Expense management has the potential to make or break a company. Quiznos — a company that once had secured $1.9 billion systemwide sales — fell as they chased expansion without looking at expenses, and complex financial demands prevented their franchises from making any profit.
Expansion and revenue growth seems lovely but you must have a strong financial base to support it. If not managed properly, finances can take down giants in months. Market shocks can hit anytime.
You must have a solid expense management system to back you up in a time of crisis.
Regular expense management allows you full control over how and when your financial means are being spent.
Let’s understand what expense management is and how you should track and manage your business expenses to battle any unforeseen circumstances and ease operations.
Expense management is the process of constantly iterating your business costs via budget creation and spend tracking to boost business efficiency and profitability.
On the surface, business expense management is about processing employee claims — which the finance department either approves or rejects — to reimburse them on time. But expense management is more than that.
It includes the creation of expense policies that govern employee expenditure and instil a culture of conscious spending into the workflow. Consistent expense management gives you control over daily, monthly, and yearly expenditures so you ensure maximum return on each dollar spent.
Corporate expense management keeps you aware of the financial state of your organization, all year long, saving you the panic during the end of the financial year.
Tackling issues doesn’t mean cutting costs but making sure all charges are there for a reason and provide maximum ROI. Unattended spending issues become a barrier to your financial models. They prevent businesses from efficient budget forecasting and thus, reduce profitability in the long run.
When you monitor expenses over months, you identify spending patterns that make up a large percentage of your expenditure. There are four ways you can do it:
Once you identify patterns, you can tackle spending issues to optimise your business efficiency and profitability.
Expense management helps you align your expenses with your budget each month. You may not be able to sync both at once, but, with consistent monthly analysis, you can understand where to control your expenses and where to allocate additional money.
When you track your expenses, you get comprehensive P&L statements that constitute everything from the cost of freelancers to one-off client lunches. Accurate P&L statements help you see whether you are on track to achieve your business’s financial goals.
When you enable employees to submit expenses and receipts in real-time, managers/finance teams can approve/reject them immediately. It results in faster reimbursements and boosts employees’ morale, thus increasing their trust in the company.
A company must protect itself from frauds like false report submission and expense amplification. A concise expense report outlines all items involved in the transaction helping you keep a tab on all employee expenses, thus preventing any abuse of company funding.
The Inland Revenue Authority of Singapore (IRAS) allows tax deductions for business-related expenses. Maintaining detailed records of your expenses helps you calculate the exact costs that are eligible for tax deductions
Although not all expenses are deductible, expenses like business licence renewal fees, employees’ salaries, and business-related travel are allowed tax deductions.
When an employee purchases on behalf of the company, they expect the money to be returned in a fixed time.
Following is how the expense management process is carried out:
Business expenses constitute ordinary and necessary costs associated with daily business operations. Some costs are fixed — like rent, salaries, and insurance — which stay consistent each month. On the other hand, variable expenses — like sales commission or shipping costs — are expected, but they’re not the same each month.
An organisation’s net profit is calculated by subtracting these expenses from net revenue.
Net Profit = Total Revenue - Total Business Expenses.
Below are the most significant operating expenses:
Sales and Marketing
Cost of Goods Sold
Categorising business expenses help you build a systemic approach for expense control. You adjust the budget anytime without compromising the product quality.
By meticulously tracking expenses, you stay on top of operational costs and manage cash flow effectively.
Corporate expense management can be challenging in the beginning. It takes time to get the hang of it. Below are more reasons why companies find expense management to be challenging:
Expense management is tricky. It includes abiding by daily and monthly expense limits, holding onto receipts, filing claims, and remembering transaction details which can be pretty overwhelming.
The most fundamental challenge of expense management is the lack of expenditures records and lost receipts. Poor visibility of a company’s expenses leads to misleading expense records. It’s hard to track expenses in real-time and pinpoint which department incurs the most expenditure and what to cut back in difficult times.
The lack of a strong expense policy gives rise to loopholes in expense management. A bad expense policy may be old or filled with industry jargon. It also has inconsistent rules —for instance, there’s no clarity on how much employees should spend on each goods or service category.
