What am I spending in my business?
It’s a simple question, but one that is crucial. Understanding what money is being spent within your business is critical, not just to be able to track profitability, but more importantly to ensure your business is financially viable. So let’s look at five methods you can use to organise your business spending, and ensure that it doesn’t sink your business!
1. Separate personal and business spending
In the UK, the tax authorities clearly distinguish between personal and business expenses. They’ve developed detailed policies on what counts as business spending, and what doesn’t. So don’t put personal expenditure on a business card.
Separating each type of expenditure will also enable you to see how much you are actually spending on the business. This is especially the case if you take advantage of some of the effective financial management tools that are available. You can link this to a company card and get your expense accounting done instantly without having to trawl through lots of transactions to pick out the business spending.
2. An accountant can make you money
Most business owners find that their accountant saves them more than the cost in fees. That’s because accountants have a detailed knowledge of all the allowances that you can offset against the business. And they can also ensure that you don’t become subject to fines or penalties by claiming for expenses you shouldn’t. This is particularly the case if you are VAT registered and reclaiming VAT. A surprising number of business owners, knowing that VAT is 20%, and that they have paid £100 for an item, then deduct £20 as the VAT. (The correct amount on an item costing £100 would be £16.67).
All of these problems can be avoided if you use expense management software linked to a business card. The software will work all of this out for you and also categorise your spending. That means, for example, that you won’t accidentally claim on items such as postage that doesn’t carry VAT. The amount of time saved is significant, leaving you with more time to run the business. And this will make your accountant happy as well since they will have an organised set of figures to work with.
3. Benchmark your expenses
One good reason to compare your expenses with those of your competitors is that this is what the Revenue does. They have figures for expenses claimed as a percentage of income across every type of business. If you haven’t managed your business expenses well, and they are significantly higher than those of similar companies, you will attract attention and may be asked to justify your expenses level.
But in any case, benchmarking always yields business intelligence. Since profit consists of sales minus expenses, it’s always worth finding out whether your costs are higher than the competition, and if they are, the reason for this. If you have employees, who can expense items, consider giving them prepaid cards that you can link into an expenses management system. Not only will this give you better control over your cash flow; it will allow you to analyse each employee’s spending, and identify anyone whose spending is higher than average.
4. A dashboard is a vital tool
Our expense management package provides an easy-to-configure dashboard. This will allow you to pick out the crucial numbers that you want to see from the mass of expense data. For example, you might want to see expenses against income for a number of different workstreams.
Our system will pick up expenses from our prepaid business cards automatically, saving a great deal of time in processing receipts. You don’t necessarily need to set the dashboard up yourself if you have a financial officer who can implement the dashboard for you.
5. Use prepaid cards
The primary benefit of issuing employees with prepaid company cards is that you know how much money you have pre-allocated in expenses and this will help your cash flow projections and forecasts. Conversely, with business credit cards, you don’t know what level of costs are being incurred until the bills come in.
Alongside your company prepaid cards, consider developing an employee expense policy that includes clear rules as to what is considered an authorised expense and what isn’t.
Expenses that aren’t controlled can drain a business of profit, or lead an otherwise profitable company into a cash flow crisis. Our expense management software can automate many of the processes associated with controlling expenses, such as expense reporting. Our software also saves management time and improves accuracy.