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Why business expense management should be your top 2023 priority
Posted by Carol Mahamedi
December 21, 2022
Business expense management is the process of organizing, tracking, predicting and managing all the expenses incurred in the process of running a business.
It’s important for small businesses to keep a careful record of their expenses for accurate cash flow forecasting. By monitoring expenses regularly, these small businesses can better manage their budgets and identify areas where wasteful spending can be reduced.
A comprehensive expense management system also helps minimize costs and reduce the risk of noncompliance with tax laws. Unfortunately, some owners and CEOs ignore or even avoid business expense management because it seems like a daunting task — complete with a huge pile of paperwork and endlessly time-consuming record keeping.
However, when done correctly, staying on top of business expense management can be an invaluable tool for protecting its financial stability.
What are the most common business expenses?
While any expense incurred for the explicit and rational purpose of conducting business can be considered a business expense, there are a few categories of expenses nearly every business has in common:
Office supplies. This includes any supplies you may need to buy to run your business, such as stationery, business cards, printer paper, etc.
Telephone expenses. Like the cost of phone lines (landline and/or mobile), call charges and cell phones.
Business travel costs. These are any out-of-pocket expenses that you incur for traveling for meetings or events related to your business. Expenses include hotel stays, airfares, rental cars, gas and meals.
Internet expenses. This covers the cost of any internet connection used in running your business, like a direct broadband connection or a data plan for on-the-go work.
Advertising and marketing costs. Think, promotional materials, graphic design, production costs, online advertising, print media ads (newspapers & magazines), or commercials.
Professional fees. When you pay your accountant or tax consultant, for example.
Maintenance and equipment costs. Any expenses incurred for the maintenance of assets like machinery and equipment.
Employee wages and salaries. All monies paid out towards employees’ salaries and bonus payments.
Bank or credit card fees and charges. Some banks charge certain fees for accepting or charging debit cards or opening a bank account. Fees for accepted credit card payments also fall into this category.
As you can see, the number of expenses that must be tracked and categorized correctly is excessive. That’s why it’s essential to have an organized business expense management process and clearly outlined policies in place before you start racking up more expenses than you can count!
Here are four reasons why you should prioritize business expense management
1. To streamline your processes
A clearly defined business expense management system simplifies the entire process of tracking expenses, making it easier (and faster!) to manage the financial health of your small business. If your system is automated, you can save even more time while enjoying greater financial accuracy and fewer human errors.
This can help improve the operational efficiency of your company and reduce the manual effort required in tasks like employee reimbursements, vendor payments, invoice processing and more.
2. To increase your business’ transparency
Proper business expense management provides a clearer view of your business’ finances by giving you visibility into your budgeting and a better understanding of your spending patterns. It also ensures you’re not potentially held responsible for your business’s noncompliance with rules and regulations.
The business expense policies you put into place, including who is allowed to make business purchases and how each kind of purchase will be categorized, reduce the risk of fraud, mishandling of funds, wasted expenses and non-compliance. With accurate, compliant financial data in hand, you can make better, more informed decisions about expenses in the future.
3. To reduce your unnecessary costs
By automating expense tracking and providing useful insights into your small business’ finances, business expense management facilitates better control over costs — improving efficiency across the board. With just a few clicks, you can see what expenses occur again and again, which may be redundant, and what expenses may be canceled, changed or reduced.
4. To improve your cash flow management
With a good business expense management process in place, you can better manage the timing of your incoming and outgoing cash. When you’re clear on what expenses are occurring, and when, compared to your current cash on hand, you have a better idea of what can be purchased now, and what should wait. That improves your business’ liquidity and stability.
Proper business expense management is crucial for small businesses at any stage of growth. By tracking and organizing all expenses, business owners can protect the financial future of their company, improve cash flow, reduce unnecessary expenses and increase their company’s financial transparency.
Do you have a system in place for managing your business expenses? If not, now is the time to put one into action. If a lack of time is your biggest hurdle, keep in the mind that expense management is among an array of accounting services that can be outsourced to a third-party expert.
Want more? In addition to taxes, accounting, bookkeeping and CFO services through its FinOps, Escalon’s Essential Business Services include PeopleOps (HR, benefits, recruiting and payroll) and Risk (business insurance). Talk to an expert today.