When a business expense isn’t a business expense

In this article, we consider those growing businesses with a great proof of concept but maybe no finance team to help uncover exactly what expenses are and aren't. We also look at other costs that may seem like expenses but shouldn't be classified as such. Then, we uncover some of the ways growing companies can improve spend control and reduce expenses to improve cash flow and operating profit.

What is a business expense?

A business expense is a cost involved with running the operations of, and growing, a company. Expenses are needed to generate revenue because daily operations would be stagnant without them.

From defining allowed expenses to considering how they will pay for them, there's a lot to think about for a company just starting out.

Examples of expenses include costs such as:

• Travel costs. For example, a project team needs to travel to a supplier location to discuss a new product launch
• Accommodation. The said project team not only has to travel to a location, but considering the schedule of activities, they also need to spend nights away from home in a hotel
• SaaS tools. These subscription-based tools will likely be vital to keep your business ticking over and can include anything from HR software to website SEO reporting
• Staff entertaining. When a team manager takes a team out for dinner and drinks to introduce some new members
• Client and prospect entertaining. For many businesses, such as management consultants or advertising agencies, entertaining clients is a huge part of new business and client success. Anything can go here, from lavish dinners to once-in-a-lifetime trips — all of it = expenses
• Supermarket runs. An office manager might go to the supermarket to top up the croissants or do a weekly online shop.

Note the differences in the above examples. While a regular subscription payment can potentially deliver tangible value to the company, some of the other examples are harder to measure; take, for instance, the ROI of a meal out with a prospect (unless you close the deal that day).

Debunking the stereotypes in the payments industry

Fintech has been a hot topic in the past few years, with more and more new players sprouting up all over the world. Still, not everyone available on the market offers a meaningful solution, and Johnson has seen a lot of red flags when it comes to digital banking providers.

“People look at the success that organizations have had in the fintech space, and maybe they think it’s too easy. They see some of the things that could be improved and think it’s enough to start a business and launch a successful card broker,” highlights Johnson.

As in any other industry, providers have to deliver meaningful value to consumers, or corporations, for the product to be successful. Yet, substantial differentiation from already established providers rarely occurs, and new players in digital banking can get tangled up in trying to release more and more features instead, which seldom benefits customers. “You’ve got to find that intrinsic value that your product and company delivers, and you’ve got to stay focused on your strategy around it.”

Traditional banks: A role in transition?

In recent years, the role of banks has seen a lot of gradual changes. And while many fintechs start up with such a premise, Marqeta’s managing director believes that traditional banks will remain the go-to safe option for many banking needs, despite the spur of innovation in the sphere.

“The question for the banks is, how much do they want to own the customer relationship at the front end? Do they want to be the organization that provides the technology and the services that we interact with every day versus retreating into the background and being the organization that manages the behind-the-scenes of the payments industry like transactions, money lending, etc.,” Johnson said.

Contrary to popular belief, banks are not massively lagging behind resourceful and creative digital banking solutions. Instead, it just takes banks more time to innovate efficiently, whether the innovation comes from partnering with fintechs or rethinking its processes and services.

Are financial managers changing their focus?

The whole financial services industry is going through a revolution which means that many traditional functions are now different. The emergence of various SaaS tools that aim to optimize internal processes and boost productivity within organizations is something we also discussed with Robert Hadfield, financial manager at Dendra. Hadfield remarked that the capabilities of these new tools meant a fundamental shift in the duties and expectations of a finance team, and Johnson agreed.

“There’s no one size fits all solution on the market. Instead, financial managers are responsible for selecting the right tool that accurately seizes the company goals and team dynamic,” Johnson explained. “Payhawk is the classic example — finance managers don’t have to settle for poor solutions and try to do all additional work to make them fit together manually. Instead, they can choose a supplier that takes care of crucial processes for them and successfully eliminates their pain points.”

Trust is essential in financial services

“The challenge has always been to convince companies that what you’re saying about your technology is true,” starts Johnson when prompted about the importance of open APIs and the trust factor between providers and customers in the finance industry.

In this era of innovation - especially in the payments industry - you don’t need organizations to take a leap of faith with you as it was before. Now, you can essentially let them test out your product without a signed contract, even without commercial conversations. Does the solution respond to the company’s ideas, does it need tweaking? You can address all these questions before committing to a tool that could eventually turn out to be harmful rather than help you accelerate growth. And, this exploration translates into having both sides confident in the service offered and sets the tone for a solid partnership.

Regardless of what changes the future of the payments industry holds, whether banks will become obsolete or the CFO role changes even more drastically, one thing is sure: digitalization is here to stay. And, digitalization will continue irrevocably changing the way financial services operate.

Discover how to keep up with the new trends and what SaaS tools best fit your organization to gain control over business spending and accelerate overall growth.