The general and administrative budget (sometimes called overhead budget) covers all of the cost of running your operation that cannot be directly tied to producing a product or service. These costs include expenses such as non-production and supervisory payroll, depreciation, sales and marketing, rent, insurance, etc.
Non-production payroll includes managers, sales staff, accounting, clerical, and other support staff members who are not directly involved in production. There are times, however, where you do allocate or expense all of a front-line managers time to the production budget, depending on the managers responsibilities.
Depreciation is a means used to expense the cost of a capital asset (a major asset purchased such as machinery, computers, and equipment) over the life of the asset. Essentially, it is how you report the expense associated with the use of the asset.
For budgetary purposes, I recommend using straight-line depreciation because it best reports the use of your firms’ assets. To calculate this type of depreciation, you divide the cost of the asset by the asset’s expected life. You then expense the proportional share as the depreciation expense for the period covered in the general and administrative budget.
I know that this is a very simplified explanation of depreciation and I am familiar with MACRS and other means of accelerated depreciation. However, this explanation will suffice for this summation. Also, I recommend that you consult with your CPA about the accelerated depreciation options available to your company for tax purposes.
Sales and marketing efforts are also considered to be general and administrative cost. Rent, insurance, bad debt, and any other expenses that are related to the operations of your firm but cannot be directly tied to production are also items included in the general and administrative budget.
Comments