And how SMBs can do the same
Expense management is one of the biggest challenges for a business. It’s a significant cost after all with research revealing it as both the biggest variable cost to an organisation, as well as the most unpredictable. Yet in many companies, employees are still working with antiquated paper-based processes or legacy systems that are inadequate for managing expenses – and often lead to error, confusion, fatigue, and disengagement.
It’s no wonder then that improving expense management processes and software is paramount for businesses across the globe. Automated expense management software has benefits far beyond productivity and preventing error – the right software can also provide instant spend analysis and help to answer questions like: “What’s the total cost of customer acquisition? What are my employees spending most on?” or even “What’s the projected ROI associated with the trips required for a given sales opportunity?”. It provides huge value and insight to business leaders, finance teams, and sales teams company-wide.
In recent years, several large and well-known companies have been transparent about the transformation and improvement of their expense management processes. From rethinking the mechanics of their processes to eliminating them, there are a number of unique approaches to take.
This article will focus on what we can learn from three companies who’ve made a major change to their expense management – and crucially, what SMBs can do to emulate these best-practices at their organisations.
Netflix
Netflix was considered to have taken a controversial approach to expenses management when opting to implement a limitless expense policy. They don’t have spending restrictions, rules, reporting, nor do they track their employees’ expenses. All Netflix asked of its employees was to: “act as if the company’s money were their own”, in order to treat their people like adults and encourage them to use their judgment to spend beneficial for the company.
This approach has two clear benefits for the company: by eliminating the need for approvals, they can save valuable resources that would be spent on expenses management administration and redirect these into other areas aligned to achieving their business goals.
Additionally, by openly putting faith in their employees’ judgement, they are fostering mutual trust, commitment, and engagement between the business and its staff – which has been well evidenced in improving productivity and effectiveness.
However, one con of a limitless policy is the lack of insight. While Netflix has removed reporting and tracking to save resources, they miss the value-add of being able to deeply analyse expenditure and understand where to double-down in order to increase financial impact. The limitless nature also makes future expenses difficult to predict for budgeting and planning.
SMB Tip #1: If your company wants to adopt a similar approach, the best place to start is by working with an expenses management system that will allow you to drill down into past and present customer, team and employee expenses data. This will enable you to understand how costs currently relate to revenue. You’re unlikely to have the cash reserves that the likes of Netflix have and so this will provide you with a baseline in order to forecast future expenses.
Although Google retained its expenses policy, it took a similar approach to Netflix by trusting in its employees’ judgement when it comes to expenses management, They provided everyone with a company card to use for eligible expenses, something that is now widely adopted by companies all over the world.
At the time, this was a significant shift in expenses management for several reasons. Firstly, they provided all employees with a company card – not just executives at the highest levels. Many large enterprises were requiring employees to pay for business expenses using their own personal funds, which were then reimbursed later. For small to medium businesses out there, this is still the case, straining personal budgets and even proving prohibitive for many employees. For example, employees who can’t afford to purchase an optional professional development course may opt-out entirely. So by giving its workforce the autonomy and credit line to manage their own expenses, Google is actively mindful of its employees’ financial wellbeing.
Beyond that, company cards make it much easier for Google to automate elements of their expenses management by eliminating the need for a manual expense approval process. Automating expenses not only saves time and resources but can prevent human errors that often lead to financial losses. This includes overpayment or miscalculation from manual expenses data handling.
However, a disadvantage of this approach is that company cards don’t necessarily provide real-time data and actionable insight on expense spend across the company. It’s not mapped to exact business activity meaning further data manipulation is needed to understand spending levels or analyse ROI. Although financial teams will be able to assess spending by the end of the billing cycle, company cards provide little in the way of limiting spending in particular areas as it’s occurring.
SMB Tip #2: Ensure that your expenses policy is dynamic and aligned to business need or purpose. If the expense isn’t related to generating revenue, whether directly or indirectly, is it necessary? An AI-driven expenses management system will highlight unnecessary spending in relation to the value it’s driving, encouraging a behavioural change in your employees to spend money as if it were their own.
Basecamp
Basecamp has implemented a company-wide “no red tape expense account” policy. They removed the “red tape” by eliminating spending limits and pre-approvals. Taking a similar approach to expenses management as Google did, Basecamp’s employees have all been given company credit cards and encouraged to spend “within reason” on travel, software and any office supplies they need.
The company is a great example of how this level of autonomy has proven successful as it’s resulted in a spend of less than $1,000 per employee every year since, allowing them to save money while empowering their teams to manage their own expenses.
As with Google and Netflix, a key benefit of this approach is that employees feel trusted and supported. They have the ability and resources to purchase what they need, when they need it, without waiting for expense approvals that may be time-consuming, harm their financial wellbeing or could potentially hamper productivity. Imagine, for example, waiting several business days to get approval to replace your office monitor.
However, a disadvantage is that similar to other limitless policies, with the business likely to lack the ability to analyse data on customer, team and employee expenses in comparison to revenue in real-time. Instead, they’ll have to wait until end-of-year or end-of-cycle to gain an understanding of what was spent and how it was spent – potentially costing them opportunities to reinvest in high-impact areas.
SMB Tip #3: Consider the benefits of expenses management directly on your customer relationship management (CRM) system. With an integrated view of spend including sales intelligence, you’ll be able to forecast the amount required in order to win a deal. If your pipeline of potential sales deals totals £5 million, you should know exactly how much to spend on travel and expenses. Imagine how easy it would be to budget and forecast if you had the sales pipeline versus average expense ratio at your fingertips.
You’re now ready to improve your expenses management
Across the board, businesses indicate the shared challenge of wanting to minimise the resources required for expenses management – and empower their employees to take charge of their expenses without feeling restricted or put at personal risk. To understand ROI, companies need access to spend alongside customer and revenue data in order to focus on improving profitability.
Modern expense management software can help your business to identify ROI from employee activities and highlight opportunities to spend more on high-value activities. This will allow leaders to make real-time decisions about where to direct their spending to maximise impact and meet business goals.
To discover the potential of expense management on a CRM system like Salesforce, you can test SalesTrip for free, with no commitment – today.
