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Expense Management: Processes for Your Small Business

Expense management can be one of the most time-consuming and cumbersome tasks for an accounting team and this function is critical to any business, large or small.
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Expense management can be one of the most time-consuming and cumbersome tasks for an accounting team and this function is critical to any business, large or small. It is vital that an organization establish a process that is efficient and effective. Typically, the employee may fill out a spreadsheet, send emails, or print documentation to support the expense and then the individual hands it off to the accounting department to be manually entered and paid. The employee waits, sometimes several days, communicating back and forth on what is and is not reimbursable, and then finally receives the reimbursement. As a business owner, you may want to consider implementing the following to help strengthen the expense management process of your organization. 

Establish an expense reimbursement policy

This should be clear, simple, and effectively communicated to the organization’s personnel. Expense policies should explain the spending limits for employees. The process should not just define the acceptable expenses for reimbursement but also define the process for submission and the timeline for acceptance and reimbursement of payment. Employees need to know the acceptable processes and timelines. This is a key component to ensure financials can be prepared and delivered in time. The policy should encompass the IRS’ three accountable plan standards

  1. The expenses must have a business connection.
  2. The expenses must be substantiated within a reasonable period of time.
  3. The employee must return any money not spent to the employer within a reasonable period of time.

Collect required & relevant information

The organization should maintain supporting documentation for all expenses. The support for each expense will vary based on the type of expense. For example, say you spend more than $75 taking a client out for dinner. To satisfy the IRS requirements for expenses above $75, you need to keep a copy of the receipt for that dinner and document the purpose of the meeting. It also is a good practice to have a process and checklist to collect this relevant information at the time of expense. Through automated expense management, employees can take pictures, upload invoices, and provide relevant information at the time of the expense. This can save time and effort for both the employee and the accounting team and allow for timely preparation of the financial statements.

Maintain & follow the expense & approval policy

Following the reimbursement policy is crucial to help financials be prepared and deliver timely reimbursements as well as properly accounting for the expenses. If expenses are not accounted for promptly, the organization’s overall financial health can be misstated or delivered later than expected. Managers should be required to review and approve expense reports while following the established reimbursement policy to help check expense reimbursements adhere to the organization policy. This can be challenging when managers are traveling or working remotely, and it is vital to have a system in place that is accommodating and straightforward for managers to complete. 

Process expense reimbursements timely

A great way to help data accuracy for your organization's financial health is to process reimbursements punctually. This can help you provide accurate and timely financial data, which helps reduce catch-up expenses at period-end, and can assist with more accurate job costing throughout the period. Time frames for expense management should be defined in the policy so all parties know and understand the expectations, i.e., when to submit for reimbursement, the timeline it will be accepted, and expected reimbursement payment schedule. 

Use expense management software

Manual processing can leave room for errors. Leveraging technology can help streamline a business process, and a well-designed system can assist with error mitigation. There are many well-known expense management platforms that help improve the organization experience by helping to reduce the costs of processing claims and offering appropriate controls via optional requirements of two digital approvals for accountability. Other benefits of reliable technology include automating payment processing, allowing for a digital environment to review expenses, designing digital rules that follow your organization’s established policy, and providing a mobile app to encourage employees to capture expenses more easily as they occur. Lastly, we encourage you to consider a technology tool that can effectively integrate with your cloud-based accounting platform. 

An organization’s expense management process is extremely important. Performing a periodic review of your expense management policies and processes and looking at your pain points can provide vital feedback to help strengthen the overall organization.

This article is a selected piece from By the Books: FORVIS' Complete Guide to Small Business Accounting & Finance, which we are excited to release in April 2023. Subscribe to our Small Business list to get future updates and articles and be the first to receive the full guide.


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