Expense management for a company can be a chore at best and a nightmare at worst. The problem is doubly difficult to solve when you have employees underneath you.
Large megacorps might have the benefit of dedicated accounting departments that can take care of expense management as part of their day-to-day duties. But managing expenses in a small business can take valuable time away from other, more important tasks which are necessary to keep the business going (such as marketing and delivery).
Here are several tips and best practices for managing your company’s expenses effectively:
1. Stay up to date on your expenses
Whether you’re a freelancer or a small business, staying up-to-date is a key part of not being overwhelmed by unnecessary administrative burdens when year-end comes along.
Also, by never letting your expense tracking go more than a week out of date, you can quickly catch expenses that are spiralling out of control before they become a problem.
2. Have a central filing system
The proverbial “receipts shoebox” has its merits — at least you know where to find all your receipts when you need them!
In this day of electronic receipts and invoices from multiple sources, proper digital filing can be difficult to achieve. This can lead to lost deductibles on your tax return.
One option is to save every receipt and bill in a central digital folder, sorted by date.
3. Invest in simple accounting software
There are numerous accounting software packages out there. Many of them are dedicated to larger businesses.
Something like FreeAgent is well-suited to freelancers and small businesses that need a certain amount of flexibility.
This solves the two first problems above as well because the accounting software will help you stay on top of your accounting (and therefore your expenses). The software also gives you a central place to store all the records for your business.
4. Link business bank accounts to your accounting software (“Bank Feeds”)
If you connect your business bank account to your accounting software, and if you ensure that all company expenses are always paid for via business accounts or credit cards, then your accounting system will automatically alert you when an expense needs to be explained.
5. Use tools like Revolut Business
Revolut Business simplifies managing staff expenditures by giving you a central location to manage all staff business credit cards. You can assign spending limits, and you will also be able to see expenditures (on your smartphone or via the web app) as they are made with each of the business cards.
You can also disable credit cards easily if you find that one of your employees is suddenly overspending.
Additionally, Revolut Business connects with many of the popular accounting software providers so that you don’t have to manually input expenses into your accounting system.
We are partnered with Revolut and so can offer you detailed assistance on how best to use it, if you wish.
6. Assign someone to regularly reduce expenses
Reducing expenses is a two-edged sword because the cheapest service is rarely the best one.
In the same breath, saving ten or twenty quid on an item you buy two hundred times a month, every month, adds up to a £24,000 – £48,000 saving in the period of a year! With those kinds of figures, you could even hire someone to dedicatedly try and get the best deal on every single supplier contract. It is time-consuming to constantly have to check and double-check existing contracts. But if your business deals heavily with suppliers, this might be a crucial post to fill inside your finance department.
7. Reward staff for finding better deals
Make employees aware of the need to save and offer them rewards if they discover better deals from suppliers. You could offer a 10 per cent cut of any savings they bring in each year. So, if they find a different supplier (of the same quality) or negotiate a lower price with an existing supplier which brings your total bill to £1,000 less for the year, then they would get an additional £100 in their final paycheck for the year.
8. Reward staff on a sliding scale for low spending on business trips
If staff spend, say, 15 or more per cent less than the approved budget for a business trip, then give them a percentage of that saving into their own back pockets.
Let’s say you decide to reward staff with “50 per cent of the money saved” during their business trip. If their business trip has an approved budget of £1,000 and they spend only £700 (i.e., 30 per cent less), then give them 50 per cent of what they saved (£300) into their back pockets, or £150.
9. Implement a well-known expenses policy
One key thing to state in a Company Expense Management Policy is that the company will not reimburse any expenses to employees that have not been priorly approved. (Perhaps there could also be a clause in there to allow for “exceptional cases”. It would be awful to penalise an employee who paid out of their own pocket for something that was essential to get a client contract that day and which thereby brought the company additional revenue!)
Make sure the policy is well-known and understood by all. A business’s funds are not bottomless, and employees should be aware of that.
The most important point in all of this is to actively manage expenses. Not caring what employees spend and not making an effort to actively reduce costs will lower net profits and cash flow. If there’s one thing that the 2020 global lockdowns taught us, it’s that there can never be too much cash sitting in one’s bank account to hold one over during rough times.
Shoaib Aslam is the co-founder of Pearl Chartered Accountants, a UK-based chartered accountancy firm that has multiple locations across London. They are experts in helping startups and established businesses with all aspects of growth, strategy, scaling up, accounting and tax planning.