Construction Business Management

Article

A Review of General and Administrative Expense

In contrast to job-specific or project overhead, general overhead is the cost necessary to keep the doors of your business open that cannot easily be allocated to any one project. General overhead is commonly called general and administrative expense, or G&A, or simply overhead. G&A includes office rent, heat and air conditioning, electricity, phones/broadband, computer equipment, software, office supplies, furniture, executive and administrative salaries and expenses, outside accounting fees, legal expenses, subscriptions, advertising, non-job insurance, and similar items associated with operating your business—i.e., just about every expense that would continue even if you had no jobs under construction.

As an example, let's assume you project your construction firm's current year G&A to be $490,000 on a business volume of $10,000,000, or 4.9 percent projected G&A. So, if your total bid price for a certain job is $900,000 and includes your overhead & profit markup of, say, $105,000, it's realistic to assign $44,100 (4.9% of $900,000) of your annual G&A to that job. This forces you to recognize that the resulting net profit before taxes on the job (based on your projections) is $60,900—not the $105,000 number shown on the Overhead & Profit line of your proposal to the project owner.


Fixed vs controllable G&A expense

A construction firm ordinarily has two kinds of G&A expenses: controllable and fixed. Many controllable expenses may fluctuate greatly from one accounting period to another and often can be modified or even stopped in relatively short time. This is the first place to look when circumstances force you to cut expenses quickly, and also when you find your general overhead creeping up.


Controllable or variable G&A includes:

  • Salaries. Base pay and overtime for officers, administrative, and other employees not charged to a project
  • Payroll expenses. These include unemployment taxes, social security taxes, paid vacations, workmen’s compensation insurance, sick leave, and health and life insurance paid by the company
  • Advertising and marketing
  • Vehicle and travel expenses
  • Accounting and legal
  • Repairs and maintenance
  • Office supplies
  • Outside services (includes temporary labor)


Fixed G&A expenses are those G&A costs that remain relatively constant and cannot be readily modified from month to month. These include:
  • Rent
  • Utilities
  • Insurance
  • Loan interest
  • Depreciation

The author of this article, Nick Ganaway, was a successful general contractor for 25 years. He is a consultant in Atlanta, Georgia for contractors and other small business owners. Nick has described how to set up and manage a construction business that is profitable, enjoyable, and enduring in his book Construction Business Management: What Every Construction Contractor, Builder & Subcontractor Needs to Know.


Email

RSS Feed

Member Comments

Post Your Own Comments 
» Not a member? Register now to become one. Otherwise, login to post your comments on this article.

click here to update your log-in and member information

click here to maintain your company profile & view metrics