Expense Management Software
Published August 30th, 2016 by

Top Practices of Expense Management for Small Businesses

Top Practices of Expense Management for Small Businesses

Traveling is an essential part of any business. Traveling means expenses, expenses that need to be recorded so you can have it reimbursed. There are other expenses that an employee can accumulate and they all have to be recorded. That is why expense reports were created. Small businesses usually go the manual way of making expense reports, since they have significantly less expenses than large corporation. Using an expense management software might not be mandatory but it can still be helpful just the same. There are software that will be perfect for small and medium enterprises. Either way, these top practices can help with expense management for small businesses.

Planning the Expense Policies

The first step to successful expense management is to have a solid expense policies and regulations. Before having anyone spend your company dime, you have to set limits and boundaries. Otherwise, you might find yourself bankrupt from all the expenses your employees are accumulating. The key to an effective policy is consistency. This means being stable and uniform in doing all you do. For example, booking the same hotel when you visit the same area. If you are consistent in using the same hotel, you might find yourself getting a discount the next time you’re there. This can help save the company money if you are in the area often. Here are some guidelines when planning the expense policies of your expense management system:

  1. Define Preferences. There are many aspects to traveling like booking a flight, renting a car, leasing a place to stay and other necessities. All these should be clearly defined in the policies. As already mentioned consistency is key and this applies to all aspects of travel. Using the same agencies and establishments can get you discounts for frequent use. Another benefit is they already know you and can streamline the process for you. Some areas that need defining are travel planning services, air or land travel, hotels, payment options, transportation, entertainment, meals and communication options. Do your research before sticking to one agency or institution.
  2. Tracking Expenses. Included in the policy is how you plan to track the expenses of an employee. Say they have to travel to another state of the country. You won’t be there to check all that they are spending on. It has to be clear on the policy how expenses will be reported. You can either be traditional and have them collect all receipts and input them into a spreadsheet, then submit the report. Or you can use expense management tools which are the same expense report but automated. You can use one or the other, but be consistent in your requirements.
  3. Know the Laws. There IRS has laws regarding taxes that have to be paid when you are spending and gaining in a business. You have to be aware of these laws because you have to apply them to your policies if you make them. You do not want to tangle with the IRS over your taxes, so it is better that you know all laws that might govern spending habits of your employees. One thing that the IRS requires is that you keep all your business expenses for the last three years. But anything below $75 do not have to be documented. A well-documented expense management system will ensure that all your expenses are in order. Other than the IRS, your local government might also have its own regulations regarding these things. Make sure that you do your research to comply with the state laws. There are expense management solutions that are made in compliance with the laws; you can use them to be sure that you are complying.
  4. There will always be a time where an expense is not clearly defined in your policy. You have to create a clause where there are exceptions for your employees to use their discretion when it comes to spending. There are circumstances that might not fit into your policies exactly so a little freedom for the employee to maneuver can be given.
  5. Other than preferences, you should also mention in the policy what are the exclusions. Those that you will not reimburse if they spend on it. For example, your company will pay for their dinner but not alcohol consumption. Or you will pay for their hotel room but not the penthouse. These things have to be included in the policy so that everything is clear and there will be no question on what will be approved and rejected. The top expense management tools can be programmed in a way that they automatically reject entries that are in violation of the policies.
  6. Spending limits. Last that should be mentioned in your policy is how much is the maximum amount an employee can spend on a certain commodities. There should be a spending cap or they might pick the most expensive things. There should be a per diem rate on expenses. You can check per diem rates on everything from meals to incidentals on the internet.

Applying the Policies

After the policy is done, you now have to implement it. This is the harder part since it will now involve all employees that are spending and you have no control over them other than the policies you have made. After laying out the policies and regulations, you have to discuss it clearly with all your employees. This is so that there will be no more confusion and excuses when it is in place.

  1. Mandate of the Policy. The first step to applying the policies is to mandate it. You have to require every one of your employees to follow the policies. No one should be exempted from it, even you the owner of the business. This should not be taken lightly because according to the study conducted by Global Business and Travel Association, stricter policies can save a company up to $30 billion. This might be for larger corporations, but still mandating your employees to follow the policy strictly can save you lots of money. Mandating the preferred services in your policies will save you a lot of money because of the discounts that you might get from them.
  2. Rewards and penalty system. Implementing a rewards and penalty system will ensure that employees are following your regulations. Sometimes, simply not reimbursing them their expenditures may not work. So offering a reward to those who strictly follow the guidelines should be offered. Moreover, a penalty should be given to those who repeatedly violate the rules and regulations of your expense management system. For first offenses, a warning will do. But for repeat offenders, tell them there will be more serious repercussions of their wrongdoings.
  3. Pre-approval. This is an alternate to the rewards and penalty system. Requiring pre-approval from a manager before traveling might work but this will also require lots of efforts from the employees and the manager. Every aspect of the business trip has to be approved before they are carried out. This will work for a small business since there probably would be less travel and expenses but still it is a lot of work.
  4. Applying the policy should start with information dissemination. The policies should be clearly communicated to all your employees and managers. If you expect them to follow your rules, you have to tell them what they are. Clear communication is needed for compliance of the rules.
  5. Using expense management tools can go a long way to helping you apply your policies. This will help your employees make their expense reports easier and it will be easier for managers to approve them. Automated expense management is usually for the larger corporations, but this is a myth because small businesses can also benefit from using an automated system. If you want to find out the top expense management tools, read reviews on expense management software. You might be new to the automated system so you can have all the help you can get by reading the reviews. There are many benefits to using an expense management software. According to PayStream Advisors on their Travel & Expense Management Benchmarking, processing costs are lowered by up to 56% with the software. Visibility of spending has also improved by 55% and travel policies enforcement is also better by 55%. Even small businesses can benefit from using an automated system, so you can feel better about using them. Anyway they are scalable and can still be used when you expand your business.

The top practices of expense management should be followed by all businesses, especially those that are just starting. A well thought out plan will cover all of the possible expenses an employee might get. The tricky part is to get everyone to follow the made policies. But with the help of a great expense management software, this will be possible. Just do your research to know the perfect software for your business needs. Additionally, you can visit review sites and read expense management tool reviews.

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Trevor Price

Trevor Price helps small businesses leverage mobile technology to reach their audience and extend their capabilities in delivery, information, and tracking.

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