What are business management costs? And what do they include?

Business management costs are expenses that do not directly create products but significantly impact operational efficiency and profits. If you want to understand what these costs include and how to control them, this article will provide you with the most accurate information.

1. What are business management costs?

Business management costs include all expenses related to managing and operating daily business activities. These are the costs that must be paid to maintain operations and ensure the effective functioning of the business, from hiring employees and renting offices to technical support, management, marketing, and many other aspects.

Business management costs are part of general business expenses and are not directly related to producing goods or providing services, but rather focus on the management, support, and operational activities of the entire enterprise.

2. What do business management costs include?

Based on the expenses mentioned in Point 1.3, Clause 1, Article 64 of Circular 133/2016/TT-BTC, the components of business management costs include:

1. Management staff costs: Includes costs related to recruitment, salaries, insurance, and benefits for the Board of Directors, department heads, and management staff. These costs also cover expenses related to recruiting and training new employees, as well as retaining and developing existing staff.

2. Management material costs: Reflects costs related to purchasing necessary materials, supplies, and tools, including documents, books, and office stationery that support business management tasks.

3. Office supply costs: Includes costs related to purchasing and maintaining office supplies, equipment, furniture, and utilities such as computers, printers, desks, chairs, lighting, air conditioning, and other equipment in the work environment.

4. Fixed asset depreciation costs: This is the depreciation cost of fixed assets owned by the business. It includes physical assets like machinery, equipment, and vehicles, as well as intangible assets like land use rights.

5. Taxes, fees, and charges: Includes costs related to paying various taxes, fees, and charges as required by law. This covers personal income tax, value-added tax (VAT), accounting and auditing fees, business registration fees, and other charges.

6. Contingency costs: These are reserve funds allocated to handle unexpected or unpredictable situations that may arise during business operations. This cost ensures the business has financial resources available to cope with unforeseen challenges.

7. Outsourced service costs: These are costs related to purchasing services from external providers to support management and operational activities. Outsourced services can include expert consulting, legal advisory, financial consulting, marketing services, auditing services, technical support, and many other types of services.

8. Other cash expenses: These are unexpected, non-recurring expenses not covered in the above categories that the business must pay, such as costs for conferences, client entertainment, business trips, transportation, travel, etc. It allows the business to cover unplanned expenses while ensuring transparency and compliance with financial regulations.

>> See more: The Matching Principle in Accounting: Concept, Content, and Application Examples

3. The importance of identifying management costs

Accounting for various types of management costs is extremely important and has a significant impact on a company’s development. A clear understanding of management costs helps businesses consider and optimize the use of financial resources, avoiding waste while ensuring savings. Here are the reasons why identifying business management costs is significant:

• Make smart business decisions and identify areas that need investment focus, cost reduction, or optimization to ensure sustainable growth.
• Adjust and update business strategies to align with market changes. By identifying costs that constitute a large proportion, businesses can adapt quickly to minimize negative impacts and optimize efficiency.
• Increase transparency, comply with legal regulations and accounting standards to build trust with investors, business partners, and regulatory agencies.
• Measure and evaluate the performance of management activities to identify the best methods and processes for improvement and enhancing customer value.
• Forecast and plan for the future more accurately. These figures help businesses make financial projections and determine the necessary measures to achieve their goals.
• Forecast and plan for the future accurately to determine the necessary measures to achieve goals.  

4. Accounting for corporate management expenses according to Circular 200

Circular 200/2014/TT-BTC of the Vietnamese Ministry of Finance regulates the accounting of expenses and revenue. Here is how to calculate business management expenses according to this circular:

4.1 Structure and content of account 642 – Business management expenses

Account 642 – Business management expenses is an important account in the accounting ledger system, reflecting expenses related to the management and operation of the business.

Structure and content table for business management costs

Account 642 has no ending balance, which indicates that the recorded expenses will be transferred to other accounts as described above. Additionally, account 642 has two related sub-accounts:

Account 6421 – Selling expenses: Reflects the actual selling expenses incurred during the process of selling products, goods, and providing services within the period for the business, and the status of transferring selling expenses to account 911 – Determination of business results.

Account 6422 – General and administrative expenses: Reflects the general administrative expenses of the business incurred during the period and the status of transferring general and administrative expenses to account 911 – Determination of business results.

4.2 How to calculate management costs in a business

Step 1: Identify management-related costs
First, leaders need to identify the types of costs the business incurs related to management activities. These can include costs such as salaries and allowances for management staff, management material costs, office supply costs, depreciation of fixed assets, taxes, fees, and charges, and other related costs.

