So, yes, general expenses, like other legitimate business expenses, are tax deductible. Other expenses, like interest, depreciation and amortization, are then deducted to produce the net operating profit or earnings before taxes (EBT). That leaves 15% for operating profit before other income, expenses-such as depreciation and interest-and taxes.” Are general expenses tax deductible?Īs general expenses are part of the operating expenses of a business, they are deducted from the gross profit (revenues minus the cost of sales or cost of goods sold), to produce the operating profit or earnings before interest, taxes, depreciation and amortization (EBITDA). If you have 35% remaining, then your SG&A should ideally be a maximum of 20%. “If your COGS is up to 65%, you have 35% left over. Manufacturing could have COGS representing a range of 60% to 65% of revenues, leaving 40% to 35%, respectively, for SG&A and operating income. In this case, the restaurant may have SG&A expenses of 30%, leaving a 20% operating profit. Labour-intensive businesses, like restaurants and hotels, may have higher SG&A expenses, in percentage terms, than capital-intensive industries such as manufacturing, which produce goods.įor example, a restaurant might have a COGS or COS of 50%, leaving a gross profit margin of 50%. “It changes depending on the industry or business that you’re in,” Barros adds. However, some businesses may have SG&A expenses ranging from 20% to 30% of sales. “Generally speaking, the SG&A can go from 15% to 25% of revenues,” Barros says. What is a typical level of general expenses in a business? “If you look below the gross profit (on the income statement), you have the selling, general and administrative costs, which add up to the overall cost of running the business,” Barros says. The graphic below shows where general expenses appear on a company’s income statement and how they are used to calculate total costs, and earnings before interest and taxes. Where do general expenses appear on the income statement? Both general and administrative expenses fall under SG&A expenses, reported under gross profit in the income statement report, also known as the profit and loss report. While general and administrative expenses are frequently grouped together, the two are quite distinct.īarros explains the nuance: “General expenses are costs the business incurs to run its daily operations, like rent, utilities, postage, office supplies, computer equipment and insurance, while administrative costs relate to the management of the business.” He says administrative costs include staff payroll, benefits, and consultant, accountant and lawyer fees. “They’re the indirect costs of running a business.” Whatever you manufacture or whatever service you provide to your clients, your SG&A are not directly related to those products or services,” Barros says. Both are variable costs that tend to go up when your sales and production rise, or decline when sales and production fall. This differs from the cost of sales (COS), what a business spends on the products it purchases from suppliers for resale, and cost of goods sold (COGS), the sum of all direct costs associated with manufacturing a product. They are fixed costs since they tend to remain stable even when production volumes change. On a company’s income statement, general expenses are categorized as indirect expenses because they do not contribute directly to the making of a product or delivery of a service. They are also called overhead.” What’s the difference between cost of sales, cost of goods and general expenses? “Rent, insurance, utilities, office supplies-all of the costs associated with the day-to-day running of the business. “General expenses are directly related to the operation of the business,” says Alex Barros, Business Advisor with BDC Advisory Services in Edmonton. They can be found in the selling, general and administrative expenses (SG&A) section of the income statement, with the three together making up a company’s operating expenses.Įxamples of general expenses include rent, utilities, postage, supplies and computer equipment. General expenses are the costs a business incurs as part of its daily operations. Growth & Transition Capital financing solutions Kauffman Fellows Program Partial Scholarship Venture Capital Catalyst Initiative (VCCI) Industrial, Clean and Energy Technology (ICE) Venture Fund
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