It’s easy to lose sight of your outgoing expenses but poor management of your business’ expenses can be detrimental to cashflow and your overall profits. Expenses management is crucial in the day-to-day running of business. By controlling your costs it is possible to give your business’ finances a welcome boost.
The background
Expenses management is the name given to the system used by a company to process, pay, and audit staff expenses. These costs can include expenses incurred for travel, mileage, business meetings and entertainment.
The process
Your business should form its own expenses system that all employees should be aware of. It’s important that everyone is clear about what constitutes a valid expense, and line managers who have responsibility for signing off expense claims may need training on this. If employees use personal credit cards for small company-related expenditures, you will need to repay them on a monthly basis so they don’t incur credit card charges.
You may find that a list of preferred suppliers will keep expenses to a minimum; for example, if employees travel a lot, you need to keep hotel costs etc as reasonable as possible.
Good record keeping is essential. Many companies use expenses management software to manage claims, authorise repayments, and analyse and audit costs. There are many companies offering expenses management software; make sure the company you buy from provides licensed software, implementation and support services.
Pros and cons
Good expenses management helps provide a clear picture of company expenditure and potential cost wastage, but it can be time-consuming to keep in order – particularly for a larger company.
The advantage of using an automated expenses management system for firms is the significant reduction in transaction costs. Equally, management control is also improved when logging and calculating a claim. An automated system will also bring transparency to expense spending which will prevent wastage and cut costs.
On the downside, it takes time to initially implement an expenses policy and procedure system. You may need to employ additional staff to process your expenses claims or regularly audit an automated system. However this will pay off in the long-run.
Need to know
It is only possible to reclaim VAT for current employees: this does not apply to shareholders or ex-employees.
Top tips
- Put a comprehensive expenses policy and procedure in place to avoid confusion over employee benefits and expenses
- Keep a track of receipts, invoices, and dates
- Create a budget for company expenses
- Consider the use of a company credit card which will make repayments simpler.
What next
Visit the HM Revenues and Customs website for further advice: www.hmrc.gov.uk/index.htm