The most common understanding of expense management relates to employee-initiated expense and the systems/processes that a company must put in place to authorize, pay, and audit these transactions. These costs generally include travel and entertainment. Employees must follow workplace policies or have pre-approval before spending, then provide proof of the transaction (typically with a receipt).
While this consideration is definitely critical for companies that are scaling and hiring staff, what about small businesses that are starting out and managed by the owner? There may be no team to manage in the first year, but multiple expenses to incur and report. This can include digital advertising, subscriptions for software, consulting, home office equipment, and utilities. Sole proprietors, freelancers, consultants, and other entity/business types still need help with expense management. Here are the top 3 items that business owners and finance teams must control with expense management.
reporting AND REIMBURSEMENT
With newly formed companies, entrepreneurs end up making business purchases on personal credit cards — also common with employees & managers (over 50% of the time) in established workplaces. At the end of the month, credit card statements and receipts need to be reported and reimbursement requests submitted. Non-business transactions, balances, and limits are often shared as part of the process, exposing personal information of the employee/owner.
With reimbursement, there can be lag times in processing these types of request, which can cause personal cash flow issues. Before a credit is provided, business owners (or accounting teams) need to ensure the transaction is valid and that they have all the necessary documents for end of year reporting. The whole reimbursement process can take weeks based on submission deadlines and payroll cycles.
For the solopreneur especially, the critical concern comes down to timely reporting, organization of expenses, and recordkeeping for tax purposes. Making sure each transaction is properly registered & maintaining records for potential audits is vital. Even more so, being able to do this while still running their daily business operations!
TAX, EXPENSE POLICY AWARENESS
What are proper expenses to report as a business owner?
What employee purchases are eligible for reimbursement?
These are critical questions all companies must address upfront. It’s too manual (and painful) of a process to go back through month’s of transactions after the fact. When managers and employees follow what’s ‘in policy’ and keep proper transaction records, there’s minimal work to be done afterward (in this happy path).
The difficulty comes when policies are documented in an outdated employee handbook, or continuously change without notifying staff. New transaction types may emerge that aren’t covered by policy, but should be considered valid business expenses. Business travel, conference tickets, marketing placements are constantly influx.
Companies are making strides in updating internal polices in near real-time and quickly posting in employee portals for visibility. There is still opportunity in modernizing the overall process with the latest financial products.
Nearly 20% of overall fraud (in US & Canada) during the pandemic came from reimbursing business expenses.
Even though business travel slowed down in the last 2 years, the number of out-of-policy reimbursement requests doubled — impacting more than 20% fraud reported by small businesses.
Lack of internal policy updates and open-use corporate cards allowed rampant abuse and fraud in the workplace.
Beyond the monetary loss and resources needed to process fraud disputes, internal investigations need to take place into employee activities. Those who are found to be at fault are often terminated immediately — impacting a company’s staffing resources and workplace culture.
MODERN FINANCIAL SERVICES ARE AVAILABLE
Go to Publisher: Articles – FinTechtris
Author: William Morales, Founder