Why Businesses Must Monitor and Right-Size General and Administrative Expenses
In an era of rapid economic change, businesses must maintain financial discipline to remain competitive. Thomas McCorry finds one area that often escapes rigorous scrutiny is general and administrative (G&A) expenses—the overhead costs associated with running the business, including corporate salaries, office leases, professional services, and software subscriptions. While these expenses are necessary, they can easily become misaligned with revenue trends.
To preserve profitability and agility, companies must regularly monitor their G&A costs and right-size them to reflect changes in revenue performance. This practice not only protects margins but also ensures that investment capital can be directed toward initiatives that advance strategic objectives.
Why Monitoring G&A Expenses Matters
Unlike direct costs tied to production or sales, G&A expenses often function as background expenditures that accumulate over time. Without consistent oversight, these costs can inflate and create a fixed overhead burden that undermines profitability when revenue declines.
For example, a company generating $100 million in revenue may sustain a larger finance team and higher lease obligations. If revenue contracts to $60 million but the overhead remains unchanged, margins collapse. Monitoring ensures that expenses scale proportionally, supporting sustainability across economic cycles.
The Role of Right-Sizing
“Right-sizing” refers to aligning G&A costs with the company’s current and projected revenue base. The objective is not indiscriminate cost-cutting but strategic adjustment. A leaner cost structure enhances resilience during downturns, while also ensuring that capital is deployed where it creates the most value.
Right-sizing requires periodic evaluations of expense categories to determine whether each outlay advances business goals or simply perpetuates inefficiency. This analysis reinforces a culture of accountability and efficiency throughout the organization.
Variabilizing G&A Costs
One of the most effective ways to maintain alignment between expenses and revenue is to variabilize fixed costs—shifting spending toward scalable or usage-based models. Practical approaches include:
- Outsourced and fractional services: Contracting HR, IT, or finance functions enables organizations to match costs with demand, avoiding the burden of full-time staff when activity slows.
- Cloud-based technology and software-as-a-service (SaaS): Subscription-based solutions allow companies to scale up or down based on business activity, eliminating costly infrastructure commitments.
- Flexible real estate strategies: Co-working spaces, hybrid office models, and shorter leases reduce the risk of overcommitting to physical space.
- Contract and project-based staffing: Leveraging specialized contractors or temporary talent allows companies to expand capacity only when necessary.
- Shared services arrangements: Pooling administrative functions across business units or with partner firms lowers costs without diminishing quality.
By variabilizing G&A, companies increase financial flexibility and reduce exposure to sudden shifts in demand.
Prioritizing Strategic Investment
Beyond cost control, right-sizing G&A creates opportunities to reallocate capital toward strategic initiatives. Thomas McCorry says every dollar saved from unnecessary overhead can be redirected into activities that drive competitive advantage, such as digital transformation, customer acquisition, product development, or market expansion.
Leaders must adopt a disciplined approach: expenses should be evaluated not only on affordability but also on strategic relevance. This requires a clear prioritization framework that distinguishes between essential overhead and investments that contribute directly to achieving long-term business objectives. By continuously aligning spending with strategy, businesses ensure that scarce capital is deployed where it yields the highest return.
The Benefits of Disciplined G&A Management
Organizations that consistently monitor, right-size, and variabilize their G&A enjoy several advantages:
- Sustained profitability – Proportional cost structures safeguard margins across revenue cycles.
- Operational agility – Flexible spending models enable rapid adjustment to market changes.
- Strategic capital allocation – Freed resources can be invested in growth initiatives and innovation.
- Stakeholder confidence – Investors and lenders reward disciplined financial management with greater trust and access to capital.
- Risk mitigation – Continuous alignment reduces the likelihood of disruptive, reactionary cost-cutting.
The Risks of Neglect
Conversely, businesses that fail to manage their G&A face significant downsides:
- Margin compression during periods of revenue stagnation or decline.
- Reduced flexibility, as high fixed costs limit the ability to pivot strategically.
- Reactive cost-cutting, often resulting in deeper and more disruptive layoffs.
- Missed growth opportunities, as funds tied up in bloated overhead cannot be deployed toward innovation or expansion.
A Continuous Imperative
Thomas McCorry says that right-sizing G&A is not a one-time initiative but a continuous process. Regular benchmarking against industry peers, scenario planning, and strategic expense reviews are essential disciplines for maintaining alignment. By integrating G&A monitoring into routine financial management, companies embed resilience into their operating model.
Conclusion
In today’s volatile business landscape, monitoring and right-sizing general and administrative expenses is a strategic imperative. Variabilizing overhead, maintaining proportionality with revenue, and prioritizing investment in strategic initiatives enable businesses to strengthen profitability, preserve flexibility, and position themselves for sustainable growth.
Those that treat G&A discipline as an ongoing practice will be better equipped to navigate downturns, capitalize on opportunities, and achieve long-term success.
