Effective expense management is crucial for small businesses. Those that fail to have good expense management systems in place may have ballooning costs, reduced profits and may end up failing. Business owners should make certain that they understand how to manage their expenses so that they do not get out of control. They should have strong expense management procedures and policies in place for the greatest protection. There are seven rules of expense management that all businesses should understand.
Rule 1: Fraud happens often
Businesses of all sizes are affected by fraud, including small businesses. At small businesses, the perpetrators are often trusted employees who have been working there for years before they are caught.
According to the Association of Certified Fraud Examiners, small businesses suffered a median loss of $200,000 for each fraud scheme that was discovered. This was almost twice as much as the $104,000 median loss that was suffered by large companies. The ACFE also found that there was more than $7 billion in losses from the 2,690 incidents that were investigated from 2016 to 2017, and those losses represent a fraction of the fraud that occurs.
These statistics show the importance of small business owners using strong business expense management practices. ACFE indicates that small businesses tend to lose more per incident because they are less likely to have good expense management and fraud prevention practices in place.
Rule 2: You need to be able to spot fraud
Many embezzlement schemes at small businesses happen over long periods of time because the business owners do not understand how to spot the red flags that fraud is occurring. People who are committing acts of fraud may become territorial over their jobs because they are concerned that they might be caught.
For example, a bookkeeper who keeps the books may try to keep others from checking his or her work. One employee may try to take control over the deposits and payments that are made. Signs that fraud might be occurring may include duplicate invoices, notifications that bills have gone unpaid, bounced checks or employees who suddenly appear to be living beyond their means.
Rule 3: Have an approval process
An important first step in effective expense management is having an approval process for purchases. Your business should provide employees with an expense management policy that outlines how they can go about getting approval to make purchases. The policy should let your employees know your expectations and the types of expenses that are allowed. Having a document that clearly outlines your requirements can help to keep employee spending in check.
Rule 4: Communicate with your employees
Having clear and open communication about your company’s expense policy is key to effective expense management. Your approval process should be clear and easy to understand. An ideal policy should also be simple for your employees to follow.
In addition to a clearly written policy, it is a good idea for you to train your employees on how to identify fraud. They should be encouraged to report problems that they spot to you so that you can end it early before you suffer substantial losses.
Rule 5: Enforce your approval process and pick the right tool
Enforcement should also be part of your business expense management process. If you identify misuse of your business funds, you should take prompt action to address it. Employees who fail to follow your expense policy should be reprimanded. If they have engaged in serious violations of the policy, you may need to dismiss them and to report the fraud that occurred.
Being willing to enforce your policy may serve as a deterrent to other workers who might be tempted to abuse your business’s money. You should also choose the right tool to help to make the process as autonomous as possible.
One tool that can help you to manage expenses and to control spending is using prepaid debit cards for employee expenses. You can choose how much money to place on each individual card and place restrictions on the times when the cards will work and the types of items that can be purchased with the cards. This can help you to avoid the purchase approval process by limiting the ability to spend money to the categories and amounts that you have pre-selected.
Rule 6: Reinforce your employees’ good behavior by recognizing it
Employees are like all other people and feel better when they are recognized for their good work. Taking the time to recognize your employees when they do a good job for your business can go along way to improving its culture.
Employees who feel valued are less likely to build resentment that might otherwise lead them to be tempted to steal from you. You can help them to do the right thing by rewarding good behavior with recognition and positive feedback.
Rule 7: Stay on top of your expense management policy
To make certain that your policy continues to work for your business, it is a good idea to revisit it and to make revisions to it when they are needed. Over time, the circumstances change for businesses, and situations will arise that necessitate making revisions to how you manage expenses.
Expense management can be simpler when you follow these seven rules. Opting to switch your expense methods away from approvals and reimbursements to prepaid business debit cards from Bento for Business may simplify the process even further. The cards are better than business credit cards because they allow you to exercise spending controls and round-the-clock monitoring so that you can stop fraud from happening.
The average credit card has now reached an interest rate of 16.94 percent. Debit cards do not charge interest on the balances because the money is yours. For more ideas about managing your business expenses, call Bento for Business today at 866.220.8455. We offer a free 60-day trial for our business debit cards and a simple approval process.