General and administrative expenses, sometimes abbreviated to G&A expenses, are all the day to day operating expenses of a business not directly linked to the products the business is supplying, or included in research and development or sales and marketing expenses.
General and administrative expenses are included in the financial projections as part of operating expenses in the income statement. The majority of general and administration expenses are fixed in nature and do not vary from day to day.
General and Administrative Expenses Cost Drivers
All expenses are driven by activities, and in the case of general and administration the key cost drivers include the following:
- Staff expenses
- Recruiting expenses
- Management information systems expenses
- Office rent and utilities
Typical General and Administrative Expenses
The following are typical general and administrative expenses:
- General and administration salaries (CEO, Finance manager,)
- Human resources salaries
- Travel and entertainment
- Accounting costs
- Legal and professional
- Head office building costs (rent, utilities)
- Consultancy expenses
- Office supplies
General and Administration Expenses Ratio
It is useful to calculate the general and administrative expenses as a percent of revenue to give a financial ratio as follows:
This ratio is one of many expense ratios, and can be used to make comparisons to other businesses within your industry (providing they are using a similar classification), to ensure that the general and administrative expenses included in the financial projections is comparable and realistic.
In addition, it is important to monitor changes in the ratio over time to see that the investment in general and administration is producing the required and planned result. A significant rise in the general and administration expense to revenue ratio may indicate that the investment in general and administration is not as cost effective as it should be.
All businesses need to keep their systems of administration as simple and straightforward as possible. As general and administrative expenses do not directly produce revenue they should be kept to a minimum.
About the Author
Chartered accountant Michael Brown is the founder and CEO of Plan Projections. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a BSc from Loughborough University.