If you've been in business for a while, you've heard the saying: "It takes money to make money." There's definitely some truth to that statement. You've got to pay to keep the lights on, you've got to pay for supplies and, in all likelihood, you've got to pay various expenses that rack up as you make sales and handle your business. If it's just you in your business, keeping track of the money that's going out isn't that hard because you're signing off on every bit of it. But, as your business grows, you'll likely have other people paying money out. Tracking those expenses and, if need be, reimbursing them, requires a system that you can sign off on along with handling all of your other work.
Getting Expense Reporting Right
Jay Kapp needs to be able to track all of the expenses the four people in Kapp Koncepts may have. Because the company offers web design and development services, the costs most important for Kapp to track are those related to meeting with clients, from the mileage to get there to the meals that may be shared with clients. Kapp says, "We track the location of the expense and the time spent at the event/meeting where the expense occurred."
Any of the four people at Kapp Koncepts can have expenses in the course of doing business. Just bringing receipts back to the boss won't work in a situation where multiple employees may be handing in paperwork. You have to have an actual report that connects out-going money with where it went and who was ultimately responsible for that expense. Working without an expense-reporting system can be like working without a net. Not only do you have to face stringent rules from the IRS on tracking expenses like meals or mileage, but you also need to manage expenses from employees and ensure that they are appropriate.
Choosing How to Track Your Expenses
Choosing an expense-tracking system may require some customization for your individual business. For instance, if you need to make sure that every expense is broken down by client, you'll probably need a different system than a company whose expenses are broken down by project. That doesn't mean that you need to build a new solution from the ground up, though. Kapp actually based his system on how an employer he worked for in the past handled expenses. He made some adjustments, resolving problems that he had seen while actually using the system.
There are many out-of-the box solutions that can help you track your expenses without too much effort. Paper expense reports are no longer necessary. There are even applications that allow your employees to submit expenses through their cell phones (smart or not), only handing in the receipts to confirm the expense whenever they get back to the office. The big question with these tools is making sure that they fit your business needs. You may find that you need to tag expenses in a certain way to make sure that you have the information you need associated with each purchase.
The other factor that is important to consider is how easy the expense reports you collect can be added to your bookkeeping system. Most accounting software geared towards small businesses have tools for managing expense reports, at least once you've entered them into the computer. There's no sense to entering all those receipts by hand, though. Instead, finding a tool that lets you automate the process and import it into your bookkeeping software is crucial. If you work with a bookkeeper or an accountant, consult with your financial professional about what expense-recording system he or she would recommend. There are a number of different approaches that can simplify tracking expenses, from using debit cards for every expense to relying on a receipt scanner. A financial professional who is already familiar with your business can likely give you tips as to the best solution for your company.
Getting Everyone on the Same Report
It can be difficult getting everyone on the same page as far as a plan for expense-tracking can go. It can actually be worse if you've been managing expenses one way and switch to a new approach, if only because employees are already familiar with the existing system. It can take some training if you implement a new system, but, in the end, you do have a secret weapon. Kapp got his own team using his expense-reporting system very quickly: "[I] told them the system and if they didn't follow it the reimbursement would be delayed, or it would be kicked back for re-submission."
Even if everyone on your team is happy to use the same expense-tracking tools, don't be surprised if you have to put some training into place. Even a written set of step-by-step instructions can be enough to guarantee that all of the expenses submitted are in the same format and contain the information you need. Furthermore, you'll likely need those materials down the road, whenever you bring someone new into the team.
Evaluating Your Expenses
Once you've had a reporting system in place for a few months, evaluating how your system is working can help you streamline the process. Unfortunately, most expense-reporting systems won't catch every cent you and your employees spend. However, going over reports on a regular basis can provide your employees with an incentive to get their reports in on time and correctly.
Such a review can also show you where there is room for improvement, especially on expenses you see a lot. Notice that your company spends a lot of business with a particular company? Maybe there's an opportunity to cut a deal there. It's also an opportunity to make sure that records are correct and no charges are incorrect. Whether accidental or intentional, it is not uncommon for expenses to be recorded incorrectly, especially if significant time passes between the date when the expense is incurred and the date when it is recorded.