As a startup, you have your task cut out when it comes to handling finances. Just like every other business, you need to keep close track of your business expenses, but in your case, your very survival depends on it.
Honestly, it can be daunting to get every employee to provide accurate business expense reports so that you can perform audits and ensure your company’s money is spent wisely. To make matters worse, you likely struggle with creating financial projections and spending strategies for coming quarters because your company is new and has no historical financial data.
Sounds familiar? As you read on, you’ll see the common mistakes startups make that drain productivity and resources and understand the importance of an end-to-end, automated expense management solution to take over the task for you.
Startups generally have a founder and some employees, a group of founders, or even a random group of individuals fixated on product development without figuring out the management hierarchy. As a result, there is a good chance that paper receipts from employee business expenses will be misplaced, leading to the company having unpaid bills.
Another way you end up with untraceable expenses is the natural process of decaying of paper receipts. After a point, most of the vital information on receipts becomes unreadable, and the receipt itself becomes worn out, which leaves you with headaches as to what the receipt was for.
Apart from eroding your valuable capital, the loss of receipts further leaves you unprepared for audits and credit card reconciliation.
Vague travel and expense policies
Loosely defined business or travel expense policies often lead to employees’ fraudulent or otherwise problematic spending activity. If you don’t lay out a clear corporate spending policy based on designation, your startup will likely end up with overspending.
For instance, if you are prepared to reimburse employees for travel and don’t specify that you’ll only pay for a train, don’t be surprised to find employees taking business class flights to events that don’t generate revenue.
Lack of visibility in spending
Without an automated reporting and approval system for expenses, there is a good chance that lots of fabricated receipts will make their way to the finance team, wasting their time and resources, which will already be scarce.
Knowing whether a person’s expenses align with the revenue they bring in is another area that startup founders are concerned with. When there is no system to track spending daily and crosscheck it with the company’s policy, the startups’ funds can be squandered.
For example, you might have sales reps claiming they went a certain number of miles and spent the corresponding amount for fuel. Still, you can’t be sure of it unless you have a system that gives you a clear insight into every line item in the expense report and the revenue they brought in while doing it.
Notably, poor expense visibility will cause problems down the road for startups in areas such as accounting, fundraising, future growth projections, and creating annual reports. More importantly, lax expense reporting could land your startup in hot water with tax authorities, both locally and internationally.
Spending too much time on manual tasks
As it is, startups tend to be short-staffed and under tight deadlines. So, no startup wants their managers bogged down with verifying whether a sales rep went to a particular restaurant or took a specific mode of transport.
Undoubtedly, startups with an unhealthy fixation on manually dealing with employee expenses, whether on spreadsheets or legacy accounting software, are burning through investor cash on unimportant tasks that an app could solve automatically and in no time.
An expense management solution may not by itself make your life easy as a startup, but it will certainly take away a lot of the pain that goes into handling travel and business spending. Specifically, startups can’t do without an expense management solution because they need the automated expense reporting, approval, reimbursement, policy compliance, and analytics that come with it. With ExpenseOut, you have a scalable, AI-powered expense management solution that can ensure your finance team, management, and employees are operating at peak productivity.