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Calculating administration expenses

Calculating administration expenses

Question:

What is the “ideal” percentage for administration? I was told that administration should represent 5 percent of sales.

– Frank De Lis, Owner, Rusty Moose Bar & Grill, Spokane, Washington

Answer:

Since our piece on organizing the profit and loss statement a couple of weeks ago, number of additional accounting questions have come up.

There are two challenges to your question—one is what’s defined/included in administration—do you mean fees for payroll or entire back office systems? Another related problem is the trouble relying on authoritative or standard industry benchmarks, due to both varieties of systems and people not wanting to share information (understandably). That said, there are plenty of general guidelines.

Mary Sigel, from Sigel and Associates consulting group in Berwyn, PA, responds, “We usually set up the payroll category for our clients as follows:

  • Payroll FOH
  • Payroll BOH
  • Payroll Office
  • Payroll Bonus Program (if one exists)
  • Employer's Payroll Taxes
  • Payroll Service Fee
  • Workers Compensation Ins
  • Health Insurance

If ownership is paid inside of payroll - these total costs should not exceed 35 percent.  If ownership is paid outside of payroll in distributions or other - then the total payroll costs should be 30 percent or below.  If Administration includes Employer's Payroll Taxes, Payroll Service Fees, Workers Comp Insurance, and Health Insurance - then you are correct - it should be budgeted at 5 percent. These figures are for Net Sales - Net of Sales Tax and Comps.”

More on industry benchmarks here.

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