Managing Business Expenses: A Practical Guide for SMBs

Even a small-to-midsize business (SMB) can get buried under a barrage of expense data. Financial transactions can come fast and furious, and if you don't have a systematic approach for managing them, you can quickly get overwhelmed.

To ensure this doesn't happen, we've created this short guide on business expenses: What they are, the best way to categorize them, and how to track them so you can make good decisions and stay compliant.

To get started, let's review the essentials, beginning with types of expenses.

What Are Business Expenses?

Business expenses can be simply defined as the costs a business incurs due to its operation. These expenses are part and parcel of operating a business and generating revenue. In terms of taxes, the Internal Revenue service classifies business expenses as any costs that meet the threshold of “ordinary and necessary.” This just means they are typical for your industry and help your enterprise.

Operating expenses, on the other hand, are simply defined as the accrued day to day cost of running a business. They may include lease or rent payments, fuel, water, utilities etc. Payroll expenses are wages, salaries, or commissions that your workers earn. Office supplies are another common expense category (think printers, papers, etc.).

Professional services, another expenses category, includes things such as payments to your accountant or attorney.

Insurance payments are another expense category, as are the software subscriptions you pay for. Travel expenses, including airfare, hotels, meals etc., is another very common and significant ongoing business expense category.

Not all expenses are operating expenses, however. Capital expenses are also quite common. These typically include things like major equipment purchases, fleets of vehicles, new buildings or properties, and large computer hardware purchases.

It's important to note that there are tax differences between these two expense types in many jurisdictions. Many, but not all, business expenses are deductible from taxable income. If you have a home office, you may be able to receive a deduction. The same holds true for people who use vehicles for business purposes. Meals and entertainment may also be at least partially deductible, and workplace training and business insurance may also qualify for a deduction.

Again, all of this is dependent on your jurisdiction, so consult with a professional if you have any questions.

The Problem With Spreadsheets

Smaller businesses are generally more likely to rely on Excel sheets and paper receipts to manage expenses. Yet this is terribly inefficient. Manual data entry is slow and highly prone to human error. It's also a frustratingly tedious process.

As your company grows, more expenses get submitted. Tracking them down, entering them into a spreadsheet, and importing that spreadsheet data into a larger system is extremely time-consuming. It also means that your data is more likely to become outdated, because the process of inputting it takes so long. Expense automation simplifies all of these steps and gives near-real-time visibility into spend.

Without that real-time visibility into spending, you can have weeks or months-old data that makes it almost impossible to quickly identify problem spending or non-compliant expenses or make informed financial decisions.

Manual spreadsheets also delay reimbursement. Think of the hours spent circulating emails back and forth for approvals, and the havoc that creates for audit trails. Workers hate getting reimbursed late, and administrators hate having to hunt down supporting documents and reconciling fragmented data. On the other hand, automating expenses can help employees receive reimbursement quickly, which may improve their experience.

Because they lack automated controls to enforce expense policies, spreadsheets also elevate the risk of policy violations and fraud. They also have much weaker security than other options, so your security isn't being rigorously enforced. Automating expenses allows increased efficiency in auditing and better policy enforcement.

Growing businesses may have more expenses, and spreadsheets can quickly become a hard-to-manage headache. What works for five employees may be a disaster for 25, causing your administrative costs to bloat and your efficiency to plummet.

How to Keep Track of Business Expenses Effectively

Fortunately, there are two things you can do to easily get a handle on your expenses: Put some new processes in place and get the right supporting technology.

Let's start with the new processes. First, you want to ensure that business and personal finances are always separate. This simplifies expense tracking and helps head off any future audit issues. Next, define your expense categories clearly. Make sure they are standard across all departments.

A system for processing and restoring receipts is also helpful. A mobile-first process for receipt submission is a major plus for workers, who hate collecting paper (which is easy to lose, especially while traveling).

A good reconciliation process and some smart and clear expense policies are also a must. Make sure people know what is allowed, how to submit, what documents they need, and how the approval process works.

The best part? An automated expense management solution can make doing all of the above a snap.

The Power of SAP Concur

No matter the size of your business, SAP Concur offers comprehensive solutions that overcome the problems associated with spreadsheets. Its powerful suite of features makes expense management simple and streamlined.

SAP Concur solutions automate receipt capture, enabling your workers to submit them via mobile device on the fly, using optical character recognition technology that extracts key data, reducing the manual workload.

Approvals are greatly accelerated via custom workflows. You can automate according to your policies and help ensure non-compliant spending doesn't occur.

SAP Concur solutions also offer visibility into expenses as they happen. You don't have to wait weeks until the spreadsheets are finished. You get instant insight into spending patterns, enabling you to make quick decisions to keep costs in line and identify ways to save. Custom dashboards and analytics and reporting also provide the backbone needed for data-driven, strategic decision-making.

Finally, SAP Concur solutions integrate easily with popular software systems and scale with you as you grow. Whether you have 10 employees or 1,000, the value proposition only becomes more powerful as your organization reaches new heights.

The Takeaway

By adopting SAP Concur, you can escape the hassles of manual data entry, reduce serious errors, get critical, real-time visibility into spending and boost your compliance effort. In the long run, that means stronger financial control, more efficiency and better decision-making.

If you'd like to hear more about what SAP Concur solutions can do for you, please don't hesitate to reach out to us today