Our guide to business expense management

Quick insights

• Expense management is the process of maintaining financial records, including invoicing, billing and employee reimbursement.
• Properly managing business expenses may help financial stakeholders with budgeting, forecasting and finding cost-saving opportunities.
• Many businesses use expense management software to help automate the expense management process.

Managing expenses can be useful for all types of businesses, from individual freelancers to small businesses to corporations. Keeping an eye on the money that goes in and out of a business allows key stakeholders to accurately issue reimbursements, budget and forecast.

Below, we cover what expense management entails, potential benefits of expense tracking for small businesses and how to manage business expenses.

What is expense management?

Expense management makes up a large part of business accounting tasks. When you think of expense management, employee reimbursement may come to mind. While that is an important part of the process, there are many other factors that come into play.

Additional parts of the expense management process include:

• Collecting and managing receipts for expenses
• Providing corporate credit cards to employees for business-related purchases
• Invoicing and billing clients
• Auditing business purchases
• Managing inventory and orders

Expense management can look different between companies, and one key reason for that is that each company has unique business needs.

For example, a brick-and-mortar store would likely track things like lease payments, utilities and inventory. Someone who provides virtual personal training services, on the other hand, probably won’t need to worry about those factors.

Benefits of expense tracking for small businesses

Keeping business finances organized can be beneficial for a variety of reasons, including:

Sticking to your budget

Tracking every expense allows financial stakeholders to ensure the company is sticking to its set budget. Also, data from previous expenses can be useful for creating future budgets.

Identifying cost-saving opportunities

Keeping track of expenses allows business owners to identify areas where they can cut costs. For example, if two employees purchased two different software programs that have the same function; regularly auditing spending may help financial stakeholders identify redundancies like this or other areas where dollars are not being allocated efficiently.

Monitoring employee expenses

Monitoring employee expense reports allows financial stakeholders to identify purchases that don’t follow the company expense policy. Additionally, they can check if individual employees are following any set spending limits.

Some small business credit cards, like the Chase Ink suite of credit cards, allow business owners to set employee spending limits to help avoid these issues.

How to manage business expenses

While expense management may look a little different for businesses of different industries and sizes, there are a few key steps that could apply to many companies:

Open a business bank account

Opening a business bank account can be a helpful way to separate business and personal finances. Using your business account strictly for work-related purchases may provide a clearer picture of business cash flow and help you prepare for filing taxes.

Consider expense management software

Expense management software may be a helpful way to track finances as your business grows. There are many options out there, including free software with limited capabilities that could work for freelancers or small businesses.

If you aren’t sure what program is right for you, you may want to inquire if the software provides free trials so you can test out the features before purchasing.

Establish a budget and expense categories

Creating a budget can help you stay on track for your financial goals for your business. It can also be useful to communicate the budget and any specific spending limits to employees who make purchases on behalf of the business.

Creating expense categories may be helpful as well. For example, if employees travel for work, ensure they understand how much they can spend on individual categories like airfare, meals and lodging.

Record all expenses

Whether you choose to use an expense management software program or manual spreadsheets, you’ll likely want to keep track of all business expenses. This can help you keep an eye on overall cash flow, create realistic budgets and forecast for the future.

Create an expense management company policy

If your business is made up of more than one person, it may be wise to come up with an expense management company policy. These policies may outline what is allowed as a reimbursable expense and when employees will be reimbursed each month.

Formalizing an expense management policy can help you better track cash flow. This is because you can create a schedule for when employees will be reimbursed for their business expenses.

Here are a few things to consider when creating a company expense management policy:

• Deadlines for employees to send expense reports
• Spending limits for specific expense categories
• Guidelines for using company credit cards
• Rules for submitting receipts
• Any preferred providers for airfare, lodging or other travel expenses

Analyze and evaluate business expenses

If you record business expenses without regularly analyzing them, you may miss out on useful insights for budgeting and forecasting. It may be helpful to assign a person the task of evaluating spending each month and at the end of each fiscal year. This way, you can identify spending patterns and come up with strategies for maximizing profit and reducing any unnecessary expenses.

Evaluate expense management software vs. manual expense management

Using expense management software can save businesses time by automating parts of expense management. It can also help provide accurate reporting with potentially fewer human errors.

However, some businesses choose to manually keep track of business expenses. For example, businesses that are just starting out may not have the budget for expense managing software. Or maybe they don’t have enough clients to justify the expense. Say a freelancer has five clients; they can likely keep track of expenses by using a spreadsheet without the need for advanced software solutions.

It may be wise to consider investing in expense management software as your business grows, though. The more business you get, the more expenses you’ll need to track. And this might take away time from activities that could increase revenue or grow the business further.

In summary

While managing business expenses may look a little different between companies, basic guidelines like keeping receipts and creating a company policy can help your business stay organized. Many companies opt for expense management software solutions, but that may not be necessary for freelancers or small businesses that don’t have many expenses.

If you are looking to take the next step in managing your business expenses, you may want to explore our available business credit cards.