SG&A: Selling, General, and Administrative Expenses

Basically, Selling, General, and Administrative Expenses (SG&A) are the costs that businesses have outside of making their products. Unlike the cost of goods sold (COGS), which is directly tied to production, SG&A costs are separate. This part of the operating budget excludes its direct costs of manufacturing. This includes salaries, rent, utilities, advertising, marketing, technology, and supplies not used in manufacturing.

General and administrative expenses, also known as overhead expenses, are indirect costs incurred by a company during its normal business operations that are not directly tied to production costs. When you look at a company’s income statement, you’ll find selling, general, and administrative (SG&A) expenses listed. These are all the business costs that aren’t directly involved in making products or providing services—the day-to-day costs of keeping the lights on. SG&A expenses basically cover all the costs of running a business, except for those directly tied to making the product or service (COGS). This includes things like salaries, rent, utilities, advertising, marketing, technology, and supplies not used in manufacturing. The Selling, General, and Administrative Expense (SG&A) category includes all of the administrative and overhead costs of doing business.

Historical Trends in SG&A

In fact, this line item includes nearly all business costs not directly attributable to making a product or performing a service. SG&A includes the costs of managing the company and the expenses of delivering its products or services. One of the most common problems with profit and loss statements is that different companies use different categories and sganda expense selling terminology to refer to different types of expenses. This can lead to confusion and misunderstandings over what’s actually driving costs in your business. After mergers or in times of financial hardship, SG&A expense is the first area that management would examine to cut costs without impacting manufacturing or sales. At the same time, companies need to act wisely in making these decisions.For example, say a firm’s revenue declines from $2 million to $800,000.

Selling expenses

Even small businesses and startups can benefit from accounting software that can unify your financial data, including expenses, sales and even payroll. Selling, General & Administrative (SG&A) expenses are the costs a company incurs to promote, sell and deliver its products and services, as well as to manage day-to-day operations. Understanding and controlling SG&A can help companies manage their overhead, reduce costs and sustain profitability. The raw materials that go into the product and the salaries of the people who build it are COGS expenses.

This indicator shows what percentage of a dollar earned is spent on SG&A expenses. In financial modeling SG&A and COGS represent different categories of expenses. With NetSuite, you go live in a predictable timeframe — smart, stepped implementations begin with sales and span the entire customer lifecycle, so there’s continuity from sales to services to support. For each forecast period, we’ll multiply our SG&A margin assumption by the projected revenue in the same period, which results in our projected SG&A expense amounts. For purposes of forecasting, the most common method is to project SG&A expense as a percentage of revenue. For example, a business might use a previous budget or recent actual results to create the upcoming budget.

#2 – General & Administrative Expenses

• We can see that selling, general, and administrative expenses are reported in the operating expenses section of the income statement.
• A popular technique compares the planned budget to actual business results.
• On occasion, it may also include depreciation expense, depending on what it’s related to.

When such expenses increase too much without a rise in sales or a drop in sales, it is very important to reduce the SG&A costs. High Selling, General & Administrative costs decrease the profitability of the shareholders. SG&A expenses list includes those expenses that are necessary to keep the business going. Certain companies will file their financial statements with one line for SG&A, while others – for example, software companies – will separately break out G&A and sales & marketing.

How To Report Product Sales Revenue & Service Revenue On An Income Statement

• When these expenses are deducted from the gross margin, the result is net income.
• Peggy James is a CPA with over 9 years of experience in accounting and finance, including corporate, nonprofit, and personal finance environments.
• SG&A is one of the expenses subtracted from total sales (revenue) in order to calculate operating income.
• They are incurred in the day-to-day operations of a business and may not be directly tied to any specific function or department within the company.
• Other examples include paying advertisements and organizing promotional events.

SG&A includes almost every business expense that isn’t included in the cost of goods sold . When these expenses are deducted from the gross margin, the result is net income. Managers typically target SG&A for cost reductions because they do not directly affect the product or service. Remember that the more specific you are with where your money is going, the better decisions you’ll be able to make for your business.

General and administrative expenses include most daily expenses that a business incurs in operations, whether it produces goods and generates revenue or not. The most common examples are rent, insurance, utilities, supplies, and expenses related to company management, such as salaries of executives, admin staff, and non-salespeople. Selling expenses can be broken down into direct and indirect costs.It’s also one of the easiest places for management to look when trying to boost profitability. Cutting operating expenses, such as non-sales personnel salaries, can usually be done without disrupting the manufacturing or sales processes. Finally, administrative costs encompass salaries for administrative staff and executives, as well as fees or salaries for professional services such as IT, accounting, or attorneys. Includes marketing and selling of products/services, accounting, planning, human resources, research and development and maintenance of facilities.

Administrative Budget

These include not just the direct costs of sales but also the sales-supporting expenses like marketing, PR, advertising, etc. Selling expenses can be divided into distribution, marketing, and final sales costs. Many expenses facilitate the functioning of a business, and SG&A expenses form a significant portion of them. SG&A costs are the selling, general and administrative expenses of a business. These are all the costs involved in everyday operations and incurred while marketing and selling a product. Operating costs comprise all expenses for day-to-day operations, including both direct costs (raw materials, labor, etc.) and indirect costs (overhead), making SG&A a subset of total operating costs.

All of the expenses are equally distributed over the four quarters of the year. Rosemary Carlson is an expert in finance who writes for The Balance Small Business. Managing SG&A expenses effectively is crucial for enhancing profitability and operational efficiency.