What Are Administrative Costs? Management Methods For Businesses

What are administrative costs? This is a familiar question for businesses that want to optimize operating costs and improve internal management efficiency. This cost reflects all expenses related to business management activities, including office staff salaries, stationery costs, electricity and water, guest expenses, and other operating expenses.

Based on experience accompanying thousands of businesses in digitalizing accounting and cost management, Bizzi provides practical insights and methods for transparent, efficient, and compliant administrative cost management. Learn now!

Index

1. What is Administrative Cost?

According to the guidance in Circular 200/2014/TT-BTC of the Ministry of Finance, administrative management costs are usually recorded in account 642 - Enterprise management costs. This group of costs includes:

Salary and allowances for management and administrative department: Including accounting staff, office staff, administrative staff - human resources,...
Office supplies, electricity, water, telephone, internet costs: Serving daily administrative activities.
Meeting, reception and internal business expenses: Relating to internal administrative activities or partner communications that do not directly generate revenue.
Office rental costs, depreciation of fixed assets used for management purposes: Such as computers, printers, operating software.
Cost of services other than management: For example: legal consulting fees, auditing fees, security, office cleaning, etc.

Good control of administrative costs helps businesses:

Minimize budget waste;
Increase transparency in the financial system;
Ensure compliance with accounting and internal governance regulations.

2. Common administrative management expenses

Below are common administrative management expenses, clearly classified so that businesses can easily control and set appropriate budgets:

Personnel costs: Including basic salary, bonus, allowance, health insurance, social insurance, unemployment insurance, recruitment costs, training and other benefits for administrative and management staff.
Office expenses: Including costs of renting premises, paying for electricity, water, internet, and maintaining the building or office to maintain a stable working environment.
Cost of tools and office supplies: Including tables, chairs, computers, printers, stationery (paper, pens, ink, books), document storage equipment and other administrative support tools.
Information technology and systems costs: Includes costs of deploying and maintaining management software systems, servers, supporting hardware, office software copyrights, internal information storage and security systems.
Guest cost: Costs for welcoming partners, inspection teams, and guests to the office such as tea, water, candy, or costs for administrative meetings.
Business trip expenses: Including travel expenses (airfare, car), meals, accommodation and work allowances for leaders or administrative staff when performing duties outside the headquarters.
Legal and audit fees: Including attorney fees, legal advice, business registration fees, contract signing, internal audit, periodic financial audit and legal and tax related services.
Insurance costs: Including property insurance (house, vehicle), liability insurance, accident insurance for employees and other mandatory insurances as prescribed by law.
Internal marketing costs: Including costs for organizing internal communications, building corporate culture, developing brands within the organization to engage employees and improve operational efficiency.
Other miscellaneous expenses: Small but necessary expenses such as office cleaning fees, security, outsourced services (such as maintenance and cleaning services), travel expenses for management work, hiring technical support experts, or irregular expenses.

3. The Necessity and Role of Administrative Management Costs

Clearly understand What are administrative costs? not only helps businesses control finances effectively but also ensures stable and sustainable operations. This is a cost group that plays a key role in maintaining the organizational apparatus, from personnel, working tools to technology systems supporting operations.

Here are some reasons why administrative costs are an integral part of any organization:

Support management and operations: This is the foundation for maintaining facilities, technology and human resources for daily operations, helping the organization operate smoothly and effectively.
Manage and control arising expenses: Thanks to a clear administrative cost plan, businesses can easily monitor, forecast and handle unusual expenses.
Ensuring organizational performance and efficiency: When administrative management factors are operated optimally, labor efficiency is improved, work processing time is shortened and output results are more stable.
Save, prevent waste and budget loss: Tight management of administrative expenses helps avoid unnecessary spending, ensuring that every penny of the budget serves the right purpose.
Support in building financial and business plans: Administrative management costs are the basis for businesses to build reasonable spending plans, balance resources and allocate budgets effectively.
Increase transparency and fairness internally: Accounting and allocating costs in accordance with regulations helps ensure fairness between departments and affiliated units, avoiding unjustified differences or priorities.
Maintain and develop organizational resources: Administrative costs include staff training, investment in working tools and maintenance of technical infrastructure – all of which are factors contributing to long-term sustainable development.
Strengthening competitiveness: Enterprises with effective administrative management systems will operate more flexibly, adapt better to the market, thereby creating a clear competitive advantage.
Reduce overall costs if optimized: A streamlined administrative management system that avoids overlap will help businesses save significantly compared to manual, uncontrolled operations.
Compliance with tax laws and regulations: Identification, recording and accounting What are administrative costs? Compliance with regulations also helps businesses ensure reasonableness and validity when settling taxes and auditing finances.

