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‍An income statement is an important tool for managing your finances and planning your business strategy. General and administrative (G&A) expenses are one category of operating expenses you’ll have to include on your income statement.

In this article, we’ll explain what G&A expenses are, how to include them in your business’s income statement, and how to optimize your financial reporting.

What are G&A expenses?

General and administrative expenses, or G&A expenses, are operating expenses that do not involve the production or sale of goods and services. A type of indirect cost, G&A expenses are those costs that a business must spend throughout the year to maintain operations, regardless of revenue or sales.

Some examples of G&A expenses include rent, insurance, office supplies, and fixed employee salaries.

Importantly, general and administrative costs should always be differentiated from costs related to specific projects that are designed to increase revenue, such as research and development (R&D) or production costs.

For example, the monthly rent paid to occupy a manufacturing facility would fall under the category of G&A, whereas the cost of manufacturing a certain product within that facility would fall under the category of cost of goods sold (COGS).

What’s included in general and administrative expenses?

General and administrative (G&A) expenses encompass the overhead costs associated with running the day-to-day operations of a business, which may include:

  1. Salaries and wages: This includes the pay for administrative staff, executive compensation, and other non-production personnel salaries.
  2. Rent and utilities: The costs of leasing office space and paying for utilities such as electricity, water, and internet services.
  3. Office supplies and equipment: Costs incurred for items like stationery, computers, printers, and other equipment necessary for administrative tasks.
  4. Legal and accounting fees: Fees paid to lawyers and accountants for their services in managing legal and financial matters of the company.
  5. Insurance: Premiums for various insurance policies covering liability, property, and other business risks.
  6. Depreciation and amortization: The allocation of the cost of assets over their useful life, affecting the company's book value and income statement.
  7. Miscellaneous administrative expenses: Other various administrative expenses such as permits, licenses, and fees paid to regulatory bodies for compliance purposes.

‍What’s the difference between G&A and SG&A?

General and administrative expenses (G&A) refer to the overhead costs associated with the day-to-day operations of a business, while selling, general and administrative expenses (SG&A) is a broader category that includes selling expenses in addition to G&A expenses.

G&A expenses, such as executive salaries, office rent, and utilities, are the general overhead costs necessary for running a business, while selling expenses, like sales commissions, advertising, and promotional materials, are the costs associated with selling and marketing the company's products or services.

In a financial statement, these expenses are often aggregated under the SG&A line item. However, some companies may choose to separate selling expenses from general and administrative expenses for more detailed reporting.

Semi-variable vs. fixed expenses

G&A costs are separated into two distinct categories: fixed expenses, and semi-variable expenses.

Fixed expenses are operating costs that an organization expects to incur on a regular basis at a predetermined price point. For example, if a business enters into a 12-month rent agreement for office space at a monthly rate, each monthly payment would be considered a fixed cost and recorded as G&A. By definition, fixed expenses always remain the same, and therefore can’t be brought down or eliminated through cost-reduction strategies.

Semi-variable expenses, on the other hand, are operating expenses that an organization expects to incur, but are not necessarily fixed, and therefore can be reduced or eliminated strategically.

One example of a semi-variable expense is electricity; while most businesses require electricity to remain operational, actions can be taken to reduce your electricity bill. Another example of a semi-variable expense might be office equipment or supplies; certain supplies might need to be purchased each month to keep the office stocked, however, a business can always reevaluate how, when, and from which vendor the supplies are bought, potentially bringing down the overall cost as a result.

Most G&A expenses are either fixed or semi-variable, but exceptions do exist. For example, the depreciation of office equipment or furniture falls under the category of G&A expenses but has no correlation to outgoing cashflows.

Why are G&A expenses important to track?

It’s important to track G&A expenses because they demonstrate how well funds are managed across your company. Moreover, overspending on operational costs or not having the accounting processes in place to effectively manage G&A can have a negative impact on your bottom line, especially as a small business or startup.

Taking a careful, strategic approach to managing G&A expenses can be an opportunity to increase revenue on your income statement by reducing the overall cost of operations.

In fact, when looking specifically to bring down costs wherever possible across an organization, G&A expenses are often the first costs to be evaluated. This is because some costs that fall into the category of G&A may be significantly reduced, if not entirely eliminated, without any disruption or negative impact on production or sales.

Additionally, G&A expenses are factored in when calculating and reporting revenues on an income statement. When operational costs are higher, net income is lower, and vice versa. It’s also crucial to keep in mind that most G&A expenses will be tax deductible, and in order to maximize the benefits, businesses will need to demonstrate that each cost incurred was in fact necessary for the company to operate during the accounting period.

How and where do I record G&A expenses in my books?

G&A expenses will need to be recorded and listed clearly on your company’s income statement. G&A should appear below the cost of goods sold, and will ultimately be used to determine your company’s net income for a given accounting period.

