Hi folks!
Every week, I’m sharing a practical, hands-on guide on how to run your small business better.
Today’s topic: How to track and manage your expenses.
Before we start:
I know first-hand: time is everything to a business owner.
You don’t want to spend all day Googling the best way to do stuff. You just need the answers.
That’s why I’ve produced over 50 of these playbooks. I’ve also got a library of templates for the stuff small businesses need — everything from meeting agendas to cash projection spreadsheets — and a ton of expert video calls and Q&As on all things small business.
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The Playbook: How to track and manage your expenses
Managing your expenses can make the difference between a good quarter and a terrible one.
Without some basic measures in place, those little line items can get out of control before you realize it. And suddenly, they’re adding up to a very real hit to your cash flow.
But following best practices makes it easy to know exactly how much money you have, and where it’s going — plus, tax filing just got a whole lot easier. Who doesn’t want that?
Like everything that saves time and money, it’s going to take a bit of leg work. But once you get there, everything should run like a well-oiled machine.
So here it is: my guide to managing your business’s expenses.
Step one: Establish your expense policies
1. Define your categories
Set up clear categories to make it crystal clear what’s eligible and what isn’t. The most common ones are:
- Meals and entertainment
- Office supplies and expenses
- Software subscriptions
- Telephone
- Communication and internet expenses
- Training and professional development
- Travel
2. Define your rules
Try to anticipate where people might have questions or misunderstandings. Here are some examples:
- All expense transactions must be allocated to one of the defined categories
- Approved vendor lists for expenses
- Define what documentation is required per category (e.g. Attendee names & purpose for any meals or entertainment expenses)
3. Set your limits
Once you’ve defined your rules, decide on limits. You should define several limits so everybody understands.
- Limits per transaction (e.g. $100 per person for client entertainment)
- Limits per day (e.g. $50 meal expenses per day)
- Monthly or quarterly total caps
Having these laid out ahead of time will keep your expenses predictable and under control.
4. Establish a simple approval process
Aim to minimize admin burden on yourself and your managers.
Set small automatic approval thresholds for minor needs (e.g. expenses under $25) to allow everyday operations to run without any approvals.
Then decide approval thresholds for bigger ticket expenses. You might let managers approve expenses up to $2000, and only require the CEO for >$2000 decisions.
5. Document and train everyone
Once you’ve made these decisions, you need to make sure it’s communicated to your team.
You should do two things:
- Hold a detailed information session to walk through the policies and answer any questions
- Make a digital copy of the expense policy that is easy for everyone to access
One tip — when communicating the policy, make it clear that you, the owner, will periodically review expenses. This helps to reduce unnecessary bloat from the start.
Step two: Streamline your setup
There are two important steps to consider here: selecting the right expense reporting tool, and setting up your banking.
For an expense reporting tool:
Look for software that is easy to use and allows for quick expense submissions and approvals. Make sure it lets employees upload receipts directly from their phones.
It also shouldn’t break the bank — some tools offer free tiers or are reasonably priced.
(Most of my companies use Bill.com or something similar — Ramp or Ripple are also popular.)
Make sure the tool integrates with your other systems, like accounting software or payroll systems, to streamline your financial management.
Train your employees on the tool and make sure they have access to reference materials.
For banking:
Choose a bank that offers services and tools tailored to small businesses (e.g. lower transaction fees, better interest rates, etc.).
Make sure to use separate bank accounts for operating expenses, payroll, and tax savings.
If employees need to frequently incur business expenses, you can streamline the tracking process by issuing business credit cards, with credit limits and rules based on the employee’s needs.
Review credit card statements monthly to ensure all charges are legitimate and within policy limits. Use your expense tracking software to match receipts with credit card transactions.
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Step three: Maintain and optimize
Now you’ve got a system set up for your expenses. But don’t assume it will run on autopilot from here on out.
Maintain your records neatly, so you can retrieve information quickly and easily. Make sure to keep your financials for at least seven years, to comply with tax regulations and other legal requirements.
Then, it’s all about optimizing:
- Set reminders to periodically review your expense spending and policies — and look for trends, variances, or violations
- Recalibrate your budgets at the start of each fiscal year, and adjust up or down as necessary
- Set up automatic alerts if spending goes beyond certain thresholds
- Forecast your spending with a best-case and worst-case scenario, then review to see how accurate your predictions were
That’s it for today!
I want to hear from you — are these playbooks helpful? What topics would you like to see in future? Hit reply and let me know!
Michael
P.S. A reminder — Scalepath members get access to a library of playbooks like this one but with more “meat on the bone”. Plus new releases every week, templates, expert video calls, and a great community to connect and learn with. Apply today!
