Administrative expenses, sometimes referred to as overhead costs, are any costs needed to operate a business that are not directly associated with the production or sale of any specific product or service. This includes essential costs necessary for the day-to-day running of the business, such as office rent, utilities, and salaries for those in non-production roles.

The cost of administrative expenses is something all businesses must factor into their budgets and as such are a key component of budget planning. An understanding of the type and cost of administrative expenses for a given business can provide key insights into its ability to remain profitable, as most cannot be eliminated completely.

Administrative expenses come in a variety of forms depending on the business. This includes costs for everything from marketing materials and overhead costs such as energy, utilities and office supplies to payroll, benefits and employee-related expenses. Office rent and the cost of purchasing or leasing equipment such as computers and office furniture can also be considered part of administrative expenses. Some companies will pay external consultants or suppliers to carry out particular administrative tasks.

Because administrative expenses don’t note specific sales or production industries, they are often the first item to receive budget cuts when expenses need to be trimmed. Weighing the impact of decreasing certain administrative costs versus their usefulness is a tricky but necessary task when deciding on which items to prioritize.

Keeping administrative costs in check is not just important for staying within budget, but also for competing with larger companies. Businesses that can maximize efficiency with minimal administrative costs are often able to undercut their competition on prices whilst still delivering top-notch customer service.

It is essential for any business to identify and measure its administrative expenses, and track how the costs affect its bottom line. Start-ups generally find it difficult to identify and manage administrative expenses in the early stages of operations, but understanding the specific costs associated with their particular industry and implementing methods to track such costs may be the difference between success and failure.