Selling, General, And Administrative Expenses
What are selling, general, and administrative expenses?
Selling, general, and administrative (SG&A) expenses represent the expenditures a company faces in facilitating the sale of its products or services. This includes various costs, such as marketing, advertising, sales personnel expenses, and general administrative overhead like maintaining a corporate headquarters, accounting, legal services, and employee benefits
SG&A plays a key role in a company's profitability and calculating its break-even point. SG&A is also one of the first places managers look to when reducing redundancies after mergers or acquisitions. That makes it an easy target for a management team looking to boost profits quickly.
Types of SG&A Expenses:
- Selling Expenses: Include sales staff salaries, commissions, marketing, advertising, and travel costs associated with customer interactions.
- General Expenses: Necessary for business operations such as rent, utilities, office equipment, supplies, and insurance.
- Administrative Expenses: Cover staffing costs for roles not directly involved in production, such as accounting, IT, HR, legal, and consulting services.
Note: General and administrative costs are commonly reported together.
How to Calculate SG&A Expenses?
To calculate SG&A expenses, start by identifying costs that are not directly associated with producing goods. Do not include expenses such as interest and taxes in SG&A, as these are taken out of operating income. SG&A calculations can be performed for any time frame, though it's important to note that expense accounts are typically closed at the year's end. Depending on your accounting approach, cash basis accounting acknowledges only expenses that have been paid, whereas accrual basis accounting recognizes all incurred expenses, whether paid or not. Such financial details are usually found in annual reports.