Expense policies must also constitute deadlines for submitting expense reports—delayed submission results in late reimbursement. Also, manual data entry is time-consuming and slows down the process.
Aberdeen Group suggests the average cost of processing one expense report is $20.65.
The number of expense reports directly increases with company size. Moreover, it’s not only
about monetary costs; expense reports cost time and entail the risk of fraud.
Employees often neglect travel policies as the documents come across as bureaucratic and difficult to understand. Moreover, companies fail to implement them firmly, defeating the whole purpose.
A woman in Singapore cheated her employer for $800,000 with 700 travel claims — obviously false. Such false claims hamper expense management and add to wasteful expenditure. Companies must be careful with overstated employee expenses and faltered receipts.
Every penny you spend on your business, must be accounted for. But with so many challenges, how would you ensure that your business expense management is on the right track?
We’ve gathered the best expense management practices that will help you control your expenses like a pro:
An essential part of tracking your expenses is outlining why, where, and who spends the money. For instance, you have an amount for entertainment expenses but don’t know what all added up to it. Implement rules and category mapping, so your expenses are automatically sorted as per categories, leading to a better analysis of the expenditure.
Recurring expenses constitute essential utilities to run your business like rent, phone bills, subscriptions, and bank charges. Track your recurring payments to see the organisation’s overall expenses as well as zoom into the expenditure of each employee and department. Doing this frequently uncovers opportunities for cost reduction.
Manual receipt submission is prone to error. Moreover, going back and correcting an error costs you more time. Automate the whole process to save time and improve efficiency.
Having all your invoice or receipt data in one file makes it easily accessible — you can pull out any record in seconds. It saves your financial department time so they can focus on other essential tasks.
Spend management software allows for high-speed compliance, more spend visibility, and hassle-free online expense management. With automated source-to-pay, you can easily track and report your digitised transactions. Automated expense management enables access to expense information across all levels of your enterprise.
Sophisticated software automates most of the accounting work, like core calculations, and takes charge of the revenue framework of your organisation. The best part is, with basic training, anybody can partake in the online expense management process.
Pick a spend management tool that can seamlessly collaborate with other financial management tools, so you quickly close your books.
Tie your expenses to a central business bank account to track, manage and control expenses. Issue corporate cards to your employees and gain complete control by setting spending limits.
Transactional data from your corporate card assists the finance team in getting accurate results in less time.
A budget helps you set short and long-term goals for your company. Create a budget to enjoy real-time expenditure tracking. Set your spend limits once and get notified when you’re about to reach the budget ceiling. It prevents you from going over budget.
Expert’s Advice: Budgeting is not a one-time exercise as business revenue changes over time, so you should revise your budget monthly or quarterly.
Regular audits help you get a transparent view of your expenses. With a concise audit report, you can quickly pinpoint loopholes in your financial data.
It ensures your financial statements reflect your enterprise’s present state. Audits also help you identify rooms for fraud so you can shut them down.
Create clear employee expense policies with a clear budget for spending in each cost
category. Your policy must be simple, consistent, and up-to-date, so nobody gets confused. Add clear instructions for reimbursement, including method of payment and deadlines.
The highest expenses make up the most of your overall expenditure. These can be office rent, salaries, or contractors’ fees—set benchmarks for the highest cost to maintain a budget and cut down on the excess. For instance, if travel costs cross benchmarks, try incorporating virtual meetings to bring them down.
Traditional methods like paper documents, billboards, face-to-face meetings, and events are pretty expensive. Substitute them for modern methods that reduce costs and improve efficiency. For instance, rather than using billboards or print media, use content marketing to promote your business or replace spreadsheets with expense management automation.
Manual business expense management is prone to error, also you don’t want to boss around your employees for every little purchase. Solution? Delegate expenses confidently with automated spend management systems while having 100% visibility of expenditure.
Expense management automation provides real-time oversight, so no detail misses your eye. Integrate Aspire with your accounting software to sync all your transactions and never waste more than 5 minutes closing your books.
Download this article as an e-book: Business Expense Management: Everything You Need To Know