Keeping your finances in check is essential, no matter the size of your business. While generating revenue is important, your bottom line will only improve if you manage your finances well.
Why Implement Expense Management Best Practices?
Organizations that effectively implement track and manage their business expenses can:
By implementing effective expense management practices, you can optimize your hard-earned resources. Regularly reviewing your expenses lets you identify areas where you can save money. You can allocate these savings towards other essential business investments to help you stay competitive.
Create a Culture of Transparency
By prioritizing expense management for everyone in the organization, you're creating a company of financially-responsible individuals. You're also encouraging transparency among everyone, from the top-level executives to the corporate newbies. You can build a stronger, more trustworthy organization when transparency is encouraged and practiced regularly.
Future-Proof Your Business
In a very uncertain economy, saving whenever and however much you can is critical. You must always have something set aside for a rainy day or two. Implementing healthy financial management practices also includes maintaining a healthy credit score. This can prove handy when applying for loans, like an SBA 7(a) loan, and negotiating longer credit lines for your business.
Ten Best Practices for Business Expense Management
Managing expenses well can be an overwhelming challenge. But it doesn't have to be overly complicated. In fact, the more straightforward practices are, the better it is for your organization. To get you started, here are ten effective expense management practices.
1. Put Emphasis on Transparency
Before introducing new practices or systems, getting the basics down is essential. You first need to emphasize the need for transparency across all business processes. Making transparency a part of the company culture makes it easier for people to understand why the company is implementing expense management practices.
2. Implement an Automated Expense Management System
When setting up an expense management system, consider automating whenever possible. Faster approvals, less "red tape," and proper documentation make it easy for people to comply. Financial management can be time-consuming, but you can help make it more convenient and straightforward for the whole company.
Before deployment of your system, make sure to have user acceptance testing (UAT). This way, you can find bugs and review the complete user journey. Through testing, you can also measure approval lead times and address potential bottlenecks before launch.
3. Assign Corporate Credit Cards
Credit cards help limit the need for extended reimbursement and cash advance processes. Some owners may hesitate to provide corporate credit cards, but you can always implement spending limits depending on an employee's level.
Additionally, banks offer detailed reports of all transactions made with the corporate credit card. This can help you monitor spending more accurately.
4. Choose Paperless When Possible
Paper trails are a thing of the past. Try to automate approvals and documentation. To add extra security, you can implement a tiering system to access your expense management system. Going paperless also helps speed things up. Instead of passing around a hard copy of a budget report from one department to another, users can access these files online.
Paper supplies can seem like a trivial expense, but it's important to save when you can. Plus, it's more than just office supplies you save on. You're also helping workers save more time to do other core responsibilities.
5. Negotiate Rates with Suppliers
To be able to negotiate rates with suppliers, it's vital to forge solid partnerships. Make sure what you're negotiating is beneficial for both parties. You're offering vendors regular business in exchange for deals like a longer credit term or discounted delivery fees.
6. Pay on Time (or Earlier)
Paying vendor partners on time or before the payment deadline offers multiple benefits. First, it helps with establishing good relationships with your partners. Second, you save yourself from penalties due to late payments. Another important reason you would want to pay dues on time is to maintain a good credit score. A good credit score is crucial if you plan on expanding your business.
7. Regularly Check Expenses
Your expenses will also look different as your business grows and the market evolves. This requires you to check your business expenses regularly. Regular reviews or audits help you see opportunities for improvement. You can identify costs you can cut back on. For example, if you're spending too much on packaging, discuss how to reduce plastic waste or unnecessary packing supplies with your product development team.
8. Assign Budget Leaders per Team for Accountability
The Chief Finance Officer is not the only one accountable for maintaining accurate expense records. Every team that incurs any expense must know how to accomplish proper budget monitoring and documentation.
There must be a manager or supervisor per team who has, at the very least, basic budget management skills. They'll be the ones to guide their teammates on how to manage their department expenses properly.
9. Reward Expense Management Champions
Consider including individuals or teams in your workforce who are champions of managing company resources. Employee recognition awards can push for better expense management practices across the board. Regular recognition and appreciation can also boost employee morale and promote a more positive company culture.
10. Be Firm but Fair
Any violation that involves company finances is a serious offense. It's essential to be firm about your company policies and implement them regardless of position or tenure.
Make sure to have a documented policy with tiering of offenses. For example, an initial offense involving a certain amount of money may warrant a suspension. But repeated violations may, unfortunately, call for an employee's termination.
It's crucial to take your company's financial security seriously. Implementing expense management best practices not only helps solidify your company's future. It also helps secure your employees' livelihoods.
Hopefully, these ten tips can help you achieve both.