How do I Calculate Administrative Expenses?

Administrative expenses are costs that do not factor into a specific area of the business, such as marketing or manufacturing. It is important to accurately budget for administrative expenses, since the administration of a business is often the heart of efficient operations. To calculate administrative expenses, it is essential to keep good records and account for all possible variables. With good records, calculating expenses is as simple as adding up receipt totals.

Fixed administrative costs are those that do not usually vary from month to month. This may include things such as telephone bills, salary, or insurance expenditures. While these may periodically change, such as by hiring or losing an employee, these costs generally stay the same from month to month.

Variable costs may include some semi-fixed expenditures, such as gas or electricity bills. While these may vary slightly from month to month, they will generally stay within a close range. To account properly for semi-fixed costs, try to create an average monthly cost by adding together a year of costs and dividing by 12. This will give you an adequate idea of monthly or quarterly expenses.

Supply needs may change from time to time, causing variations in administrative expenses. Supply calculations may include items like paper, toner, or mailing supplies, but can also include larger purchases such as new computers, office furniture, or gas for company vehicles. Good record keeping is critical to keeping track of both the cost and regularity of supply orders. Keeping a simple spreadsheet file that lists the type of purchase, date of purchase, and cost, will help make supply expenditures easy to compile.

Many companies will have some discretionary administrative funds for certain purposes. These may include funds for training or seminars, holiday parties, bonuses, or employee services such as vending machines. Setting a careful budget for discretionary spending can help keep expenditures in line while providing the best opportunities for the workforce.

Businesses may also sometimes include bad payment protection into their administrative expenses. Unfortunately, nearly every business finds itself on the receiving end of a fake check or fraudulent transaction from time to time. In cases where prosecution is impractical or impossible, bad payment funds can help keep profit margins from skewing.

When administrative expenses are calculated accurately and compared to profit, it becomes easy to see where cutbacks or expansions can be made. Knowing whether it is affordable to hire another worker, look for cheaper supplies, or upgrade computer systems can all be understood at a glance by examining the budget and expenditures for administration. Experts recommend that good administrative expense tracking should be a daily task that is regularly monitored and examined for possible improvements.