The overall complexity of an income statement will vary depending on the individual organization and business model, however, in almost all cases the same general formula will be applied. First, revenues will be factored in, minus all taxes, fees, and interest to determine net revenue. Next, the cost of goods sold will be deducted from net revenue to arrive at the gross margin. Finally, all G&A expenses will be deducted from the gross margin to reveal net income for the accounting period.

In most cases, G&A expenses will not be listed and deducted from the gross margin as one line item, but rather categorized separately based on the nature of the expense and its relation to the operation of the company. For example, while the cost of both salaries and rent fall into the category of G&A, each would be featured as individual line items on the income statement.

3 causes of bloat in G&A expenses

When the G&A portion of an income statement becomes bloated, it simply means that operating costs have risen to a level that’s eating into your revenue, compromising your ability to turn a profit.

Here are a few challenges that frequently result in bloated operating costs:

SaaS sprawl

The Software-as-a-Service (SaaS) industry continues to boom with no end to growth in sight. While this fact alone shouldn’t be viewed as a negative—SaaS tools and platforms can be incredibly useful—the influx of services has led to a considerable challenge that many businesses have little to no experience addressing: SaaS sprawl.

Put simply, SaaS sprawl occurs when a company loses the ability to effectively manage each service being utilized across the organization. When this issue goes unaddressed, it often leads to overspending on services and platform licenses, and even one unnecessary expenditure can have a significant impact on G&A.

Zombie spend

Zombie spend is when a company accumulates recurring expenses related to services and products that either aren’t being utilized at all, or no longer create value, and it’s becoming a serious issue for businesses of all sizes and across industries. In many cases, zombie spend is directly related to issues like SaaS sprawl; a team might have started a subscription to a platform last year, and even though it has since moved on to a different platform, the company is still paying the monthly subscription fee.

But zombie spend isn’t exclusively a SaaS problem and often manifests as a simple oversight, such as auto-purchasing office supplies when teams already have more than they need. Continuing to spend funds on items or services that aren't being used naturally has a negative impact on cash flows, and subsequently on how G&A expenses impact the overall income statement.

Shadow IT

When it comes to integrating and leveraging new technologies, it’s critical that IT teams and information technology specialists are aware of all platforms being utilized across the organization. Oftentimes, however, there is a disconnect between individual employees or entire departments, and a lack of transparency around the tools being used results in the perpetuation of “Shadow IT,” or specific technology being used without the awareness of IT leaders or upper management.

Shadow IT can create a number of issues. First, it’s a matter of security; teams or employees operating on networks that might be vulnerable to a data breach put the entire organization at risk. Secondly, even if cybersecurity isn't being compromised by the use of an unauthorized technology, the business is still unwittingly footing the bill for tools that haven’t been approved or evaluated for cost-efficiency, and that might not even be creating value for the company.

How do I manage G&A expenses?

Effectively managing G&A expenses requires both a thoughtful strategy and clear visibility into your operational expenses. Here are a few ways you can optimize your G&A expense management.

1. Establish and enforce spending policies

‍Establishing and enforcing expense policies is absolutely critical to managing G&A. Unfortunately, however, rules around spending can be difficult to reinforce on a regular basis, and expense policy violations often go unnoticed until it’s too late.

You’ll want to create and have your employees sign off on an expense policy so that they know where and how much they can spend. You can also look for a company card that allows you to set customizable spending limits and vendor controls.

2. Automate your expense tracking

Modern accounting software makes it possible to automate much of your expense management process. The right tools can help you categorize your operating expenses while automatically logging new transactions into the appropriate categories that you’ve set. That way, you’ll know in real time how much is being spent in each category.

3. Make a plan to reduce costs

The first step in designing a strategy to cut costs is having clear and constant visibility into your company-wide spending. Make use of a spend management platform that will track your spending and automatically categorize it for you, so you always know where you’re at with your budget.

Once you have a clear view of your spending, look for areas where you can reduce costs. This might mean reducing employee budgets in certain categories, cancelling subscriptions you forgot about, or switching vendors. The best expense management tools will also offer insights into how you can save money. For instance, Ramp automatically finds ways for your business to save.

M‍anage G&A expenses with Ramp

If you’re looking to cut costs and more effectively manage G&A expenses across your organization, Ramp can help.

Learn more about how Ramp’s expense management platform can offer real-time financial visibility, automate your expense tracking, and deliver AI-powered insights to save your business money.

Try Ramp for free.
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Finance Writer and Editor, Ramp
Ali Mercieca is a Finance Writer and Content Editor at Ramp. Prior to Ramp, she worked with Robinhood on the editorial strategy for their financial literacy articles and with Nearside, an online banking platform, overseeing their banking and finance blog. Ali holds a B.A. in Psychology and Philosophy from York University and can be found writing about editorial content strategy and SEO on her Substack.
Ramp is dedicated to helping businesses of all sizes make informed decisions. We adhere to strict editorial guidelines to ensure that our content meets and maintains our high standards.


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