Understanding how your business spends money is critical to achieving and maintaining profitability. Tracking expenses can quickly become complex for many small to mid-sized companies, especially those managing physical products or multiple departments. Two key concepts in financial reporting can help simplify this picture: Selling, General, and Administrative (SG&A) expenses and the Profit and Loss (P&L) statement.
Together, these tools provide a clear view of business health, helping leaders make better-informed decisions about operations, growth, and investment. Yet, while often discussed, SG&A is frequently misunderstood or overlooked. Recognizing what it includes and how it fits into a company’s broader financial strategy is essential to long-term success.
What Is SG&A?
Selling, General, and Administrative expenses include the day-to-day costs that support a business’s ability to operate, market, and sell. These are not the costs of producing a product or delivering a service but the costs that keep the business running.
SG&A typically includes expenses such as office or warehouse space rent, utilities, administrative staff salaries, advertising and marketing costs, insurance, travel, professional services like legal or accounting, and commissions for sales teams. These are the foundational costs that support the infrastructure of a business, making them essential to monitor even though they do not contribute directly to the creation of goods or services.
It is helpful to think of SG&A as overhead. These costs are recurring and generally stable, but they can gradually eat into profits when left unchecked. Unlike variable production costs that rise or fall with sales volume, SG&A expenses often remain constant, regardless of how much revenue is being generated.
Profit & Loss
A Profit and Loss statement is a financial report that summarizes a company’s revenues, costs, and expenses over a specific period, typically a month, quarter, or year. The P&L, also called the income statement, is one of the most widely used tools for assessing financial performance.
In a standard P&L, revenue is listed first, followed by the cost of goods sold (COGS). COGS includes all direct expenses associated with producing or acquiring the products or services sold, such as raw materials, packaging, manufacturing labor, and shipping. Subtracting COGS from revenue provides gross profit.
Following gross profit, the statement lists operating expenses. This is where SG&A appears. SG&A is subtracted from gross profit to arrive at operating income. In this way, SG&A directly determines how much profit a business retains after covering both direct and indirect costs.
SG&A and the P&L Statement
A Profit and Loss statement lists SG&A after gross profit. This placement matters because it shows how much of the remaining revenue the business spends on operations rather than on producing goods or services.
Breaking down SG&A by categories, such as marketing, administrative salaries, and office expenses, can help identify where costs are increasing and where there may be opportunities to reduce or reinvest spending.
Having precise, consistent SG&A data in the P&L also makes it easier to forecast future costs, plan budgets, and prepare for funding or audits. It helps business leaders and financial partners better understand how the company manages its resources.
Overall, SG&A within the P&L provides a clearer view of how operational expenses affect profitability and growth.
Why Monitoring SG&A Matters
SG&A expenses are often the second largest category of business costs after COGS. Despite their importance, businesses sometimes overlook them in favor of more visible expenses like inventory or production. Closely monitoring SG&A can reveal inefficiencies or opportunities for savings that would otherwise go unnoticed.
One way to evaluate SG&A performance is to calculate the SG&A-to-revenue ratio. This ratio expresses SG&A expenses as a percentage of total revenue. If this percentage increases over time, it may signal that the business is becoming less efficient. Conversely, if the ratio decreases, it can indicate improved operational control and a healthier bottom line.
This metric is handy when comparing performance across periods or between business units. It helps leaders determine whether sales growth is supported by stable operations or undermined by rising overhead costs.
Controlling SG&A Without Sacrificing Quality
The goal of SG&A is to maintain or improve operational effectiveness while eliminating waste. For example, renegotiating vendor contracts, consolidating software systems, or automating routine tasks can all reduce SG&A without affecting the customer experience.
It is essential to review SG&A line items regularly. Businesses should assess where spending aligns with strategic goals and where it does not. Some companies benefit from benchmarking SG&A categories against industry standards to determine whether certain costs are unusually high or low.
Making data-driven decisions about SG&A requires visibility into spending across departments. This is where many businesses struggle. Without integrated tools or processes, getting a complete view of operational expenses or analyzing them in real-time can be difficult.
A Modern Approach to SG&A Management
As businesses grow, the complexity of financial oversight increases. Manual tracking or disconnected tools can lead to errors, delays, and missed insights. A modern solution makes it easier to centralize data, compare trends, and stay ahead of potential issues.
FINSYNC helps businesses simplify this process. By integrating accounting, payroll, payments, and cash flow forecasting into one connected system, FINSYNC provides real-time visibility into SG&A and other key financial metrics. Business owners can track expenses, monitor performance, and make more confident decisions using intuitive tools and automated reports.
With greater clarity around SG&A, companies are better positioned to improve profitability, manage growth, and ensure long-term sustainability. When businesses align expenses with strategy, they can focus more on innovation and reduce the administration burden.
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