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The critical expense management practices for SMEs and startups

The critical expense management practices for SMEs and startups

These are specific practices you should be adopting to manage expenses on your SME or startup

Barbara Martins

If you’re running a startup or a small or medium-sized enterprise (SME), you may be familiar with the headaches that can come with managing expenses. We have previously highlighted how UK SME employees spend an average of 4.10 hours a week on financial administration, much of it likely to revolve around expense claims.

Just stop for a moment and consider the amount you pay your employees per 4.10 hours…then multiply that by 46 weeks (working year) per employee, and you’ll be presented, in black and white, with an idea of just how much an inefficient expense management practice could be costing you.

Amid the start of a business however, a properly thought out expense system may seem like a luxury. So you might not have either the time or the inclination to set one up.

Yet this can be a potentially costly mistake.

According to a survey of 4,000 UK SMEs carried out by smart payment providers Soldo, attitudes like this can become embedded in the culture of a company. Once that’s the case they can lead to institutionalised problems which hamper productivity and directly impact on finances. The survey found that:

  • In 12% of medium-sized businesses, it can take more than 8 hours to make a purchase on behalf of the company  
  • In 20% of medium-sized businesses, a purchase of this kind takes 2 to 4 hours
  • In 61% of cases the same process takes as long as an hour
Perhaps even more shocking is the fact that 30% of businesses are happy – or at the very least not uncomfortable – with finishing each month with unreconciled costs or expenses.    

Here, the cost of an inefficient expense management system is clear.

There are a few simple principles to bear in mind when you formulate an efficient expense management system, in order to ensure that your SMEs policies can adequately track and manage employee expenses, whilst still allowing for a happy and productive working environment.
  1. Keep Things Clear

    When you write your expense management policy – and it should ideally be in writing – make sure that it is both fair and easy to understand.

    Your employees shouldn’t have to wade through a 25-page booklet every time they need to claim travel or subsistence expenses, and they should know exactly what they can and cannot claim for. Your policy should also reflect the day to day reality of working in your business, so make sure the channels are open for employees to communicate where they feel you might have got it wrong or need to slightly tweak things.

    When you do make changes, make sure that they are communicated quickly and clearly to your entire workforce.  

  2. Keep Things Simple

    If you make it simple to claim an allowable expense, then your employees are more likely to make accurate claims.

    Having to fill in multiple complicated forms for every separate claim, on the other hand, is likely to be off-putting and will almost certainly lead to mistakes being made. You may be tempted to stick to a complex and rigorous system in order to discourage frivolous claims, but it will also put employees off claiming expenses they are genuinely entitled to, which will, in turn, discourage them from going the extra mile (perhaps literally) on behalf of your business.

    Bear in mind that a complex system – with a raft of paperwork and multiple authorised signatures required – is also more open to deliberate fraud, as any false claim automatically becomes harder to track down.

    An efficient solution would be automating the expenses management process with a software such as Zetadocs Expenses, which will make it all digital. That way the entire team can claim and approve expenses on the go without the need for rekeying. Besides saving time and money and spotting possible fraud easily, because all the information is right there, at a click’s distance and on a structured organising system.  

  3. Set Timeframe Expectations 

    A further factor in a user-friendly expense management system is clear submission deadlines.

    Employees should have a definite grasp of the timeframe within which they are expected to submit travel and expense claims, and when they will be – or are likely to be - reimbursed. This will help to prevent any frustration employees may feel if they are going to be left out of pocket for an unspecified period of time, and enable clearer financial planning on a weekly, monthly and annual basis.  

  4. Audit 

    An audit might traditionally be something which is imposed on a business independently, but there can be huge benefits to periodically running an audit of your own expense management system.

    By examining every step of the process you’ll be able to gauge what’s working and what isn’t, and identify those aspects of your expense policy which may no longer be suitable as your business grows and changes. Even the smallest issue, spotted early enough, could result in a significant cost-saving.

  5. Larger Businesses

    The issues faced by SMEs and startups when managing expense claims are different to those experienced by larger corporate businesses with more employees.

    Firstly, bigger businesses may well have their own dedicated finance department to deal with the practicalities, as well as enough cash reserves to enable them to clear expense claims quickly and handle the administration afterwards.

    One other major difference is that some of the world’s most successful corporations adopt a policy of simply trusting their staff. A notable example is Netflix, which boasts an expense policy which is just 5 words long – “Act in Netflix’s best interests”.

    Sadly, this is a luxury which the average SME simply can’t afford.

    Even at Netflix, despite the obvious success they have achieved, Patty McCord, Chief Talent Officer from 1998 to 2012, is quoted as saying:

     “Like most Netflix managers, I had to have conversations periodically with employees who have eaten at lavish restaurants (meals that would have been fine for sales or recruiting, but not for eating alone or with a Netflix colleague). We kept an eye on our IT guys, who were prone to buying a lot of gadgets.”

    For a startup or SME working to tight margins, the choice is obvious – adopt an effective and efficient expense management system.

    Next steps

    Award-winning expense management software, Zetadocs Expenses, is helping small and mid-market businesses become more efficient by dispensing with paper-based processes, whilst saving time and money.

    See Zetadocs Expenses in action and discover how it can transform your business by booking your free demonstration with our team HERE.

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