One of the more important terms to understand when you’ve just started running your business, especially if you want to know what’s going on with your finances is the cash flow statement.In the early days of running a business, you might not put an expense policy at the top of your agenda. Building your MVP, hiring your first team members and getting your idea off the ground probably feel like more pressing priorities.
But without a plan for managing expenses in place, it can be tricky to build a profitable business. As you grow and scale, you need a defined set of rules ready to clarify what your team can and can’t spend your company money on. If not, bad spending habits, unnecessary software subscriptions and things like expense report fraud can slip between the cracks.
To help you build your first expense policy or whip your ad hoc expense processes into shape, let’s run you through the basics of expense management (and our three-step guide to creating an effective expense policy).
In a nutshell, an expense policy is a roadmap that outlines the dos and don’ts of spending your company’s money. It’s a document that gives your team clarity over what is and isn’t an allowable expense. Plus, it should cover a step-by-step guide to how to claim expenses and even what happens if an expense dispute arises.
Every business is different, which is why a one-size-fits-all approach isn’t going to work when developing your expense policy. Instead, you need to drill down into what kind of expenses your business needs to operate effectively.
The best expense policies are designed with expense categories and budgets that meet your organisation’s unique needs. For example, if your team mostly work remotely, you might decide to set aside some extra budget that allows your team to book coworking spaces or meeting rooms by the hour (rather than forking out hundreds of dollars in office rent).
With a tailored expense policy and clear expense category parameters in place, you can reduce the risk of company money being spent in the wrong places and ensure every cent is being spent efficiently.
So, how can you design a truly bespoke expense policy for your business? Typically, it involves:
Now we’ve covered why you need one, let’s run you through three simple steps to bring your expense policy to life.
The basic building blocks of an expense policy workflow are: how are purchases made, how are they recorded, how are expenses approved and what approvals are needed along the way.
Manual expense management usually involves an employee making a purchase, taking a photo of their receipt, filling out an expense report and waiting for approvals and reimbursements. However, with an automated expense management platform, you can empower your team with pre-loaded virtual cards so they’re never out of pocket and you’re always on top of what’s being spent.
Here are three things to keep in mind when designing your expense policy:
Once the policy has been developed, you need to bring your team on the journey to implement it. Ultimately, this policy needs to be workable for your team, so make sure it’s clearly documented and easy to action so everyone is on the same page.
This could mean running an all-staff onboarding session to introduce the new workflow or even bringing your team into the planning phases of your expense policy. The key is to communicate the transition, let everyone know what role they need to play and establish timelines for launching the policy.
One of the biggest benefits of an expense management platform is how simple it is to implement. For example, Cape ditches the need for expense reports and gives each team member a virtual card that self-polices your budgets and spending limits.
There’s no need to get approval for each transaction and you can instantly track spending and even freeze cards instantly if a card is lost, stolen or unexpected spending is happening.
Remember: your expense policy shouldn’t be a set-and-forget project. As your business grows, your policy needs to evolve with you.
That could mean increasing or decreasing spending in certain categories or streamlining your processes to accommodate your growing team.
With an expense management platform, you have total control over budgets and can make these changes automatically and at scale. Plus, using virtual cards means you can instantly give new starters access to your systems so you never lose momentum.