Selling, general, and administrative expenses (SG&A) cover all the costs that aren’t related to production during a specific time frame. This includes things like marketing, advertising, rent, and utilities.
Basically, this category captures almost all the business expenses that don’t go into creating a product or providing a service. SG&A represents the costs involved in running a company and the expenses tied to getting its products or services to customers.
Understanding about SG&A
Selling, general, and administrative expenses are commonly referred to as a company’s overhead. These costs come up during the regular operations of a business and aren’t usually linked to any particular function or department. They tend to be unavoidable, fixed expenses like:
- Administrator salaries
- Executive travel expenses
- Rent and utilities
- Insurance
SG&A costs are pretty significant because they cover general expenses for the whole company instead of just one product line or division. This means they really impact a company’s profitability and help in figuring out break-even points or margin goals.
Because of this, when companies go through mergers or acquisitions and need to cut costs, SG&A is often one of the first areas managers target. It’s a quick win for management teams aiming to increase profits. Plus, private equity firms and strategic investors usually dive into SG&A during their due diligence when they’re eyeing an investment or acquisition.
Types of SG&A
SG&A expenses come in various forms, and the specific ones a company faces really depend on its industry and business model. These expenses can be grouped into three main categories: selling, general, and administrative.
- Selling Expenses
- General Expenses
- Administrative Expenses
Conclusion
Running a business involves a bunch of different costs, and a lot of these expenses aren’t linked to producing specific products. These overall costs fall under the category of selling, general, and administrative expenses. They’re listed separately from the cost of goods sold (COGS) and are subtracted from the gross margin to figure out the company’s net income.