In the United Kingdom, SMEs are essential to the economy. But, unfortunately, every year, many SMEs fail because of cash flow issues. Expenses are one of the most crucial parts of the cash flow equation. So, a business must learn how to manage expenses in order to pay the right amount of tax, save more money, and improve the financial state of your company. This blog will inform you about one of the operating expenses categories: the selling, general and administrative expenses (SG&A).
What are Expenses and What are their Different Types?
The costs that are experienced by a company to produce income are known as expenses. These costs include tax expenses, salaries given to employees, stationery, insurance, advertisement costs, water & electricity, or any other assets, activities, and goods used for business purposes.
Following are its different types:
- Capital Expenses – are the costs that a company spends to improve or maintain its assets (fixed assets).
- Operating Expenses – are short term and recurring costs that are usually paid in the same accounting period in which they are incurred. It is categorised into two terms: selling, SG&A (selling, general and administrative expenses) and COGs (cost of goods sold).
- Non-Operating Expenses – are the costs that are not linked to the main operations of your company.
In this post, we will see one of the categories of operating expenses.
What Are Selling, General and Administrative Expenses (SG&A)?
These expenditures include the daily operating costs that are important for operating a business. SG&A expenses are not related to the costs that are incurred in producing a product or service. They include many expenses, such as management & administrative staff salaries, marketing & advertising, and rent.
Selling, general, and administrative expenses do not include the direct costs of manufacturing products or purchasing products for sale, which are worked out apart as COGS (cost of goods sold). Moreover, R&D (research and development) costs are also not included in it.
How to Work Out SG&A?
When creating KPIs (Key Performace Indicator), SG&A is one of some financial rations you may think about. The formula of SG&A is as follows:
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What are the Types of SG&A Expenses?
Many managers decide to report selling expenses and G&A expenses separately. For instance, if a company has fundamentally high selling expenses, they want their investors to know about them.
1) Selling Expenses in SG&A
These expenses are further divided into the following costs.
Direct selling expenses – are the costs that are incurred when a company sells a unit of a good or service.
Indirect selling expenses are the costs incurred before or after a sale, including web and social media costs, marketing, advertising & promotion costs, and travel & other costs related to sales activity.
2) General and Administrative Expenses (G&A) in SG&A
G&A expenses are the daily costs incurred by a company to operate, whether or not it produces goods or bring in income. These expenses include:
Quick Sum Up
We hope with the highlighted details; you will understand better about selling, general and administrative expenses. We would conclude our blog by saying that a company must bear and pay for SG&A. But you can save some of your money, and can get both short-term and long-term advantages by managing them. In the short term, you will save money by paying less tax, and in the long term, it means that you will be able to contribute more to your business and improve its financial position.
Disclaimer: This blog contains general information about SG&A.