4. What are the benefits of controlling administrative costs?

Although administrative costs are an indirect cost group that does not generate direct revenue, if not tightly controlled, they can silently “erode” profits and affect the competitiveness of the business. Below are the clear benefits when businesses proactively control administrative costs:

Increase business profitability: What are administrative costs if not a regular and ongoing expense? When controlled effectively, businesses can save a large portion of their budget, thereby increasing profit margins without increasing revenue.
Reduce waste and unnecessary spending: Many expenses such as electricity, water, stationery, business expenses, etc. can easily become inflated if there is no monitoring process. Control helps to cut down on expenses that do not create real value.
Improve resource efficiency: When a business has a reasonable resource management policy (human resources, tools, information systems), all expenses are allocated for the right purpose and bring maximum use value.
Increase productivity and work performance: Investing properly in systems and working tools will help employees work more effectively. At the same time, it will avoid overloading or wasting resources, leading to reduced performance.
Increase transparency and improve governance: Administrative expenses are recorded and analyzed regularly to help businesses easily evaluate the effectiveness of internal activities, thereby making timely adjustments.
Improve competitiveness in the market: Businesses that optimize costs while maintaining operational efficiency will have a competitive advantage in terms of price, speed of market response and ability to adapt to economic fluctuations.

5. How to reduce administrative costs

Understanding What are administrative costs? is just the beginning; for a business to operate sustainably, optimizing and controlling these expenses is a must. Below are practical methods to help businesses effectively minimize administrative management costs while still ensuring stable operations:

Optimize workflow: Businesses need to review all existing administrative processes to eliminate unnecessary intermediate steps. Building SOP (standard operating procedures) helps reduce work processing time, limit errors and optimize productivity.
Applying technology and digital transformation: Using comprehensive administrative management software, business process automation (RPA) systems, and cloud data storage helps reduce costs of paperwork, operating personnel, and processing time. This is a mandatory trend for businesses that want to develop long-term in the context of global digitalization.
Practical and flexible personnel training: Instead of just recruiting more employees, businesses should invest in internal training programs to improve skills and work performance. Well-trained employees will handle work faster, more accurately and limit unnecessary costs.
Review your entire recurring cost structure: Items such as rent, utilities, outsourced services or office equipment should be reviewed quarterly or annually. Renegotiating service contracts, switching to a more suitable supplier or cutting non-value-added costs will significantly improve the budget.
Building an efficient and cost-effective working environment: Green - clean - energy-saving office, setting up rules for reasonable resource usage, and optimal division of working space will help businesses reduce many operating costs.
Promote creativity and ideation among employees: Employees are the ones who directly experience administrative processes every day. Enabling them to contribute ideas for improvement will result in practical, real-world, and easy-to-implement cost-reduction solutions.

6. Common mistakes in administrative cost management

Controlling administrative costs plays a key role in optimizing operational efficiency and ensuring financial transparency for businesses. However, in reality, many organizations still encounter common errors in the process of managing administrative costs, negatively affecting budgets and operating performance.

Here are common mistakes that businesses need to avoid:

Uncontrolled costs: Due to the lack of a clear tracking and approval system, many small expenses are easily overlooked or exceed the original budget. This increases the risk of budget loss and makes it difficult to evaluate the effectiveness of spending in each accounting period.
Waste of resources: Suboptimal work processes, outdated technology or lack of investment in management support tools cause businesses to spend a lot of resources without bringing commensurate value.
Lack of coordination between departments: When the administrative, financial and other departments do not have an effective coordination mechanism, planning and cost control can easily fall into a state of overlap, lack of transparency, or even duplicate spending.
Outdated spending norms: Many businesses still apply old spending norms that are no longer suitable for current market prices, leading to incorrect budget allocation or exceeding financial capacity.
Incorrect accounting of expenditure purposes: Including expenses that do not directly serve production and business activities in administrative management costs makes financial reports inaccurate and may affect audit results or tax settlement.

7. Methods of administrative cost management

Below are administrative cost management methods commonly applied in businesses.

7.1. Develop administrative and office spending regulations

One of the first and most important steps in managing administrative costs is to develop a spending policy. This policy should include specific and clear spending rules and norms for administrative expenses, from office and maintenance costs to unpredictable costs. Spending norms help organizations control expenses, avoid waste, and ensure transparency in financial management.

