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General and Administrative Expense (G&A)

General and administrative (G&A) expenses form an important part of the cost incurred by a business when trying to generate revenue. G&A typically refers to the expenses incurred by a business while running the day-to-day operations and in addition to those expenses related to specific business units or functions. These expenses can include, but are not limited to, executive and administrative salaries, benefits, office supplies, telephone expenses, advertising, legal and professional fees, technology costs, and any other related business expenses.

When it comes to understanding the importance of G&A as a cost basis, it is important to note that in some ways G&A expenses can represent a level of permanence in costs that are not tied directly to production or sales levels. While some portion of the G&A costs may vary depending on the particular needs of the business in a given period, some of the G&A costs are considered essential even when operations are scaled back since they are required to keep the business functioning at base level.

When looking at the impact of G&A costs as a portion of a business’ total expenditures, it is important to witness how management works to reduce them. Specifically, management will work to reduce the larger portion of G&A expenses which are considered more variable in comparison to fixed G&A expenses. This is done in an effort to reduce overhead and control the associated expenses.

The importance of G&A costs to the business should not be overlooked. A business's expenses should always be closely examined to ensure that the maximum amount of value is provided to those who buy the goods or services. G&A expenses can be an effective tool to get more value out of the costs incurred by a business, as it allows for optimization between the variable and fixed costs. Furthermore, it allows for budgeting of the necessary additional costs to keep the business operational. Understanding how G&A costs are categorized and how they affect a business’ bottom line can help management make more informed and effective decisions about how G&A expenses should be managed moving forward.

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