As a company grows, it becomes increasingly difficult to get a handle on expenses. Despite innovation in financial tools and strategy, many companies still rely on traditional methods that require significant time and leave room for error. Fortunately, there are a wide range of expense management tools out there to lighten the load. This rundown of the most common types will help your team find the right solution to free up resources and shift focus to the bigger picture.
Many businesses start with spreadsheets, and they tend to stick around. As we’ve talked to finance leaders from companies of all sizes, we’ve heard over and over that spreadsheets are an integral part of their expense management process, particularly for budgeting and forecasting. When we surveyed 250 business and finance leaders recently, 43% reported using Excel spreadsheets for budgeting. Despite their limitations—most notably the fact that they’re typically static instead of dynamic, meaning they’re often out of date as soon as an attachment is distributed for review—spreadsheets remain the most frequently used of all types of expense management tools, by a long shot.
Even when teams are using more sophisticated back-end systems, or specialized budgeting software, the spreadsheet is so familiar and shareable that many teams end up exporting their data to spreadsheets to circulate reports with other departments, or for board meetings. Technology continues to advance, but the spreadsheet appears to be hard to shake.
Center Team Take: Spreadsheets are a classic, but modern tools overcome obstacles. If one team member has to wait for another to be “done” with updating the spreadsheet before it can be sent along to the next person, you’re missing a major opportunity for efficiency.
Expense Tracking Tools
When you think about expense management tools, these are probably what pop to mind first—especially if you have ever spent time trying to corral several months’ worth of expenses while half-watching TV after dinner, or taping receipts to sheets of paper. The focus is generally on reducing paper and streamlining the process of getting expense reports submitted and approved, using mobile apps where possible. These tools are particularly valuable for companies with employees who travel frequently—for example, large sales teams—and can often integrate directly with preferred providers and other applications. With employees increasingly making purchases using their own cards and apps, travel and entertainment expenses are notoriously difficult to track, so expense tracking tools are certainly a worthwhile investment if your team is consistently struggling with data accuracy and incomplete reporting.
One problem with these types of tools is that they often just digitize processes that are inherently inefficient. We see a huge opportunity to truly automate the process, break the typical monthly report down into individual transactions, and make smart use of AI to analyze patterns and only flag anomalies for review.
Center Team Take: No matter how your team handles expense reports, if you’re having to send last-minute, all-caps emails to get every expense turned in, there’s a better way. Modern tools will take care of it automatically.
Once you have all those receipts and expense reports submitted, what happens? Typically, they go to a manager or department head for approval, but we’ve found pretty consistently that those approvals tend to be cursory, if they happen at all. Expense reports can stack up at the approval stage, and when finance needs the numbers urgently, that review stage often gets short-changed. It can then fall to the finance team to audit the reports, but that can be a surprisingly difficult and time-consuming job. As they dig in to make sure that expenses comply with company policy, that there aren’t any personal expenses in the mix, or that things aren’t double-counted or incorrectly coded, they have to do an awful lot of deciphering, cross-checking, and circling back to gather more information and eliminate errors.
Auditing expense reports individually places a huge burden on the finance team and can set a bar that’s difficult to maintain during periods of rapid growth. Time spent on expense reports takes away from time available for long-term, strategic work. Some teams attempt to save resources by spot-checking, focusing on reports from repeat “offenders,” or skipping the audit altogether, but specialized tools can help significantly at this stage. According to AppZen, only 2 to 3% of expenses are actually audited by finance teams not using automation. AI can be particularly helpful here, speeding up the process and catching irregularities that humans might miss.
Center Team Take: AI quickly became a necessary tool in the world of expense reports, but some companies have been slow to adopt it. Advanced tools free up manual effort and provide reliable accuracy. This is one practice we recommend for every finance team.
Invoicing and Procurement Tools
Expense tracking tools tend to focus on employee-initiated expenses like travel, entertainment, and subscriptions, but those aren’t the only expenses that need to be managed. Smaller teams may be able to handle occasional procurement needs through shared purchasing cards (P-cards), but as companies scale up, there will be more and more equipment and furniture to purchase, outside vendors and partners to bill and pay, suppliers to manage, and so on. Sometimes expenses need to be passed on to clients, which can introduce new complexities. Specialized invoicing and procurement tools can automatically manage vendors, track purchase orders, and cross-check numbers to keep everything aligned.
Center Team Take: Establishing an efficient invoicing system is key for growing businesses. Look for a provider that supports scalability and minimizes manual input.
Reporting, Reconciliation, and Visualization Tools
Once you have accurate expense data across all departments (potentially collected in several different expense management tools), the focus shifts to aggregating, organizing, and analyzing all that information. As a company grows, the frequency and sophistication of reports evolves significantly. “How much do we have left in the account?” leads to “Were we profitable this year?” and eventually “How are we doing against our forecast?”
If a company takes on investors, accurate reports often become the central focus of board meetings. Reporting and reconciliation tools are critical for accelerating accounting tasks and producing standard (and customized) reports to help leaders understand how the business is really doing.
As more and more data is aggregated, many teams struggle with turning it into meaningful information. That’s where visualization tools can do the heavy lifting. When communication is critical, forward-thinking finance teams make use of visualization tools to help with analysis and insight sharing.
Center Team Take: After gathering data, some finance teams struggle with efficiency in what to do next. Creating reports, running analysis, and producing clear data visualizations need to be accessible. If data can’t be shared in a digestible way, it won’t be helpful for other teams.
There’s often a progression from no tools, to spreadsheets, to expense management tools aimed at small businesses, to more robust cloud-based solutions that span functions and departments. These services can help with multiple steps in the spend and expense cycle and facilitate crucial steps like posting expenses to the general ledger (GL).
Cloud solutions are helpful to companies once they require more complex reporting and customization, or perhaps global capabilities. Encrypted cloud storage ensures that users can access financial data from remote locations or while traveling. These comprehensive solutions often include modules or integrations for customer relationship management or enterprise resource planning, expanding the scope beyond the finance team. Even when a team has upgraded to one of these powerful tools, however, certain pain points remain. As the CFO of a growing HR software company using once told us, “Booking to the GL is a pain. It’s cumbersome.”
Center Team Take: Even cloud-based solutions can require manual input, which doesn’t scale well. Look for tools that truly automate key processes to reduce manual effort and allow more time for high-value activities like analysis and forecasting.
TO THE POINT:
To properly manage your expense process from end-to-end, you would need all of the tools listed above. And, in addition to purchasing new software and app subscriptions, there is a very real cost of introducing new systems, which is getting employees to use them and adding something for them to do. Reducing the total number of expense management tools your team uses without compromising on functionality can have a big payoff.
Choosing tools that combine more than one functionality, or can manage expenses from spend to GL will provide the most bang for your company's buck. Just don't forget to attach your receipt.