It's said that expenses can be considered investments in the company's future. That doesn't mean letting them run wild, though, and companies should ensure they have the visibility to analyse expenses in real time to keep track of their budgets and business health.
There are two main ways companies track their expenses: manually or via automation. Manual tracking involves logging each expense in an Excel spreadsheet or accounting software like QuickBooks.
Automated tracking meanwhile, requires a spend management solution, including corporate cards and expense management software, which will automatically record all purchases made by employees or contractors on behalf of the company.
The expense categories you create for your business should be tailored to your specific needs. For example, for companies who want to track employee expenses by department, you could make an expense category called "Marketing" and another called "HR." Then, when you add new employees, you can assign them to one of these two categories and clearly track their expenses and budget.
An excellent way to start this process is by organising your expenses into these three main budget categories: operational, capital, and miscellaneous. Operational expenses include those related to running a business on a day-to-day basis; capital expenses are those needed for long-term growth; and miscellaneous includes everything else.
This approach has several benefits:
Data is king when it comes to software integrations. If you use accounting software, there's a good chance that you manually enter your payment data in order to analyse and reconcile it.
However, with a spend management solution like Payhawk, you can say goodbye to manual data entry. Our corporate cards sync with our expense management software, meaning you can make payments and control spend all from the same place. Our direct ERP integration with NetSuite and streamlined integrations with QuickBooks, Xero and more also mean that you don't need to manually upload reams of data to see your spend. Your data is seamlessly synced in a matter of clicks. You can even customise the spend categories you use within the Payhawk solution so that all spend is automatically associated with the correct pot.
"With Payhawk, each cardholder codes up the job themselves to see where their costs are going," MDM Prop's Finance manager Uchenna explained. "This is important because it keeps all the information in one place and pulls all the project budget spend info together to see what we can improve. Also, we now have the time to proactively do project analysis because we're no longer chasing receipts!"
Accounting software is designed to handle financial reporting and bookkeeping. It's great for keeping track of your business finances, but it doesn't help you manage your spending. In contrast, expense management software is designed to manage your expenses. It helps you track and control how much money you spend on different budget categories like travel, entertainment, office supplies, etc.
At Payhawk, we allow you to build your own expense categories. You can add as many as you need, and they will sync with your accounting system.
You can set your expense categories by adjusting the custom fields in the solution. Then when someone makes a payment and snaps their receipt to upload, they can select a category simultaneously, and hey presto – the expense goes into the correct pot in your budget and your accounting software or ERP.
Categorising your expenses is an important step in the process of planning and analysing your financial performance. It helps demonstrate where your money goes and lets you make better future spending and investment decisions. (It also lets you see how much money you spent over time for tax purposes or when calculating depreciation on assets).
Spend category customisation takes you to the next level of granularity and efficiency. It allows you to break down your spending into categories and subcategories in order to calculate ROI and more accurately identify areas where you could save money while still achieving your goals.
At Payhawk, our integrations also operate in accordance with the accruals concept by differentiating between the invoice/receipt and payment recognition dates, which means more accuracy and less work for our customers.
Ready to learn more about how finance teams build expense categories to fit their business model? Book a demo today.
Trish Toovey works across the UK and US markets to craft content at Payhawk. Covering anything from ad copy to video scripting, Trish leans on a super varied background in copy and content creation for the finance, fashion, and travel industries.