Step 2: Record costs in the accounting system
After identifying the costs, management needs to record them in the business’s accounting system. Each type of cost will be recorded in the corresponding accounts in the accounting books, such as the ‘Employee salaries and allowances’ account (631), ‘Consumable materials costs’ account (633), ‘Depreciation of fixed assets’ account (642), and the ‘Taxes, fees, and charges’ account (635).

Step 3: Collect data
To calculate management costs, the business needs to collect data on the expenses in each related account, including recording the actual amount of costs incurred during a specific period.

Step 4: Calculate costs
Based on the collected data, calculate the total cost for each cost type. This may include summing up the cost amounts incurred during the period.

Step 5: Review and adjust
The business conducts a review and comparison with actual data and figures in the accounting system. If necessary, adjust the figures to ensure accuracy.

Step 6: Transfer costs
At the end of the period, the administrator needs to transfer the total calculated costs to the corresponding account to be reflected in the financial statements. Typically, management costs will be transferred to the ‘Determination of business results’ account (911) to be integrated into the income statement.

Step 7: Prepare reports
Finally, the business prepares the relevant financial reports, including the profit and loss statement, to show the total management costs within the business.

Note that the method of calculating management costs may vary depending on legal regulations and the accounting methods applied by the business. To ensure accuracy and compliance, businesses should consult specific information from regulatory authorities and accounting experts.

>> See more: What is IFRS? Importance and Transition Roadmap for Businesses

5. How to effectively optimize and control management costs

General and administrative expenses are costs that do not directly generate revenue but significantly impact the final profit. Therefore, effectively optimizing and controlling this cost group not only helps save budget but also reflects the company’s management capabilities. Below are specific methods to help businesses manage costs more tightly, transparently, and sustainably:

5.1. Standardize internal approval and spending processes

Businesses should establish a clear process for each type of expense — from proposal and approval to payment. All expenditures need to have delegated approval authority based on hierarchy and specific limits, avoiding ‘discretionary spending’ or spending without justification. This not only helps reduce losses but also increases transparency in financial operations.

5.2. Allocate budgets by department and by objective

Instead of letting departments spend arbitrarily, businesses should set periodic budget limits (monthly/quarterly) based on workload or business results. This approach helps control costs from the outset and motivates departments to use resources more effectively.

5.3. Track costs in real-time using technology

Using financial management software or revenue and expenditure management software like 1Office helps businesses record, classify, and report expenses in real-time. Automatically updated data helps accountants and leaders quickly detect anomalies, compare cost proportions between periods, and thereby make timely decisions.

5.4. Analyze cost data to find optimization opportunities

Instead of just recording, businesses should regularly analyze their cost structure to identify areas of waste. For example, an unusual increase in administrative costs might be due to fragmented purchasing, while rising external service costs could stem from a lack of long-term contracts. From there, leaders can renegotiate with suppliers or consolidate purchasing needs to get better prices.

5.5. Train and raise cost-saving awareness among employees

Many expenses arise not from strategic decisions, but from internal consumption habits. Therefore, businesses should build a culture of saving – encouraging all employees to be mindful of their responsibility in using resources (electricity, water, printing, tools…).

5.6. Periodically evaluate the effectiveness of administrative costs

There should be periodic reports comparing administrative costs with revenue, profit, or industry average costs. This helps businesses identify unusual upward/downward trends and determine a “reasonable cost threshold” for each stage of development.

Optimizing administrative costs is not simply about cutting expenses, but about restructuring operations and using resources more scientifically. A business that can control its administrative costs will have a significant advantage in terms of profitability, scalability, and long-term competitiveness.

6. 1Office CRM Business Revenue and Expenditure Management Software

It’s clear that in business management, understanding and accounting for expenses is a crucial factor in ensuring efficient and sustainable business operations. Accurately tracking and recording administrative costs is a complex and time-consuming task. However, with the support of technology, specifically the 1Office CRM revenue and expenditure management software, many businesses have solved this problem.

1Office CRM – is one of the accounting software trusted by over 5,000 businesses today. With its outstanding utilities and features, the software helps businesses:

• Track financial status anytime, anywhere, even on mobile.
• Easily monitor all debts by specific timelines.
• Automatically input data from purchase invoices, sales invoices, etc., to avoid errors.
• Support calculation and data aggregation for tax reports and financial statements.
• Debts are directly linked to orders, contracts, quotes, etc.

Get a free trial of the 1Office CRM Financial Management feature today for a completely free consultation and support.

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The above is the complete concept, regulations, and calculation method for business administrative costs that 1Office has compiled. If your business is interested in learning about business revenue and expenditure management software, contact us via:

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