According to a recent study, 64% of small businesses face financial challenges which limit their success. Effective expense management is key to improving their financial situation in these scenarios.
After all, expense management enables business owners to make smarter financial decisions, especially when looking to cut costs and increase revenue. Given the current economic climate, effective expense management is more crucial than ever. Despite this, many businesses rely on outdated practices.
Why is expense management important for small businesses?
An accurate and modernised expense management policy is crucial because it often reflects in a business’s bottom line.
When expenses are mishandled, vital cost-cutting opportunities are missed out on, money doesn’t stretch quite as far, and compliance is put at risk. This can lead to a series of issues.
Why do businesses struggle to manage their expenses?
There are many reasons why businesses may struggle to effectively manage their expenses. Firstly, the rising cost of living is often reflected in business expenses, with everything from travel to office supplies increasing. As such, businesses that were previously performing well financially may be feeling the pinch.
However, a lack of clear policy is often the biggest culprit behind mismanaged finances, so too is failing to use time-saving automation technology. This means human error plays a huge role in how expenses are recorded and managed, often leading to avoidable mistakes. The truth is the majority of employees are not trained in financial management, which means they are less likely to be able to handle this work independently.
Fortunately, there are many ways in which businesses can modernise this practice, ensuring that they are handling their finances correctly moving forward, including using technology such as Expense On Demand, pioneered by global director Sidd Nigam.
How to modernise your expense management.
1. Have a clear policy in place.
The first step towards modernising expense management processes is having a clear policy in place. For example, this document should clearly outline what does (and does) not qualify as a work expense to avoid confusion. Otherwise, companies may face an onslaught of expense bills for unrelated costs.
Guidance should also be provided on how to reclaim expenses and what supporting documents must be presented during this stage. Again, this will help to ensure compliance across the board. This will also serve to manage employee’s expectations relating to reimbursements, avoiding potential conflict.
In any case, it’s best to keep the policy as simple and straightforward as possible and free from complicated legal or financial jargon.
This document should be easily accessible to all employees so they can refer back to it as necessary.
2. Split expenses into different categories.
Splitting expenses into different categories can also help to modernise your expense management policy instead of using “business expenses” as a blanket term for numerous different costs.
Typical business expense categories could include:
- Operating Expenses
- Travel Expenses
- Marketing & Advertising Expenses
- Client Entertainment Expenses
- Administrative Expenses
In addition to categorising expenses, business owners must also dictate how much money can be spent on each expense.
3. Discuss payment methods.
Many businesses give their employees business credit cards. Not only is there a cost to this, but even controls in many instances are lax, because the accounting & compliance is done post the expenditure. Instead, businesses should consider giving employees a cash advance, paid directly into their bank account. Here they use their personal credit card to pay for expenses. The upside of this approach is that the employee must spend within the expense policy, and can also collect points on their card, and use it for holiday, etc.
ExpenseOnDemand, manages the risk, where the advance given can be a percentage of salary or another amount. The spend is tracked in real time, against the advance. Most importantly, the employee cannot request more than the policy limit. Our AI displays their spending pattern v/s others, which can then be used to increase or decrease their advance amount.
This gives employees a greater opportunity to be in charge of financial decisions, when they have to account for them. This makes it easier for owners to track spending and enforce policy, and also deliver a perk which all employees love - at no cost!
4. Use Software.
Working to track expenses manually can be time-consuming and often leads to mistakes. Something as simple as a data-input typo can lead to problems and confusion. Companies should look to automate this process by using the latest expense management tools and software, such as ExpenseOnDemand.
How to use Expense Management Software.
In the modern working landscape, technology is a business owner’s biggest asset. After all, it can automate and simplify tasks that would otherwise be time-consuming and stress-inducing. However, businesses must be able to choose the best software for their team and business as a whole - especially when it comes to expense management.
ExpenseOnDemand was built to simplify the expense management process by creating one centralised platform for small businesses to manage expenses, control spending, and ensure compliance across the board. By automating the process of filing and managing expenses, staying on top of spending has never been easier.
In addition to sourcing the right software, it’s crucial that business owners also use the technology in the right way. All employees should receive the appropriate training beforehand. This will ensure that it’s being utilised correctly. Furthermore, if certain legacy systems or practices have been utilised for years, the transition into new software may take some time and training and demonstrations can ease this gap.