Keys to optimize the company's expense policy

Ensuring a good company expense policy is one of the most ambitious challenges for a CFO.

This is a real performance factor. And its control and good optimization makes it possible to limit profitability leaks and identify expenses that generate value for the company. Digitization of the finance department is therefore also one of the important steps to exploit the full potential of cost management optimization.

In this article, we will look at the types of expenses and the challenges involved in managing them properly. We will then show you the steps to optimize expense tracking.

What are business expenses?

Definition of business expenses

In order to operate at full capacity and generate turnover, a company needs to incur a series of more or less high and regular expenses.

Within the company, the financial director is usually responsible for managing the budget. Making long or short term forecasts, budgets and checking that everything is in order.

Types of business expenses

There are two types of expenses: fixed costs y variable costs.

This is a list with examples of fixed costs:

• Employee salaries and associated contributions.
• Rents and office maintenance expenses.
• Taxes and fees.
• Maintenance of machinery and work material.
• Catering expenses (company restaurant, meal vouchers or take-out lunches).
• Transportation costs (company cars, public transportation, etc.).

This is a list with examples of variable costs:

• Purchases linked to customer demand (raw materials or finished products for resale).
• Operating costs related to production (electricity, water, gas, etc.).
• Freight transportation and logistics costs.
• Packaging costs.
• Variable salaries (temporary workers, interns, work and service contracts, etc.).

🔹 Note: there are also mixed expenseswhich contain a fixed and a variable part. For example, the salary of a salesperson falls into this category, with one part of the salary being fixed and the other variable depending on the sales made and the achievement of objectives.

The challenges of good expense management in the enterprise

Gaining financial strength

A company that knows and controls its expenses perfectly will be better armed to face the dangers of the market and the economy in general.

This allows for better anticipation by accumulating cash reserves and with a good company expense policy that allows you to be in control of the situation.

Optimizing profitability

In these times of crisis, controlling costs means above all keeping control of your profitability.

By eliminating unnecessary expenses, you can either build up cash reserves or invest the saved costs in higher value-added expense items.

Facilitating lending opportunities

Good cost management is a guarantee of reliability for external partners, especially banks or investors.

In addition, if you have a hard time acquiring a loan, you will have a better chance of obtaining it by showing a serious and efficient expense management, which will undoubtedly allow you to pay your debts.

Ensuring employee satisfaction and wellbeing

Since part of the company's expenses are employee expenses, better management on the part of the company will undoubtedly have an impact on employees.

For example, they will be able to obtain reimbursement of their expenses more quickly.

This will give them a good image of the company in which they work, which will have a positive impact on their loyalty and productivity.

How can I make sure that expenses are properly controlled?

Taking stock of expenses

Having a clear and accurate view of your expenses is the first step towards good control.

This inventory has a very specific objective:

• Identify non-essential expenses.
• Identify expenses that generate value.

Thanks to this identification, you will be able to initiate a cost reduction process, according to the needs of your organization.

➡️ Here are some questions to ask yourself to reduce your expenses:

• Is your office space still adequate for your staff? Can you rent a smaller space to save money?
• Do you use all the software you pay for each month? Is there a comprehensive tool to reduce costs or a competitor with better rates?
• Do employees need to sleep in 4* hotels, or are 3* hotels sufficient for travel? Is it possible to lower the ceiling on restaurant expenses while maintaining satisfaction?

Define a spending policy company's

All the rules relating to the reimbursement of professional expenses constitute an overall expense policy, but what is their purpose?

It harmonizes reimbursement processes, centralizes all data and facilitates subsequent analysis. It is a kind of guide to spend well in the company.

These are the types of standards that can be established:

• Allocate a budget to each type of expense
• Establish a limit for each type of expense
• Designing smooth and clear processes for everyone

Once written, make sure it is shared with everyone and that everyone understands it.

Replacing expense reports with corporate bank cards

Managing expense reports, especially in paper format, can be a cumbersome and time-consuming task for both the company and employees because:

• Expenses must be advanced, sometimes at a high cost.
• Reimbursement times can be long
• Risk of losing receipts may result in non-reimbursement of receipts
• The risk of accounting errors
• The risk of fraud with false expense reports

Company bank cards overcome many of these problems. They are nominative cards, assigned to each employee.

The company maintains control of the budget as it can for each card:

• Set days and hours of use
• Set a maximum spending limit
• Easier day-to-day cost control

As for employees, they gain autonomy, no longer have to advance expenses and wait for reimbursement.

Digitize all expense management

    "Companies with high digital maturity make 3 times more profit and grow 4.5 times faster than others."
OECD (2019)

The digital transformation of companies is very strategic, and even more so since the 2020 healthcare crisis, which forced companies to telework 100% overnight.

Finance departments that were not yet digitized had to adapt quickly and well.

The digitization of the Finance department is achieved through several levers:

• Digitization of documents and invoices
• Automation of processes and accounting
• Use of artificial intelligence for more accurate forecasting

Digital tools

Take advantage of the use of digital tools and services to help you to optimize your company's costs.

There are several sections with which you can digitize and optimize these expenses. From more specific tools oriented to the business travel management such as Vyootripto others more generalists oriented to expense management of all kinds, such as Okticket o Expensya.

Do your own research and see the potential that these tools can have to optimize your company's expense policy, and give you the mechanisms to facilitate all processes.