Yes, 90%. The primary reason behind this is self-destruction rather than competition.
You may have a great idea that could change the world. But you can easily slip into the significant percentage of startup failure. This is if you are not strategic about managing your costs and expenses from day one.
Allocating and tracking employee business-related expenses will only get more complex with growth. Your business needs to have a strategic approach in place to tackle whatever challenges it brings forth. It can be a daunting task to add up all the expenses and make future projections with little financial history to go about. But that shouldn’t stop you from being serious about your finances.
In this article, we will look at some of the mistakes made when it comes to startup expense management. Additionally, we will also discuss ideas on how to tackle them. So, let’s get right into it.
Common expense management mistakes made by startups
Whether a business is a startup or a large enterprise, an expense management system is an integral part of maintaining the company’s finances. To safeguard a company against any potential losses, it is necessary first to identify the possible factors that can cause a company to fail.
Some common mistakes that startups can make that can potentially ram the company towards a dead-end are:
Losing track of receipts to validate business expenses
Having unpaid bills and dues can incur additional costs for the company. Losing track of bills to be paid can also give wrong insights into your business’s financial standing. Later on, while preparing for audits or reconciliation, it can cause uncalled delays and issues.
Your employee expense receipts are the ultimate source of truth. Whether it is for clarifying errors, reclaiming refunds or staying audit-ready. It is advisable the businesses look for solutions to maintain, track and manage receipts.
Unclear travel and expense policies with poor enforcement
It is always advisable to spell out the do’s and don’ts of the company’s travel and expense policies. Having unclear policies can open doors for fraudulent and unusual activity. Additionally, poorly defined policies can cause confusion between the employees and the finance departments.
Loosely defined and poorly enforced policies can also cause employees to make purchases above the budget. This can cause an imbalance in your company’s finance.
Little-to-no visibility into employee business expenses
Startups need to know their financial standing, at all times. Knowing where your business stands financially can help you make accurate purchasing decisions, optimize strategies, and tweak operations.
To avoid making decisions based on assumptions, the company should look into the spending trends and patterns of employees. Having insights into employee spending habits can help the finance team allocate budgets accordingly.
Not maintaining detailed expense records
The IRS imposes strict penalties on companies that aren’t compliant with its regulation. Therefore, companies have to follow specific legal rules when reporting their expenses and income. Inaccurate tax returns can also lead to a business being penalized. You can avoid this by maintaining accurate databases of all your business expenses.
Maintaining detailed expense records include having proof of expenses (receipts, invoices, forms, etc.) This helps you to stay audit-ready, in case there is an inquiry regarding your tax returns. Missing details or inaccurate information can put out a wrong impression of your business.
Spending too much time on manual tasks
Manual expense management can take up a lot of precious time. Especially when time is of the essence for growing startups, this can affect the company’s progress. Manually logging and entering expense records not only take up time but can also cause errors.
Data entry errors can also take up more of your finance team’s time to correct it. The monotonous work can also take away the enthusiasm of employees.
Ideas for tackling startup expense management
When it comes to a growing company, the strive for improvement should always be present. This applies when managing your business expenses, as well. If you haven’t gotten the right expense management process in place, it's time you consider doing so.
As your business scales, cost and expenses will increase as well. The wise thing to do is have a process in place which is ready for future growth. Below, we have listed some expense management ideas that can help your start-up prepare for future growth and scale.
Assemble a solid finance team
The finance team is responsible for forecasting the company’s financial growth, budgeting and managing expenses, and income. For example, it includes activities such as reviewing expense reports to make sure it aligns with company policies. This task can be tedious and time-consuming. Hence, it demands a team of people that can effectively handle it, even under pressure.
As a small startup just starting, you might not have a finance team yet. But as you begin to recruit more employees, you might have to start hiring people who know about finance, as well. A growing company demands your employees to make expenses on behalf of the company. Hence, it is crucial you hire a good finance team that can keep track of all your financial activities.
Ensure expense validation
Validating business expenses is necessary to ensure clarity around your company’s financial standing. When it is a small company, this can be quickly done by placing receipts on a table and mapping it with expenses. But as the company grows, it might no longer be a plausible method.
The corporate credit card reconciliation process is one of the methods to ensure expense validation. The reconciliation process is done to check if the company’s financial records match with the external financial records (credit card statements, vendor invoices, bank statements, etc.) This is done to ensure there are no missing records or suspicious activity around business expenses.
Adopt smart technology
In the present digital age, there are several tools available to help companies with expense management. It eliminates routine tasks of manually going through the expense forms, inputting expense records, and more. This helps you save time, money, and human resources.
Expense management tools can be used for expense reporting, and approval, and reviewing of expense reports. The software also has features to incorporate company T&E policies. This can help to enforce policies and increase compliance.
All these tools can help you keep track of all the company’s expenses in one system. This makes viewing and managing finances easier. Modern expense management softwares also provide meaningful insights with data analytics. This helps the finance team to measure risks and make financial decisions based on the data.
Modern expense management softwares also comes with receipts management features that can solve your receipt managing problems. In this digitally advanced age, mobile applications like receipts scanner and receipt tracking apps are readily available. The app can be downloaded on a smartphone and carried easily in the pocket. This makes expense reporting, storing receipts and receipt management a breeze.
The bottom line
With a high percentage of startups facing failure, it is inherent that the task at hand is not for the faint-hearted. Every startup has to go through tough challenges to emerge stronger. As the company evolves, there is no doubt there will be an increase in the number of employees, as well. It is now when the same, easy, and simplistic traditional approaches might not work.
The larger a company grows, the more complex its expense management processes get. Companies have to get wiser and come up with effective strategies that can help them scale seamlessly. With the usage of modern technology, businesses can identify and tackle business challenges. They can also adopt ideas that can help them in the long run.
Having a strong finance team with the help of a robust expense management tool can make the work easy for all the stakeholders. The finance team can eliminate unnecessary tasks and focus on intuitive tasks. This can help the company reduce costs and time on manual and routine tasks.
A startup can manage their business expenses better with the help of an expense management software. Are they interested in giving it a try? Schedule a demo with Fyle today to see how it works!