“You’ve got to spend money to make money”. That’s the way old saying goes and it’s certainly true. But how much do you have to spend?
A survey by American Express found that, on average, UK SMEs spend just over £1 million per year on business expenditures. The largest costs include hiring (24 per cent), paying suppliers (20 per cent) and technology expenditures (19 per cent). Ensuring these costs are paid on time and the business remains solvent requires companies to keep expenditures under control.
One key opportunity to do so is more efficient processing of business expenses. UK SMEs are losing about £8.72 billion per year because of the time they spend completing finance-related chores, according to a survey by UK fintech Soldo. “The time and money taken up by day-to -management of a company’s cash flow is astonishing but not surprising. If staff were freed up to dedicate their time to the activities that made a big difference to the company, productivity levels would rocket,” commented Soldo founder and CEO, Carlo Gualandri.
Handling the irregularities of business travel
Costs such as staff wages, utilities and rent or mortgage are largely consistent and predictable from month to month. More troublesome are less predictable employee business expenses, such as travel, fuel and entertainment, which can be significant. Small businesses have an average spend of more than £4,000 per month on travel and meal expenses, and average more than £5,500 per month on other types of expenses. Staff spending too much on fuel and accommodation is listed as a major complaint of management, as is staff losing receipts, according to respondents to recent research.
Booking long-distance travel can be time-consuming and costly. Many SMEs don’t have staff specialising in managing company travel, so finding the best deal on travel and accommodation can take considerable time and effort. Time that could be spent on other tasks. And while the company may pay for the air ticket up front (though some require the employee to do so), hotel and meal expenses are usually paid for by the employee. Whether by company vehicle or the employee’s personal car, for road travel the fuel, accommodation and meals are often paid ad-hoc by the employee. If staff are not issued company cards to use for their expenses, they must carry the cost of hundreds or thousands of pounds and then submit a reimbursement request.
And make no mistake, employees hate the hoops they must jump through to get back their own money. More than half (53 per cent) said they found it more stressful than doing taxes. They’re further stressed because any delay in payment (and companies take, on average, nine business days to process a reimbursement) means the employee may be hit with interest charges as well. On top of all that, if they misplace a receipt, they may find themselves out of pocket.
The good news is that SMEs can smooth out the process. Simply creating a clear (and fair) expenses policy and giving staff access to it, can ensure there are no surprises or misunderstandings. Make sure that your policy reimburses employees for all aspects of their business spending. Just as you would not expect them to use company funds to pay their personal expenses, they should not be subsidising the business. Finally, be quick to reimburse expenses.
More good news is that, thanks to technology, employees can do much of the admin work, such as submitting receipts and expenses themselves, even while they’re still on the road. This allows for faster processing with fewer errors. Going paperless and accepting electronic submissions for expenses also makes things easier for you and your accountant come tax time.
So, yes, you do need to spend money to make money, but with some planning and care, you can reduce the costs and make the process a lot less stressful.