Small Business Accounting

Managing Expenses

Managing expenses is a challenge for most small business owners, but it's a challenge worth mastering. Losing track of expenses can lead to your not being reimbursed by clients, paying too much, and/or paying for things that you really don't need.

For most small business owners, the only thing worse than shelling out hard-earned cash for expenses is shelling out hard-earned cash for unnecessary expenses.

Managing Expenses Best Practices

Separating the unnecessary expenses from the necessary ones isn't easy, but it can be done.

Here are a few expense management guidelines to help you get a handle on some of the most frequently abused expense categories in small businesses.

Petty Cash

The petty cash account is the most fluid and most easily abused account in every small business. To rein in your petty cash account, you're going to need to lay down some ground rules. For starters, the petty cash account should be just that - petty. The whole account shouldn't exceed more than $100 or so, and employees should be accountable for receipts. Also, the account shouldn't be used to pay for things that cost more than $25. If it costs more than that, employees should be instructed to follow the standard expense procedure. To keep it on the up and up, the petty cash fund should be placed in the care of a designated custodian who reports to your company's bookkeeper.

Company Credit Cards

Company credit cards are convenient and seemingly hassle-free. But if you don't stay on top of what's being purchased they won't stay hassle-free for long. Establish a policy that company credit cards are to be used for business purchases only. No personal purchases should be allowed, even if the employee intends to reimburse the company for personal charges. Additionally, it should be standard practice to obtain detailed receipts for each purchase, itemizing exactly what was bought on company plastic. Finally, at the end of the month, make sure your accounting department reconciles purchases against the statement provided by the credit card company.

Account Reconciliation

Monthly account reconciliation shouldn't be limited to your credit card account. It's important to have a system in place that provides for a monthly reconciliation of expenses with built-in checks and balances that make it difficult for any one employee to skim money from the business. If you're not sure how to do that, contact your accountant for details.

Travel Expenses

For some people, a business trip is little more than a paid vacation on the company's tab. Unless you're comfortable springing for luxury accommodations for your employees when they are away from the home office, you'll need to have a system in place to monitor travel expenses as well as a policy describing what is and isn't allowable when employees hit the road. Like other kinds of expenses, employees need to provide detailed receipts for all of their travel-related expenditures. However, it's also helpful to establish guidelines in advance that address topics like food allowances, airfare (economy vs. first class), hotel budgets, and extras like pay-per-view movies and long distance calls.

One more thing to keep in mind: Just because you paid for it doesn't mean it's automatically deductible at tax time. Some expenses are subject to I.R.S. rules that may either limit their deductibility or disqualify them completely. If you're not sure whether or not an expense is deductible, it's a good idea to contact your tax-preparer before you buy it.

Share this article

Additional Resources for Entrepreneurs

Lists of Venture Capital and Private Equity Firms

Franchise Opportunities


Business Glossary


Conversation Board

We greatly appreciate any advice you can provide on this topic. Please contribute your insights on this topic so others can benefit.

Leave a Reply

Questions, Comments, Tips, and Advice

Email will not be posted or shared
Code Image - Please contact webmaster if you have problems seeing this image code

Problem Viewing Image? Load New Code