Sales General & Administrative expenses

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What are SG&Aexpenses??

The short form from Sales, General & Administrative expenses is SG&A.

What are actually this expenses ? This type of expenses are the backbone of your business, it is the cost of doing business.

The SG&A are indirect / unproductive expenses and represent the following expenses types :

  • sales expenses that include all direct and indirect sales expenses like salaries of the sales team , advertising, rent for show rooms, etc. Under sales expenses are all direct and indirect costs incurred for the sale of the products/services
  • general expenses include all general expenses and taxes that are directly linked to the operation of the company
  • administrative expenses include all salaries of administrative and executive staff, all expenses linked to the administration of the company

Depending on the industry and business type ( B2C / B2B ) the size and set up of the SG&A varies. When designing the SG&A structure you should keep in mind that this are indirect costs and tend to have an permanent increasing trend regardless of what you do or don’t do.

Sales teams are extremely important for any company but you should keep the costs and size of the team at the “reasonable size” . The set up of your sales team should cover your market requirements and position and be able to sustain the planned growth.

General expenses are costs that can not 100% be influenced, ex. fixed taxes that you have to pay to operate your business. In this case, you have to know the rules, laws and regulations that allow you to minimize this expenses.

The administrative expenses are a key component of your business. This expenses vary based on the several factors like location , set up , size of facilities, country, region, specific of your industry, etc.

Why are SG&A important ?

The SG&A are seen as the cost of operating your business and are strictly monitored by management. The SG&A can be expressed in absolute amount and in percentage from sales. SG&A as a percentage of sales can be easily compared to other similar companies and shows whether management is spending efficiently or wasting valuable cash flow.

From a cash flow perspective, the SG&A are indirect / unproductive expenses that need to be kept under control. Too high or too low SG&A is a clear indicator, when looking at a company, that something is not properly set up and is not functioning optimal in that business.

When looking at SG&A it is utmost important to find the right balance between direct / productive expenses and indirect / unproductive expenses. Any deviation in SG&A in too much or too low can bring big problems in the company operations and business development.

The right balance is not easy to find nor to set up. TopCFO can bring you the needed support and expertise in handling this tricky and sensitive topic.

Get in touch with TopCFO for a first discussion on this topic, we are more than happy to share our experience.

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