- Effective expense management is crucial for small businesses. Without good expense management systems, companies will see ballooning costs and reduced profits. Some will fail. Business owners must have strong expense management procedures and policies in place. We have identified seven rules of expense management that all businesses should understand.
Rule 1: Communicate with your employees
Clear and open communication about your company’s expense policy is the first step to effective expense management. Your approval process should be clear and easy to understand. An ideal policyis simple for your employees to follow, too.
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 2: Determine who should pay upfront
At many companies, employees spend money and then receive reimbursement. This can work well, especially with highly compensated employees who can cover upfront travel and entertainment expenses. Some prefer this, if it means they receive points from their personal credit cards. However, some employees simply can’t afford to cover their business expenses. If it means they miss an important meeting because they can’t afford to rent a car, it costs you money. Also, your employees may collect the points, but you lose the controls. Being able to give your employees a way to pay their expenses can make their lives better. Your business will operate better, too.
Rule 3: Have an approval process
An important 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: 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 5: Reinforce your employees’ good behavior by recognizing it
Employees 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 6: Recognize that fraud is an unfortunate reality
Fraud affects businesses of all sizes and in all industries. 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 at 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. This is just a fraction of the fraud that takes place.
ACFE data 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. Most employees are good people who do the right thing. The few who don’t can cause enormous damage.
Rule 7: Stay on top of your expense management policy
As your business changes, your policies need to change, too. Every year or so, revisit your expense policy and make any necessary revisions.
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. Our cards allow you to set controls, monitor spending, and make changes as needed. We save thousands of businesses and nonprofits time and money.
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