Understanding Expense Management: Essential Insights for Your Small Business

How often has your business encountered a situation like this: an employee submitted an email reimbursement request for a work-related expense? A week later, the employee has not received any updates, and none of the six email recipients are aware of the status. Furthermore, the employee used an outdated form, requiring a resubmission. If this sounds familiar, your business needs a more effective expense management process.

This scenario is more prevalent than commonly understood. A 2023 survey of finance and accounting professionals found that despite the growing usage of corporate credit cards, less than half have implemented expense management software, and only 39% have a solid expense policy in place.

In this article, we'll provide you with an overview of expense management, reasons why investing in it is crucial, and highlight some tools to consider, particularly tailored for small businesses.

What is Expense Management?

It’s all about accurately recording, tracking, and reimbursing employee expenses or corporate credit card usage. A sound system lets you see everything in real time, streamlines approvals, integrates with your tech, and makes reporting a breeze. This is the essence of proactive expense management.

Understanding Fixed vs. Variable, Direct vs. Indirect Expenses

Business expenses fall into two main categories and are defined as the following:

• Fixed Expenses: Such as salaries and rent remain relatively constant.
• Variable Expenses: Such as utilities fluctuate based on usage.
• Direct Expenses: Directly tied to your products/services.
• Indirect Expenses: Like rent, they remain consistent regardless of production levels.

Employee-initiated expenses typically fall under variable costs. Your company should ideally have a process to categorize or identify these expenses accurately. Without a clear policy, your employees will be confused, and your bookkeeping will have inaccurate reporting.

Furthermore, lacking a robust system to track these details can lead to overspending or overlooking expense reports. This often results in tension between employees and managers, particularly if employees incur out-of-pocket expenses that aren't reimbursable.

Why Expense Management Matters

A well-designed expense management system alleviates various challenges, ranging from outdated reimbursement methods to difficulties in data analysis. Here’s why it’s a game-changer:

Operational Efficiency:

‍An accurate system empowers your business to analyze and control spending habits, pinpointing areas of potential overspending or resource wastage. This clarity guides better financial decisions, such as negotiating terms with suppliers, reducing unnecessary subscriptions or tools, or upgrading facilities for enhanced energy efficiency.

Regulatory Compliance.

Expense auditing is a significant requirement for all businesses to ensure compliance with tax laws and financial reporting standards. For instance, in 2023, the Financial Accounting Standards Board (FASB) mandated companies provide detailed salaries, depreciation, intangible asset amortization, and inventory expenses.

‍Strategic planning and innovation:

‍With a clear understanding of expenditure and potential savings areas, your business can turn savings into opportunities for growth and innovation.

Exploring Expense Management Tools: A Quick Overview

The right expense management tools are key to streamlining your process.

1. Ramp. Ramp’s small business corporate cards feature a 1.5% cashback and management controls, including the ability to lock and limit them to specific spending types. The card integrates with their expense management platform, which creates a customizable approval loop so those reimbursements are never lost in the email black hole.

Their system can also be integrated with Gmail and Lyft, allowing employees to file expenses on the go. These real-time updates enable a reporting system to adjust accordingly and warn of potential overspending.

2. Brex. Provides tools for creating customized budgets and expense policies. 

Employees can also file their expense reports through a mobile app. Other integrations include Slack, emails, and SMS to accurately track expenses from anywhere in the world.

3. Expensify. Expensify promises to reduce 75% of the time it takes to file, approve, reconcile, and reimburse expenses. Their software can scan receipts and import business card transactions. They offer a Visa corporate card with cash-back incentives and feature an approval workflow that can set strict limits on what type of spending is allowed. In addition, the system can be automatically synced with existing accounting platforms. 

4. Fyle. Their mobile app can track expenses through integration with other apps, such as shared transport. The tool can also automatically fill out expense information using receipts in your inbox. Fyle’s mileage tracker can record locations and calculate mileage rates according to vehicle types.

Their centralized expense dashboard shows all submitted expense reports, including real-time status. In addition, the accounts can be assigned to anyone in your department, allowing them to file on behalf of the account owner. Finally, the tool has scheduled reminders and automated emails to ensure employees submit their reports on time.

Optimize Your Expense Management with Decimal's Flexible Solutions

Don’t let expense management be an afterthought. The right system can streamline your processes, keep you compliant, and unlock opportunities for savings and growth.

Decimal partners with top tech platforms, securing optimal rates and valuable benefits for clients.

Enjoy priority customer service and the ability to “skip the line.” Decimal’s expense management service will help you implement the proper process, policies, and technologies to ensure you remain on top of your budgets and reimbursements. 

Ready to transform your expense management? Schedule a consultation with us to get started.