To generate revenue and make profits, a business also has to take care of expenses and outgoing transactions. Every business should prepare proper expense tracking and monitoring practices in place. That’s the only way to become good at expense management.
As a business aiming at great success, you can’t afford to spend more than the amount you earn. So, let’s take a look at the steps you should take to become the master of expense management.
Use expense software
First and foremost, you need to start using good expense software that lets you manage every transaction from one place. This kind of software allows you to record expense data, generate reports, and process transactions as your business grows.
The majority of accounting software tools support integrations with expense management software. This kind of software can automatically import, categorize, and sync data. Thanks to these features, streamlining the expense management system for your accounting department becomes a walk in the park.
Moreover, if you have a few employees that need to be reimbursed for business expenses or use corporate credit cards, you will benefit from supplementing your accounting system with a tool that can convert paper receipts into digital ones and collate data from different accounts.
This will give you a clear picture of how much they’re spending and how much you need to pay them back to cover the costs related to work.
Last but not least, with a good expense management system in place, you’ll always be able to access your finances and see every transaction in a few clicks from your computer or laptop.
Categorize your expenses
You can’t know how well your business is doing if you simply look at total monthly costs. When your total expenses are less than your total income, you may think that your startup is financially healthy, but this is not always the case.
For example, it’s critical to categorize your expenses to determine how much it costs your company to create the items it sells. When the cost of products sold exceeds the income generated by the products, the company is no longer viable.
Therefore, you should create categories for your expenses, including both fixed costs (such as rent, business insurance, and so on) and variable costs (such as legal fees, travel expenses, and business income taxes), and use these categories to segment all expenses in your accounting software.
Since Generally Accepted Accounting Principles (GAAP) don’t offer guidelines on which expenses to include in each category, it’s critical to develop a categorization system that is appropriate for your business model.
Restrict overspending
Tracking and recording expenses at the most granular level allows you to identify areas where your business is overspending.
For example, your sales team’s total spending may appear appropriate, but when you break these data chunks down to expose each salesperson’s individual expenses, you may discover that certain individuals spend twice as much as others while producing below-average sales results.
It’s also a good idea to keep track of the specific products your employees buy rather than generalize them as ‘software licenses,’ for example. If numerous employees purchase the same product, you may be able to save money by canceling duplicate subscriptions or getting a group price.
Even if a certain vendor doesn’t offer group subscriptions, you should reach out to them to inquire nonetheless. They usually create good deals for companies when they see that you can bring more business to them.
Only use flexible and safe payment systems
In the early business stages, your team heavily relies on the company credit card. This becomes more difficult as your team grows, especially if you have salespeople and other employees who charge expenses on a regular basis and in a variety of places.
Fortunately, there are a variety of excellent alternatives to the traditional business card. Many companies now provide expense cards that are personalized to individual employees, with monthly credit limits that may be established on an individual basis and even split down into spending categories.
This customized strategy provides you with quick and easy monitoring and guarantees that you have a comprehensive image of your team’s spending on a daily basis. Also, this minimizes the chances of unpleasant surprises at the end of the month.
Final words
Processing and paying company expenses are things you need to master properly. You may succeed with your business without a proper expense management system and practices, but that success won’t come as fast and you’ll have to invest yourself in more manual work.
So, take another good look at this guide and do your best to implement whatever you can from it at your own office.
