Properly controlling expenses is a major challenge for CFOs. Anticipatory and effective management improves the management of an organization’s finances. So, to control the limitation of your costs, the logic to follow is as follows: clearly understand where they come from in order to know how to classify them in order to establish good practices.
In this article, find out everything you need to know about business expense management and ways to optimize it.
If business expense management is a topic of special interest to you, this other guide will interest you. It is the result of an analysis of expense reports from 673 companies.
Expense management: what you need to know
The different types of expenses
Controlling expenses is one of the key elements of good financial management. Two main categories stand out.
Fixed expenses are mandatory by law (tax, insurance) or by contract (rental, phone subscription, etc.). For a company, it is, for example, the rent, or the costs of maintaining the premises and managing the personnel. Due to their mandatory nature, these fees must be paid regularly under penalty of fines, lawsuits or even service interruption.
Managing fixed expenses is relatively easy: you know what to expect and you have a budget to meet them. However, to ease the bills, it is always possible to reduce costs. Don’t hesitate to put your current suppliers in competition.
Variable expenses are expenses whose value fluctuates according to the level of activity. They are not subject to a fixed commitment, and some may only return once a year. They include, for example, logistical expenses, salaries of interns or occasional service providers, or purchase of stock (raw materials and others).
The fluctuating nature of these costs makes their management more complex. Therefore, having a good visibility of the level of these variable expenses is decisive to define the profitability of a company. To stabilize them in the best possible way, it is recommended to analyze your expenses in detail and reduce what can be reduced. Again, don’t hesitate to use competition to reduce the cost of variable expenses.
The direct impacts of good expense management
As a CFO, it’s not possible to be content with keeping track of the company’s budget by just checking that everything is ok at a certain point in time. Good expense management goes further: it is about anticipating delays, setbacks, unforeseen events and future projects.
This process involves regular monitoring of expenditure in order to build up cash reserves. With cash flow being the sinew of the war, a company that controls its expenses will be better armed against the vagaries of the market. Here are the main benefits.
Better cost control
By regularly monitoring expenses, the company knows and controls its costs. This makes it easier to identify and remove unnecessary or superfluous charges. The savings obtained can thus be allocated to other projects or departments.
A tax return facilitates
Expense management allows you to prepare your company’s income statement, which will serve as a basis for calculating the tax owed by companies. It also allows you to list deductible expenses from the tax result of your activity. That serenely apprehend the declaration of their taxes.
A simplified calculation of profitability
In the absence of good management, the risk is to come across incomplete or even erroneous financial reports. By ensuring regular monitoring of expenditure, information is collected in a timely manner. This regular management saves time later for various profitability calculations, for example.
Limit lavish behavior
Employee expenses represent a large part of the company’s costs. It is therefore imperative to establish an expenditure policy. By having access to precise expense management rules, employees reduce excesses and the risk of error. Processed faster, expense reports are also reimbursed faster. What, to satisfy the employees.
A clear and identified process is essential to manage these expenses as effectively as possible. By downloading this free kit, you will have the must-have to create your own process: expense report policy template, recoverable VAT table and Excel template.
4 ways to improve the management of professional expenses in business
As noted above, good expense management has a positive impact on the company’s profitability and employee satisfaction. Here are the steps to follow to get there.
1. Identify and prohibit bad practices
With 700 million B2B transactions carried out per year in Europe, the business card is the most common means of payment in companies. Among the bad practices observed, here is the non-exhaustive list of those that should be banned urgently:
- sharing credit card details via email (or worse, via paper);
- not establish control limits and terms for using the business card;
- give your bank card to an employee on a business trip.
One piece of advice: eradicate these bad practices by using, for example, corporate credit cards with a limit. This solution, particularly suited to the teams’ field expenses, thus guarantees better control of the costs incurred. In fact, it is not possible to spend more than the funds allocated to the card. If an employee fails to comply with the expense policy rules, you always have the option of deactivating the card while he or she makes up the difference at their own expense.
2. Analyze expenses and reduce business costs
The analysis of expenses helps to understand the economic situation of the company. According to analytics firm APQC, a company that hits $5 billion in revenue will save $11 million thanks primarily to analyzing its expenses.
With this cost savings in mind, start by mapping your company’s data to identify what data can be excluded. For example, if the introduction of telecommuting has increased the productivity of your employees and the size of your structure allows it, it may be possible to switch to a hybrid organizational mode to save on rent costs.
3. Establish an expense policy
An expense policy identifies all the rules related to the management of expense reports: nature, limits, validation, deadlines, etc. Its implementation has a dual interest: centralizing the process of managing employees’ expenses and ensuring better cash flow control.
To do this, you must first define the amount you want to authorize for each type of expense. On business trips, for example, what type of accommodation do you recommend for your employees? Instead of 2* or 5* hotel? Are the trips in co-class or first class?
A word of advice: the key is to communicate the expense policy well. Facilitate access by making it available in your expense report management tool, for example.
4. Opt for the dematerialization of the management process
Dematerialization makes financial documents (invoices, receipts, reports, etc.) much more accessible, which considerably facilitates the tracking of expenses. Thus, opting for an expense management solution reduces the cost of processing expense reports by 70%, allowing:
- facilitate the entry of expenses (scanning, photography);
- process expense reports as they arise;
- exclude re-entries in accounting and payroll;
- automate controls (ceilings, VAT, etc.);
- automate validation circuits;
- monitor cash flows in real time.
If you’re hesitant to go paperless, find out how Bonduelle, Ulule & Gloria Maris, clients of the Lucca company, have benefited from dematerializing their processes.