What are general and administrative (G&A) expenses?

General and administrative (G&A) expenses are a core operating expense on every company’s income statement. Understanding your G&A expenses can help you plan more accurate budgets, forecast future spending, and make more informed financial decisions.

In this article, we’ll explain what G&A expenses are and how they factor into your business’s income statement, and wrap up by sharing some strategies for managing them.

What are general and administrative expenses?

General and administrative expenses, or G&A expenses, are operating expenses that do not include overhead costs related to the production or sale of goods and services. G&A expenses are indirect costs 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).

G&A vs. SG&A

General and administrative expenses (G&A) refer to the overhead costs associated with day-to-day business operations. Selling, general, and administrative expenses (SG&A) are 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. In contrast, selling expenses like sales commissions, advertising, and promotional materials are the costs associated with selling and marketing the company's products or services.

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

Examples of general and administrative expenses

G&A expenses comprise any overhead costs associated with your business’s day-to-day operations. Some examples of G&A expenses include:

1. Salaries and wages: This includes pay for human resources staff, executive compensation, and other wages and salaries for indirect labor that’s unrelated to production
2. Rent and utilities: The cost 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. Accounting and legal fees: Fees paid to lawyers and accountants for their services in managing legal and financial matters for the company
5. Insurance: Premiums for various insurance policies covering liability, property, and other business risks
6. Depreciation and amortization: Costs associated with depreciating assets over their useful life, affecting the company's book value and income statement
7. Miscellaneous administrative expenses: Other administrative expenses such as permits, licenses, and fees paid to regulatory bodies for compliance purposes

Semi-variable vs. fixed expenses

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

Fixed expenses are operating costs that an organization incurs at a consistent price on a regular basis. 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 recorded as G&A. By definition, fixed expenses remain consistent and can’t be decreased or eliminated through cost-reduction strategies.

Semi-variable expenses, on the other hand, are regularly occuring operating expenses that remain relatively stable but can fluctuate with usage. This means you can strategically reduce or eliminate them. Electricity is a classic example of a semi-variable expense. While most businesses require electricity to function, you can take actions to reduce your electricity bill.

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 doesn’t correlate with outgoing cash flows.

Why is it important to track G&A expenses?

It’s important to track G&A expenses because they demonstrate how well you manage funds across your company. Overspending on operational costs or not having accounting processes in place to effectively manage G&A can hurt your bottom line, especially as a small business or startup.

Strategically managing G&A expenses can help increase revenue by reducing your overall cost of operations. In fact, if you’re specifically looking to reduce costs across the organization, G&A expenses should be one of the first costs you evaluate. That’s because you can significantly reduce if not entirely eliminate some costs that fall into the G&A category without any negative impact on production or sales.

Tracking G&A expenses is also important for calculating and reporting revenues on your income statement. When operational costs are higher, net income is lower, and vice versa. It’s also crucial to remember that most G&A expenses will be tax-deductible. To maximize your benefits, you’ll need to demonstrate that each cost you incurred was necessary for the company to operate during the accounting period.

How and where do you record G&A expenses in your books?

You record and list G&A expenses on your company’s income statement. G&A should appear below COGS and will ultimately help calculate your company’s net income for a given accounting period.

The overall complexity of an income statement will vary depending on your specific organization and business model, but in most cases, you’ll apply the same general formula:

1. Factor in revenues, minus all taxes, fees, and interest, to generate your net revenue
2. Deduct the cost of goods sold from net revenue to arrive at your gross margin
3. Deduct all general and administrative expenses from your gross margin to calculate your net income for the accounting period

In most cases, you won’t list and deduct G&A expenses from your gross margin as one line item. Rather, you’ll categorize them separately based on the nature of the expense and its relation to the operation of your company. For example, while the cost of both salaries and rent fall into the G&A category, you’d list each as an individual line item on your income statement.

3 challenges that can increase G&A expenses

When the G&A portion of your income statement gets too bloated, your operating costs may eat into your revenue, hurting your ability to turn a profit. Here are a few challenges that frequently contribute to bloated operating costs:

1. SaaS sprawl

The software as a service (SaaS) industry continues to boom, and this influx of tools and services has led to a considerable challenge for many businesses: SaaS sprawl. SaaS sprawl happens when a company loses the ability to effectively manage the various software used across the organization.

When this issue goes unaddressed, it often leads to overspending on services and platform licenses. For example, you may be paying for two (or more) SaaS tools that do pretty much the same thing, or more user seats than you actually need. Even one unnecessary expenditure can have a significant impact on G&A, so it’s important to get a grip on your SaaS expenses.

2. Zombie spend

Zombie spend occurs when a company accumulates recurring expenses for services and products that either aren’t being used or no longer create value. In many cases, zombie spend is directly related to issues like SaaS sprawl. For example, you might have started a subscription to a platform last year, and even though your team has since moved on to a different platform, you're still paying the monthly fee for the old one.

But zombie spend isn’t exclusively a SaaS problem. It often manifests as a simple oversight, such as auto-purchasing office supplies when you already have more than you need. Continuing to spend money on items or services you aren’t using hurts cash flow and impacts how G&A expenses factor into your overall income statement.

3. Shadow IT

Shadow IT refers to any technology being used in your organization without IT or upper management knowing. Ideally, your IT teams are aware of all the platforms employees are using across the org. However, there’s often a disconnect between individual employees or entire departments, and this lack of transparency results in shadow IT.

Shadow IT can create several issues. First, it’s a matter of security: Teams or employees operating on unsecure networks that might be vulnerable to a data breach put your entire organization at risk. Secondly, even if the technology doesn’t compromise your security, you’re still footing the bill for tools you haven’t approved or evaluated for cost efficiency.

How to manage G&A expenses

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

1. Establish and enforce spending policies

‍Establishing a comprehensive expense policy is critical to managing G&A expenses. Unfortunately, rules around spending can be difficult to enforce, and expense policy violations often go unnoticed until it’s too late.

You’ll want to create a clear business expense policy and have your employees sign off on it so they know exactly 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 can 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 you’ve set. That way, you’ll know in real time how much you’re spending in each category.

3. Make a plan to reduce costs

The first step in designing a strategy to control costs is having clear and consistent visibility into company-wide spending. Use a spend management platform that can track business expenses and automatically categorize them 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, canceling subscriptions you forgot about, or switching vendors.

The best expense management software will also offer insights into how you can save money. For example, Ramp automatically finds ways for your business to save.

Track and control G&A expenses with Ramp

Ramp can help you cut costs and more effectively manage G&A expenses across your entire organization.

Our corporate cards let you set custom vendor controls and spending limits, and we integrate with popular accounting and finance apps. Ramp simplifies spend tracking by automatically categorizing expenses so you can recognize and eliminate issues like SaaS sprawl and zombie spend.

Learn more about how Ramp’s expense management platform can help automate your expense tracking, streamline your finance operations, and save your business money.