Creating An Expense Policy That Works For Your Startup
By Nick Evered | Startup founders and leaders have an awful lot on their plate, wearing multiple hats and overseeing operations while focusing on building and expanding their product or service. While developing the best business model and market strategy is essential, founders can’t neglect the critical task of establishing efficient, internal policies and processes.
Expense and accounts payable are two key areas that startups often overlook, preferring to rely on manual data entry and the good old spreadsheet. When a company first starts, it’s relatively easy to keep track of spending with just four or five people.
However, the limitations of the spreadsheet become evident when the business expands. Often, the difference between profit and loss in a small or medium sized business comes down to supplier invoice and expense management.
While startup founders often don’t anticipate getting sucked into the expense mess and invoice deluge, setting the right spend management system in place helps to streamline and manage business processes, reduces grey areas, and places accountability back into the hands of staff.
Get started with a strong set of and expense guidelines
Startups with ambitions for growth can save themselves a great deal of trouble if they develop a set of spend management guidelines from the beginning. Setting clear instructions is vital in every aspect of a business, particularly with your most valued audience–your employees. Managing travel and expenses is no exception.
A formal expense policy provides employees with knowledge of what they can and cannot submit as reimbursable while providing the business with visibility into budgets. Having this protocol in writing will cut down on expense report fraud, which is often unintentional, but can have significant consequences. According to a 2016 report by Oversight Systems, 20% of employees claimed at least one noncompliant purchase per expense report, and 10% had at least one duplicate expense averaging more than US$50.
Creating employee travel and expense policies from scratch for startups might seem overwhelming, but it does not have to be complicated. Some simple considerations for developing the policy framework are:
Introducing to the policy: Why is there an expense policy? Provide basic guidelines on whom the policy applies to (managers and employees) as well as the date of policy implementation.
At large organizations, not having an expense policy is not an option. In fact, most employees would expect to receive an expense policy briefing on their first day. This is different in a startup where employees expect a relaxed, policy-free environment.
As such, it is essential for startups to properly introduce their expense policy, positioning it not as a bureaucratic process but rather as a way to show their employees that the company is being thoughtful about how its money is being spent. Setting the right mindset about the company’s expense policy can go a long way in ensuring that the guidelines are followed.
Employees’ and managers’ responsibilities: What should employees do to comply with policy? When do managers or founders approve claims? What happens if employees fail to comply with policy? These should be mapped and communicated.
For example, claims should be submitted within three months from receipt date, and in the scenario that employees don’t comply with the policy, potential outcomes could be delayed reimbursement or rejected claims. Persistent or deliberate non-compliance, such as missing receipts, could also result in disciplinary action.
While most startups prefer a more relaxed, free-spirited working environment, it is still important to identify the responsibilities of all employees including managers.
Fraud, bribery, and corruption: What is the company’s approach to corruption–does it follow any local or international relevant anti-bribery laws like the Sunshine Act? This is critical as startups start expanding throughout the region. What is the company’s stand on offering or accepting a bribe, or behaving corruptly in anticipation of a bribe or advantage?
Suggest costs for expenses that would typically be reimbursed including travel, accommodation, and other miscellaneous spend items. This should cover basics, such as preferred suppliers and booking methods, and acceptable fares (e.g., lowest logical fare vs. the cheapest), etc. What class of travel can be booked and would low cost carriers be the preference? How far in advance must trips be booked and are pre-approvals needed before employees book travel or spend?
Providing clear guidance for spending can be helpful for startups especially, as the nature of the business that often requires travel without the time to get the budget pre-approved. This is different in large organizations where travel plans are likely to be scheduled in advance, giving employees and managers time to review and approve spending.
Exclusions: This is a list of things that your expenses policy won’t cover, so people don’t try to claim for these. For example, credit, debit and charge card fees (including interest, annual costs), laundry service, mini-bar contents, and any personal elements. Being a startup does not mean that the business should be encouraging free-spending habits. While some employees may be interested in working with startups that spend freely, they will stay at the ones that can save money for the future.
Share it: Your policies won’t be adhered to unless employees know about it. Make sure it’s accessible. This means going beyond just attaching a PDF of the company’s expense policy to a message that gets blasted to all staff. Such an approach may work in a big corporation, but in a startup environment, a more personal approach is needed.
Founders should reach out to their employees and ask top travelers what’s working and what’s not or find out if there are expenses that the company’s policy should cover. Having an open and ongoing conversation can help to ensure that employees are aware that there is a policy in place and that this is something that the leadership team cares about.
The easier policy is to understand, the easier it is for employees to follow. As the policy is written to guide behavior, management should make sure they thoroughly understand it. Don’t be afraid to revise it to meet current and future needs of the organization.
For example, with the sharing economy on the rise, it would make sense to incorporate Airbnb options that minimize the traveling distance to get to customer meetings faster or low-cost carriers for direct point-to-point travel routes. Involving team members in the expense and procurement policy development process will also help ensure that they are more likely to adhere to the rules.
It’s never too early or late to start with expense management innovations
In the very early days of a business, it’s likely that your employees will use a manual expense reporting and invoice processing system. However, management should be ready to make a switch to an automated solution at the right time.
One common misconception is that many young or growing organizations consider themselves too small for a software-based expense management solution or see it as a significant upfront cost that the business is unable to support. However, this is not true, as upfront costs can be minimal and transaction-based pricing options mean that the ROI could be in the positive in as little as six months.
According to the Small Business Expense Management survey from American Express OPEN and Intuit in the United States, 74% of business owners said that time spent reconciling expenses keeps them from tackling more important business-related activities. Given a reduction in expense management, 35% said they would use the extra time to interact with customers, and 33% said they would market their business.
Implementing a proper end-to-end spend management solution right from the get-go has so many benefits to offer, and this goes beyond the size and stage of your business. Startups can, and should, manage their finances using the same tools as larger companies, focusing on technological improvements like automation, mobile apps, and digital filing architecture for small business expense tracking.
About the Author
Nick Evered is the Senior Vice President and General Manager for Concur across the Asia Pacific. He leads the sales and operational team in delivering innovative software technology solutions to meet customer needs. Concur, an SAP company is a global leader in travel and expense management. By connecting data, applications and people, Concur delivers an effortless experience for organizations providing total transparency into discretionary spend.