General and Administrative Expense (G&A)
Candlefocus EditorWhen 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.