costs and a more efficient company. Tracking expenses should be improved, especially one-off costs that waste time. Small operating costs for staff spending should also be made smoother.
Centralising your spend management strategy can help keep G&A expenses down. Your finance team will find it easier to monitor trends across all your expenses with spreadsheets that leave little room for mistakes.
If you want to maximise your expense efficiency with simple-to-use AI tools, please contact us to talk to a team member and book a demo using our tools.