The drive for revenue by small business owners and executives demands time, focus, and resources; so much so, that expense management often becomes a secondary concern. But, since business profit equals revenues minus expenses, how a company manages its expenses has a direct impact on its bottom line and warrants attention. This formula and its outcome are especially true for small businesses, which often operate on slim margins, smaller cash on hand, and low liquidity. As a result, it is essential for business leaders and business process owners within small businesses to lock down their expense management practices. Here are five quick tips to help do just that.
- Establish a formal expense management policy today. The first step to effective expense management is the establishment of a clearly-written and clearly-communicated set of policies and procedures regarding company spending. An expense policy helps companies control costs by establishing guidelines for employees on what is and what is not reimbursable, while also incorporating best practices and highlighting preferred vendors. The establishment of a policy also communicates a company focus on performance and profitability to employees and helps establish a business discipline that is missing in many small companies.
- Make your expense policy a “living” document. What worked for the company in its early years may now be outdated; policies that worked well for fifty employees may not scale to five hundred. Establishing a small “policy council” comprised of employees, executives, and expense report processors that meets on some regular basis (quarterly or semi-annually) to review and improve the policy will help to ensure that the expense policy always reflects the company’s size, spending behaviors, and general business operations. Regular policy reviews will also help the company stay abreast of tax and regulatory changes that should impact policy.
- Centralize the expense management function. A centralized point of control in the management and processing of expense reports can help track and monitor policy compliance and work proactively to ensure that policies are well-understood by all employees. Centralized functions typically see real benefits from process efficiency and help establish a platform where best practices can be developed, shared, and refined.
- Automate the expense management process. Small businesses that deploy process automation tools for expense management report significant gains in process efficiencies via speed, accuracy, and integration as well as employee satisfaction which can all translate into increased staff productivity. Improved compliance can be an additional benefit with the more dynamic solutions that allow companies to embed their policies and best practices into the system to train employees and guide their behavior as needed. Expense management solutions can also provide real-time visibility into costs and cash liabilities to help improve cash management and company liquidity.
- Distribute and use corporate credit cards. Small businesses, particularly those that operate without a formal procurement department, need to gain control over and visibility into all company purchases. Corporate cards can be a powerful tool used in pursuit of that goal, while also streamlining the procurement process. Issuing cards for employees to use in the purchase and payment of all travel and other business-related items and services can provide a more consolidated view of company purchases and identify non-compliant transactions as well as opportunities for savings. Comparison shop card programs to determine the best rebate and user benefit programs.
These are just a handful of ways that small businesses, their owners, and their leaders can get a handle on their spending processes, policies, and culture. You need to meet people where they are; and in the case of small businesses (or any business size, for that matter), that means starting at the ground up and ensuring that you address expense management from people, process, and technology angles. The next article on this topic will continue where this one left off and provide five more tips. Stay tuned.