Suitability: Ensure spending norms are consistent with the company's reality and requirements, meeting the specific needs of each department.
Compliance with the law: The charter must comply with the provisions of law, including regulations on insurance, taxes and other financial obligations.
Practicality: The norms must be realistic and consistent with market prices so as not to create too large a difference between the estimated cost and the actual cost.

7.2. Budget management

Budgeting is a method of establishing a clear budget for administrative activities, helping departments and divisions know exactly how much spending is allowed. Budgeting must be based on forecasted and actual expenses to determine the financial resources needed for each administrative activity.

Building a budget: Identify specific expense items such as salaries, supplies, maintenance, and technology. Each item should have a separate budget.
Budget control: Budget control helps prevent overspending, thereby protecting the organization's finances.

7.3. Use administrative cost management software

With the development of technology, administrative expense management software is becoming more and more popular. These software help track, analyze and report expenses accurately and promptly.

Expense tracking: Software like Bizzi helps record expenses related to administrative activities and automatically updates information in real time.
Analysis and reporting: The software provides detailed reports on expenses, thereby helping managers easily identify areas for improvement in cost control.
Save time and effort: Using software helps reduce manual workload, thereby improving management efficiency.

7.4. Develop a clear cost control policy

Administrative cost control policies should be designed to ensure that expenditures are reasonable and legal. These policies should include steps for checking, monitoring expenditures, and procedures for approving expenditures before they are made.

Cost Control Process: Develop a clear cost control process that helps track and approve all expenses before they are made.
Periodic monitoring: Regularly monitor and check expenses to ensure all costs are reasonable and closely monitored.

7.5. Comply with the principles when developing regulations

When developing administrative expenditure regulations, the following principles should be followed to ensure the effectiveness and long-term sustainability of the regulations:

Suitability: Make sure that the charter covers all actual costs of the organization, without leaving out necessary expenses.
Compliance with the law: The regulations must comply with current legal regulations to avoid legal risks for the organization.
Practicality: Spending norms must be based on the actual value of expenses, and cannot apply imaginary or unrealistic spending levels.

7.6. Implementing steps to build regulations

Spending regulations need to be built through systematic and detailed steps:

Drafting assignment: Designate a person responsible for drafting the spending regulations.
Field survey: Collect data from departments, markets and legal regulations to build appropriate spending norms.
Drafting details: Includes elements such as expenditure norms, settlement, records, authority and sanctions.
Consult and issue: After drafting, the regulations need to be consulted with relevant departments before being officially issued and applied.

7.7 Application of Bizzi solution technology in administrative cost management

In the context of businesses increasingly focusing on optimizing budgets and operating lean, applying technological solutions such as Automate accounting and costing processes is an inevitable trend. Software such as Bizzi Travel & Expense Helps businesses track, approve and account for administrative costs transparently, accurately and save time.

Instead of manually processing expenses such as electricity, water, stationery, hospitality costs or business expenses, businesses can:

Automatically digitize invoices and input documents,
Set up departmental spending approval processes,
Synchronize accounting data quickly and comply with regulations.

Bizzi Travel & Expense features suitable for administrative expense management:

Create and manage work proposals online

Employees can make work proposals (air tickets, hotels, allowances, etc.) right on the system.
Manage browsing via email or app, no manual paperwork required.

Automate the expense approval process

Set up approval flow by level, department.
Shorten processing time, avoid "forgotten" files.

Send and reconcile expense invoices easily

Staff take a photo of the bill with their phone, the system automatically recognizes and extracts information (OCR).
Reduce data entry time, limit errors when declaring office expenses, reception expenses, electricity and water expenses, etc.

Automatically match actual costs to approved budget

Quick comparison between initial proposal and actual costs incurred.
Limit budget overruns and detect unusual variances.

Transparent management of advances and refunds

Track advances by individual and department.
Easy accounting when refunding or settling expenses.

Detailed report by administrative item

Export reports by expense type: business trip expenses, reception, stationery, outside services...
Support cost planning and control overspending.

Integrates with accounting & ERP software

Synchronize accounting data quickly, ensuring proper accounting.
Reduce workload for accounting and administrative departments.

Conclude

In short, administrative management costs are an essential part of business operations. Controlling and optimizing these expenses not only helps save budget but also contributes to improving work efficiency, improving profits and strengthening competitiveness. In the context of strong digital transformation, understanding what administrative management costs are and applying technology solutions such as Bizzi software will help businesses automate processes, make spending transparent and aim for long-term sustainable development.

Businesses register for trial at: https://signup.bizzi.vn/bizzi-travel-expense

What are administrative costs? Management methods for businesses