SG&A Selling, General, & Administrative Expenses Business Literacy Institute Financial Intelligence

sg&a meaning

Bad debt — the amount of accounts receivable estimated as uncollectible — is an SG&A expense, as well as professional fees such as those paid for legal and audit services. SG&A expenses include most expenses related to running a business outside of COGS.

  • If it’s an expense necessary to produce your product or your service, it’s COGS.
  • Typically, the lower the SG&A as a percentage of revenue is, the better.
  • Fast-rising SG&A costs make it more difficult to sustain profitability, so if a company projects SG&A cost increases will outstrip revenue growth it may decide to prioritize cost-control measures for the relevant business areas.
  • Well for starters, you can break selling expenses down into direct and indirect costs of selling a product.
  • Direct Operating and SG&A Expenses as included throughout this earnings release refers to the sum of Direct operating expenses and Selling, general and administrative expenses .
  • The president of a sewing notions company I know of had been puzzled by the profit performance of his woolen goods line.

If this is the case, then gross profit less SG&A equals pre-tax profit, also known as earnings before taxes . Operating Income Before Depreciation and Amortization shows a company’s profitability in its core business operations. This includes general office supplies necessary for administrative personnel to carry out their jobs. Managers typically target SG&A for cost reductions because they do not directly affect the product or service. Peggy James is a CPA with over 9 years of experience in accounting and finance, including corporate, nonprofit, and personal finance environments. She most recently worked at Duke University and is the owner of Peggy James, CPA, PLLC, serving small businesses, nonprofits, solopreneurs, freelancers, and individuals. When SG&A expenses are “ordinary” and “necessary” to your type of business, the IRS typically allows you to deduct them for the tax year in which they were incurred.

What Is Selling, General & Administrative Expense (SG&A)?

Some businesses prefer to list SG&A as a subcategory of operating expenses on the income statement. Other companies may prefer to separate selling expenses from the G&A costs on the financial statement instead. As these costs do not directly relate to production or sales volumes, they are generally fixed — or semi-fixed — and listed on the company’s income statement as indirect costs.

  • The selling, general and administrative expense (SG&A) is comprised of all operating expenses of a business that are not included in the cost of goods sold.
  • It’s mainly composed of what you can think of as corporate expenses such as sales, marketing, advertising, customer service, human resources, legal fees, accounting and finance, and IT expenses.
  • SG&A includes the costs of managing the company and the expenses of delivering its products or services.
  • For example, rent most likely will be a fixed dollar value every period.
  • Reducing SG&A lowers the level of revenue needed to earn a profit, which is why companies often focus on SG&A when attempting to cut costs.

SG&A expenses are an important benchmark as to the company’s break-even point. Regardless of sales, a business needs to cover this mostly fixed overhead cost before it can begin to turn a profit, so understanding SG&A is important for management to understand. Sometimes, SG&A will be a section, with items broken sg&a meaning out in individual lines. If this is the case, then different line items will have differing forecast methods. For example, rent most likely will be a fixed dollar value every period. On the other hand, advertising expenses will vary with the strategic decisions a company makes during the given period.

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Alicia Tuovila is a certified public accountant with 7+ years of experience in financial accounting, with expertise in budget preparation, month and year-end closing, financial statement preparation and review, and financial analysis. She is an expert in personal finance and taxes, and earned her Master of Science in Accounting at University of Central Florida.

sg&a meaning

SG&A expenses are closely related to operating expenses, though there are some small, technical differences. NetSuite has packaged the experience gained from tens of thousands of worldwide deployments over two decades into a set of leading practices that pave a clear path to success and are proven to deliver rapid business value.

Real-World Examples of SG&A Expenses

Reducing non-sales personnel salaries and cutting travel costs will help to regularize these costs. ShareholdersA shareholder is an individual or an institution that owns one or more shares of stock in a public or a private corporation and, therefore, are the legal owners of the company. The ownership percentage depends on the number of shares they hold against the company’s total shares.

  • It may go by other names, including the profit and loss statement or the statement of earnings.
  • We will now see some live examples of companies selling General & Administrative expenses.
  • Financial Intelligence takes you through all the financial statements and financial jargon giving you the confidence to understand what it all means and why it matters.
  • However, U.S. accounting standards treat R&D as a separate operating expense that’s not part of SG&A.
  • SG&A costs are typically reduced after a company merger or acquisition makes it possible to reduce redundancies.
  • SG&A will not include interest expense since interest expense is reported as a nonoperating expense.