Expense management is the processes and policies by which companies track and reimburse employee-initiated expenses. Better expense management leads to better spend management.

This is really important right now for startups, many of which are smaller businesses. Today’s rocky business terrain is particularly concerning for small- and medium-sized businesses (SMBs), according to global market intelligence firm IDC.

IDC research suggests that SMBs in Asia Pacific (APAC) are highly concerned about economics such as inflation, exchange rates and low economic growth.

Why Is Expense Management Important for Startups?

Startups are already typically working with limited cash, time and resources. And not paying attention to expense management policies consumes more of all three. For one thing, it costs money just to process employee expense reports—and more money if they’re not accurate. Indeed, the risk of fraud and human error restricts the ease and effectiveness of auditing travel and expense reports, according to India-based market intelligence firm The Insight Partners. This, in turn, influences how much a business spends on travel and employee expenses, and even the time and cost involved in working them out.

However, even small gains in efficiency make a huge difference. Take Spark MicroGrants, a startup that gives seed grants to communities in east Africa so that people can launch their own businesses. For each of the four countries across which Spark operates, it took a day for the finance officer to reconcile all expense reports.

The finance director would review those reports, and back and forth would commence. Better expense management processes—namely, implementing an expense management software system—have saved 64 hours each month.

Common errors in not implementing expense management processes early on include:

  1. Not developing an expense management policy that defines what is covered, what is not covered and the limits and thresholds for triggering approvals.
  2. Not clearly communicating and enforcing the policy.
  3. Not keeping an easily accessible database of information for regular internal auditing as well as reporting and the external audits required for tax compliance and, sometimes, by lenders and regulatory agencies.
  4. Not regularly examining and updating the policy to keep pace with business demands and economic climate.

How Is Expense Management Different for Startups?

Enterprises can dedicate a person or several people in finance to handle processing expenses. There is at least one layer between the employee submitting the expenses and the finance team to help flag improper expenses and enforce policies.

Startups aren’t enterprises. Often everyone is reporting to someone in senior leadership—who does not have the time to comb through expense reports. There may not even be a finance person, let alone a team, to process expenses. Hiring professional accounting help here is a really good idea—even if that means contracting with an agency to help build and define the policy, as well as get best practices on how other startups are integrating technologies to streamline the process, to start.

What’s more, startups do not have the luxury enjoyed by enterprises of “we’ve always done it this way,” policies that result in untimely payments and unruly processes. Startups are fiercely competing to hold on to talent, and for employees expected to travel as a big part of their role, the expense management process will be a huge part of their overall employee experience. They will expect expense management to include mobile payment capabilities, mobile apps for easy entry and more.

What’s more, expense management guidance that is relevant for more established businesses or enterprises doesn’t always apply to startups, and being able to drill into and analyse data can help small firms categorise and justify spend.

For example, travel-related costs for employee retreats at which team building or team collaboration exercises take place may end up resulting in valuable ideas for new products and services, or expedite progress on projects already underway, delivering a return on investment that might be difficult to quantify without data to unpack the organisational value of the relevant product, service or project. Moreover,

If a startup can trace major product ideas to employee retreats, then spending more on such travel expenses than a larger enterprise would could, in fact, turn out to be a sound business strategy. But how will a company know that if it can’t track and analyse expenses?

Startup Expense Management Basics

Keeping track of employee-initiated expenses is necessary for tax purposes. That’s true for all companies. For startups, added benefits include finding insights to reduce burn rates and for tailoring expense policies to fit the kind of business being built and the industry in which it is operating. As noted by the Australian Government, a startup’s costs will depend on the type of business, the business structure and the market segment it’s entering.

How do you get started with expense management as a startup?

  1. Determine how much your company will spend on travel and other expenses. What a company can expect to budget for business travel will depend on the nature of the business itself and the regions to which its employees regularly need to travel. For example, the daily cost of business travel in Sydney, Australia, is US$387.80, according to Statista. In Auckland, New Zealand, it is US$249.42, and in Singapore, it is US$309.14. Meanwhile, in Manila, Philippines, it is US$204.02.
  2. Write an expense policy. This should include:
    • A list of qualified expenses, how to submit a claim and the schedule for reimbursement. Typical categories of allowable expenses include transportation, accommodation, parking fees, meals and car hire. It’s a good idea to check with the taxation authority in your country for more detailed examples of allowable expenses. .
    • Expense limits that fall within reasonable parameters. As noted previously, this will vary depending on the regions to which employees need to travel. Online travel expense calculators such as the one provided by Travelex can give business owners some idea of how much needs to be budgeted for their employees to visit specific locations for work.
  3. Consider subcontractors: Will standard policies extend to them, or do you need a separate document?
  4. Have top executives communicate the policy. Set the tone early on about the consequences of not adhering to guidelines. In cases where employees use their own credit cards and are reimbursed, the process for denials will be different from employees who use company-paid cards.
  5. Establish a process to review and approve expenses and to retain those records. Log all expenses so that they can be easily accessed and tracked according to the relevant national taxation rules by which the business chooses to report income and expenses—the process is different for the cash method versus the accrual method.

By putting these processes in place, you’ll be in a position to use expense data to inform growth strategies.

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How Does Expense Tracking Help a Startup Grow?

Tracking expenses helps startups properly fund initiatives to give them their biggest chance at success. For example, Spark MicroGrants can see how much a taxi ride costs in Burundi vs. Rwanda; that insight helps the company equip its field teams with proper resources. Maybe a rental is more economical for some trips.

It also helps the organisation make more strategic decisions about where to control costs and expand services based on data, not guesswork. A solid expense management process allows the company to be “ready for those crazy conversations,” said Spark MicroGrants’ director of finance and operations.

In this way, Spark MicroGrants uses expense management software to better track, manage and process expenses.

Additionally, automating the process of tracking and processing expenses also frees up time for more value-added work. This is because companies that automate the expense management process are in a position to dramatically cut down the time and money spent on manual expense-related tasks.

For startups, this means that valuable human resources – which are often in short supply among early-stage startups in particular – can be put into areas of the business where they will generate the greatest tangible return, such as sales, product development or marketing.

How Does Expense Management Software for Startups Work?

For employees, expense management software makes it easier to file expense reports, saving time. For startups, the key benefit is to flag outliers and better track expense claims for a better picture of employee initiated spend.

Choose the right expense management software for your business by considering the following:

  • Will you need multi-language or multi-currency support?
  • Will your employees be working from multiple locations across the country or the globe?
  • Is there mobile support, especially for capturing paper receipts, as well as GPS integration for mileage tracking?
  • Are there prebuilt integrators that will make it easier for the expense management system to communicate with the AP and payroll systems for streamlining transaction-to-reconciliation processes?
  • Will the software scale as the business grows and changes?
  • Does it have dashboard and reporting capabilities for easy access to information for audits, both for internal analysis and external regulatory compliance?

Because it supports these scenarios, cloud-based expense management software is a good choice for startups.