What it means
G&A is best understood by what it is not. It excludes the direct cost of producing goods or delivering services, which sits in cost of sales, and it excludes the cost of winning customers, which sits in sales and marketing.
The category matters because these are the costs a business would still carry if it stopped growing tomorrow. They are largely fixed in the short term, so when revenue falls they do not fall with it, and the gap shows up immediately in operating profit.
In practice most companies track G&A as a percentage of revenue and watch the trend rather than the absolute number. A rising dollar figure is fine and expected as a company grows, but a rising percentage suggests the overhead is outpacing the business it supports.
Where a cost sits is often a matter of judgement, and that judgement affects reported gross margin. A customer support team might be classified as cost of sales in one company and G&A in another, so comparing two businesses means checking their accounting policies rather than assuming the labels match.
One useful nuance is the distinction between fixed and semi-variable overhead. Rent and audit fees barely move, while software licences and recruitment costs scale with headcount, and separating the two makes budgets far more honest when a hiring plan changes.
In practice
Real-world examples.
Example
A logistics company reviews its G&A after two acquisitions and finds it is paying for three separate payroll systems and two audit firms. Consolidating them cuts about $340,000 a year without touching a single driver or vehicle.
Example
A fast-growing medical devices business sees G&A climb from 12% to 19% of revenue in eighteen months. The board traces most of the increase to legal and compliance hiring ahead of a regulatory approval, and accepts it as a temporary investment rather than a cost overrun.
Example
A restaurant group negotiating a bank facility is asked to split its overhead between site-level costs and true head office G&A. The exercise reveals that area manager salaries had been buried in head office, making individual restaurants look more profitable than they were.
Formula
Calculation
G&A Ratio = Total General and Administrative Expense / Revenue x 100
A business services firm reports revenue of $12,000,000. Its G&A lines are executive salaries $620,000, finance and human resources $480,000, head office rent $300,000, insurance and professional fees $250,000, and administrative software and IT $150,000. Adding these gives $620,000 + $480,000 + $300,000 + $250,000 + $150,000 = $1,800,000. The G&A ratio is $1,800,000 / $12,000,000 x 100 = 15%. The following year revenue grows to $18,000,000 while G&A rises by 15% to $2,070,000, so the ratio falls to $2,070,000 / $18,000,000 x 100 = 11.5%, showing overhead spread across a larger base.Case study
Seen in the real world.
Merridale Instruments is a fictional scientific instruments maker used here purely as an illustrative example. Over four years it grew revenue from $9,000,000 to $21,000,000, and everyone assumed overhead was under control because operating profit kept rising.
A new finance director recalculated G&A as a share of revenue and found it had crept from 14% to 21%. The causes were unglamorous: an office lease signed for headcount that never arrived, a duplicated management reporting tool, and a consulting retainer nobody had reviewed since it was signed.
Cancelling the retainer, subletting a floor and retiring the duplicate system removed roughly $1,300,000 of annual cost. In this illustrative story the company did not become leaner by cutting people, but by noticing a ratio that had drifted while the absolute numbers looked fine.
Watch out
Common mistakes.
- Treating all overhead as waste. Finance, legal and compliance functions protect the business, and cutting them to hit a ratio target usually creates larger costs later.
- Lumping sales and marketing into G&A. Selling costs should grow with commercial ambition while G&A should not, and blending them hides which one is actually rising.
- Comparing G&A percentages across very different business models. A software company and a contract manufacturer have completely different cost structures, so the same 15% means very different things.
Questions
People also ask.
Is G&A the same as SG&A?
No, SG&A is the wider line that combines selling costs with general and administrative costs, so G&A is the administrative part of it only.
Does depreciation belong in G&A?
Depreciation on head office assets such as fit-out and administrative equipment is usually included, while depreciation on production equipment normally sits in cost of sales.
Can G&A ever be capitalised?
Only in narrow circumstances directly attributable to building an asset, such as certain costs during a construction project, and general overhead is otherwise expensed as incurred.
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