Small Business Doctor

SG&A refers to Selling, General or Administrative expenses. This is an accounting term that refers to a line on the Income Statement. From an economist’s perspective, these are essentially all transaction costs except for General Expenses other than insurance.

Selling Expenses

Selling expenses are a company’s costs incurred to interact with its customers. These include:

• Sales Expenses: Salaries and wages of salespeople, including commissions, payroll taxes, and benefits
• Marketing: Expenses directly related to a company’s product line, services, brand, or image
• Advertising: Direct or indirect advertising to consumers, sometimes broken down into different general ledger codes
• Travel Expenses: In-person events or recurring obligations such as trade shows or client meetings

Selling expenses can be broken down into direct and indirect costs. Direct selling expenses are incurred only when the product is sold. Indirect selling expenses occur throughout the manufacturing process and after the product is finished.

General Expenses

General expenses are often necessary to run a business and are incurred regardless of the type of product or industry that a company operates within. These types of expenses include:

• Rent: Renting an office or headquarters space, as well as rent for necessary items unrelated to the manufacturing process
• Utilities: Electricity, water, internet, sewer, or garbage expenses that aren’t part of the manufacturing process
• Office Equipment: Costs of renting equipment or making one-time, non-material purchases that don’t meet capitalization requirements
• Supplies: General office supplies that are necessary for administrative personnel to carry out their jobs
• Insurance: Broad coverage necessary for operating the business

Administrative Expenses

Administrative expenses are primarily related to the cost of personnel. These employees may be internal staff or external parties who provide services for a fee. They often don’t directly interface with the manufacturing or sale of goods. These types of expenses include:

• Accounting Payroll: Manage accounting for the entire company or broad divisions
• Information Technology Payroll: IT staff or services that are available to the whole company or manage general technological operations, such as website maintenance
• Administrative/HR Payroll: Office and human resources staff that serve the entire company
• Legal Counsel: In-house salaries or paid to external firms
• Consulting Fees: Paid to external parties for administrative purposes