G&A (General and Administrative Expenses)

What Is G&A?

G&A stands for General and Administrative expenses. These are the costs a company incurs to keep its daily operations running smoothly, regardless of its production or sales volume. Think of it as the oil that keeps the business machine humming along.

Common G&A Expenses

Executive salaries
Rent and utilities
Legal and accounting fees
Office supplies
Insurance
Administrative staff wages

👆 Fun fact: G&A is a significant component of OPEX (Operating Expenses), which includes all day-to-day costs of running a business. In many companies, G&A can represent 10-20% of total OPEX!

G&A and OPEX: The Big Picture

OPEX typically includes:

Selling expenses
General and Administrative expenses (G&A)
Research and Development (R&D) for some companies
Depreciation and Amortization

G&A is always part of OPEX. When G&A goes up, OPEX goes up, and vice versa. It’s like G&A is a room in the bigger OPEX house. 🏠

Why G&A Matters

Understanding G&A is crucial because:

It impacts profitability: G&A directly affects the bottom line as part of OPEX.
It reflects operational efficiency: Lower G&A can indicate a lean operation.
It’s a key component of financial analysis: Investors and analysts scrutinize G&A closely within OPEX.

G&A on Financial Statements

You’ll typically find G&A on the income statement, often grouped with Selling expenses as SG&A (Selling, General, and Administrative expenses). It’s part of operating expenses, which are subtracted from gross profit to calculate operating income.

Benchmarking G&A

G&A as a percentage of revenue and total OPEX varies widely across industries:

Tech startups: G&A at 15-20% of revenue
Large retailers: Aim for 5-10%
Manufacturing companies: Target 2-5%

Remember, lower isn’t always better. Too low G&A might mean underinvestment in crucial areas like compliance or IT infrastructure.

Managing G&A

Here are some strategies companies use to keep G&A in check:

Automation: Using software to handle administrative tasks.
Outsourcing: Hiring external firms for specialized functions.
Shared services: Centralizing admin functions for multiple business units.
Zero-based budgeting: Justifying G&A expenses from scratch each year.

These strategies aim to reduce overall OPEX by targeting G&A specifically.

G&A vs. Other OPEX Components

It’s important to distinguish G&A from other types of operating expenses:

Cost of Goods Sold (COGS): Direct costs of producing goods or services (not part of OPEX).
Selling Expenses: Costs directly related to sales activities (part of OPEX).
Research and Development (R&D): Costs for innovation and product development (part of OPEX for some companies).

G&A is the catch-all for operating expenses that don’t fit neatly into these other categories.