Running a business whatever its size is not an easy thing to do. Whether your company offers services or sells products, one of your main goals is to make it a success. Simply breaking even is not enough to keep your business going. What you want to happen instead is to make consistent profit as it is a good indication that you are on your way to being successful.
But what exactly is profit? Oddly, despite it being a crucial business element, quite a few business owners are not clear on what it is. Investopedia, an online resource for stocks and investments information, defines it as a financial benefit. It is what’s received when the business’ revenue is more than its expenses and taxes. Unfortunately, revenue is often mistaken for profit. If your business closes a $20,000 deal, that is your revenue. However, to get the profit you would have to subtract the amount spent on closing the sale. So, if you spent $10,000 on winning the contract, then your profit is $10,000 minus taxes.
Knowing what your company is spending money on would be crucial in planning a strategy that would yield better profits. This is where expense management software will step in. But first off, you’ll need to know the basics.
Expense Management Defined
Expense Management according to AscendCFO, a third party business solutions provider, is the process wherein the costs incurred by the business are managed. These costs include but are not limited to taxes, customer acquisition activities such as marketing, customer service and business operations. It allows the expenses to be continually managed with the employees’ active participation. It is a direct contrast to an annual budget and expense review.
Expense management isn’t all about cutting costs on strategies that have a positive impact on the company’s operations. It is instead a means to ensure that the money is spent on income generating activities that help to increase revenue and profit. The focus is not to merely be within budget but rather to find a cost efficient way to do business.
According to a study done by AscendCFO on expense management, there are key elements that are essential in a successful and effective process. Below are a couple of the elements they cited.
- Defining and Understanding Those Who Initiate the Expenses – Business expenses are mostly spent by employees as they go about their jobs. From the office supplies they use and the number of minutes they spend on the company phone to business trips they are sent to. These are expenses that cost the company money. In return a certain level of performance is expected. To help employees become more aware of their spending and spending patterns, a reporting process is put in place. This also gives them a visual of their expenditures in relation to their job performance.
- Identifying What the Expenses Are For – By categorizing the different expenses, companies can do an in depth analysis of what they are spending money on. They can also identify whether these are income generating or simply costs that do not have a significant or timely ROI. With this data available, they can make adjustments in their strategies so expenses turn into worthy investments.
Pitfalls of Inefficient Expense Management
To be able to appreciate the benefits of an efficient expense management strategy, it would be useful to look at the opposite side of the coin. What are the possible consequences of overlooking expenses incurred by the company?
- Financial Loss – According to ExpensePoint, an international expense management solutions provider, not paying close attention to company expenses may result in huge financial costs. This can be due to inaccurate reimbursement claims or government fines and penalties. The latter can even have a bigger impact on your operations as non compliance to regulations often lead to investigations. Worst case scenario even include going out of business.
- Fraud – Insperity, an HR solutions company based in Texas, cited that 15% of business fraud is done through expense reimbursement. With bad expense management processes, it can take up to 24 months before it is detected. Some employees include non business related items or inflate the actual expenses incurred on business trips. While the amounts may not be considerable. These could add up and have a major impact on the company’s finances. It also creates a negative expense management culture that may quickly catch on. And before long, fraudulent claims become the standard.
- Missed Savings – Efficient expense management can help companies identify better strategies to improve profitability. As discussed earlier, profit goes up when expenses go down. With centralized data available, businesses can check for better suppliers or a more effective target market to focus on. The exact opposite situation is created with bad management processes. Companies miss out on making savings because they don’t have the vital information that can be used for analysis.
- Spiraling costs – According to Finextra, an online source for the financial technology community, there is a projected increase in the number of business travels. That means there will also be an increase in expenses for these trips. With an inefficient process in place, it would be difficult to reinforce business travel policies. This may result in costs going up without the expected income generated.
With the obvious and clear importance of expense management to your company’s success, it would certainly be beneficial for you to be on top of this. But with limited resources and time, you may find it challenging and stressful. This is where travel and expense management software becomes a necessity and a sound business investment. It allows you to automate the process to reduce errors and other negative consequences. It also gives you an opportunity to make sure that your expenses are generating ROI. Below are some of the benefits that your company can enjoy from these tools. These help you manage your costs and drive profit at the same time.
- Drive Savings – One of the pitfalls discussed earlier is the missed opportunities in making savings. Expense report management software is an effective solution to this. Your company spends money on supplies, telecoms and other business necessities. The software gives you a visual on how much is actually spent and the impact it has on your profitability. Having this date will give you an opportunity to identify where you can make changes to improve your expenditure. This could cheaper suppliers or modified policies on business equipment use.
- Accurate Expense Reporting – With the projected increase in business related trips, you will need to be able to address how your employees will spend company funds while travelling. Travel expense management software can reduce the risks of fraud or bad expense filing. Whether deliberate or not, this certainly has an impact on your business. With the right tools, your employees can easily keep a track of their spending. They will be able to update their report while they are on the trip. There will be less occurrences of lost or damaged receipts and forgotten expenses.
- Efficient Time Sheet Management– Other features that top expense management software offer are timesheet tracking and analysis. If your business offers services where you’re employees are paid based on hours worked on a project, you can track it for accurate billing. That means no revenue lost because of encoding or recording errors. It also ensures that your employees get paid accurately every single time.
- Compliance to Laws – According to Concur, an expense management solutions provider, a company that uses business expense management software can increase compliance to company policies by 20%. These policies are based on the IRS definition of legitimate business travel expenses. This means, your expense reporting will be compliant with these descriptions reducing the risks of legal problems. With no threats of fines and penalties, you can continue to drive your business towards success.
- Efficient Request and Approval Processes – Manual requisition and approval processes tend to take a while to get completed. With the hierarchical system of reviewers and approvers, waiting is not just frustrating but can also be costly. For example, plane ticket requests for your employees who will be meeting with clients often need approval. Manual approval systems usually rely on email correspondences or other processes that need to be done within the office. So, if the approvers are out of the office, the request stays pending. But with a web based expense management tool, these requests can be approved from virtually anywhere with internet access. This could include platforms such as mobile, tablets and computers. The plane tickets will be purchased and your sales team can make it to close the deal.
Whether you’re a start-up or an established business, you can improve you’re your current expense management strategies by transitioning to an automated system. There are expense management reviews that you can check online to see how other business owners such as yourself are benefiting from this innovation.
Running a successful company is never just about keeping your head out of the water. Breaking even is certainly the least of your priorities. Check the list of expense management software on Crowdreviews.com and start driving profit for your business today.
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