Maintaining a positive cash flow is essential for any business. To achieve this, not only must revenue be maximized, but expenses must be carefully managed so that they do not exceed revenue.
Many companies fall into the trap of viewing expense management merely as a way to reduce spending. They tend to forget that effective expense management should also be about gaining complete control and visibility on their spending.
3 Common Spend Management Mistakes for Businesses
1. Manual Errors
Expense management is traditionally a manual and labor-intensive task that puts a heavy burden on finance teams. Not only is the repetitive processing of expenses time-consuming, it is also highly prone to human error. Errors such as incorrectly recorded figures, misallocated expenses or duplicate entries can occur all too easily and lead to various detrimental outcomes.
Manual input errors can lead to unreliable output data, which in turn affects financial analysis and projections. This misinformation can lead to decisions that are not based on reality and result in strategies that do not serve the company’s interests. Decisions based on incorrect data can lead to ineffective or flawed business strategies. Over time, this can lead to financial losses and undermine a company’s competitive position in the marketplace.
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In addition to the risk of human error, the tedious manual spend management processes can also lead to higher labor costs.
2. Overlooking Small and Insignificant Expenses
Businesses deal with a variety of expenses on a daily basis, including seemingly insignificant costs such as bank transfer fees or the cost of office supplies such as stationery.
The danger lies in underestimating the cumulative effect of these small expenses. Individual items such as bank charges or stationery may not seem like much, but when incurred regularly, they can add up to significant amounts. This gradual accumulation can slowly eat away at finances, a scenario that often goes unnoticed until it becomes a significant financial burden.
3. Too Lenient with Budgeting
Some businesses, especially new ones, sometimes do not take budgeting seriously. New businesses are often run by people who have limited experience in financial management, so they tend to spend money on expenses that are not included in the budget.
As a result, their expenses exceed the budget every period, making it harder for them to make a profit or accumulate cash to expand their business.
Avoiding Expense Management Mistakes
Develop a Clear Spending Policy
Developing a clear budget policy will help you gain control over your company’s spending to avoid overspending and fraudulent activity:
- Define eligible expenses for reimbursement
You need to create a list of specific expense items that are eligible for reimbursement. This transparency prevents misunderstandings and ensures that employees know exactly which work-related expenses they can and cannot claim. - Set spending limits
Implement spending caps to encourage employees to manage their expenses responsibly. By setting these boundaries, you reinforce budget adherence and discourage excessive spending. - Define policy exemptions
There may be times when the standard expense policy needs to be bypassed, for example in urgent situations where following the usual procedures is impractical.
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Use Corporate Cards
Corporate cards are an important tool to increase transparency and control over your expenses.
By using corporate cards, your employees can spend within their budget, while at the same time giving you an overview of how much money has been spent and where the money is going. Corporate cards also provide spending data that can help you evaluate spending patterns and find savings opportunities.
Expense Management Automation
Automating the spend management process can help you eliminate manual tasks, which can also help you avoid financial problems caused by human errors. Automation also gives you a better overview of your expenses as you can track them in real time.
In addition, automation also helps you to deploy your employees more effectively. For example, employees who were responsible for manual tasks such as reconciliation can be reassigned to more strategic tasks such as analysis and forecasting.
This article is originally published by Aspire:
Aspire is the all-in-one finance platform for modern businesses, helping over 15,000 companies save time and money with international payments, expense management, payable management, and receivable management solutions — accessible via a single, user-friendly account.
