The guide to expense management: Mastering financial control

Expense management is the process of tracking, analyzing, adjusting, and controlling your business’s spending. Think of expense management as your financial compass, guiding you through the complex terrain of business expenditures. This process involves setting clear spending policies, meticulously tracking all business-related costs, and analyzing these transactions to uncover patterns and insights.

At its core, expense management is about creating a clear picture of where every dollar goes. You can do this by setting up detailed expense policies that outline what can be spent and how, recording each business expense (from major purchases down to every last Starbucks run), and analyzing this data to uncover patterns and opportunities.

But great expense management isn't just about keeping tabs on spending. It's about taking action. It means enforcing compliance with your own guidelines as well as tax and industry regulations, ensuring every expense is accounted for and aligns with your business goals. It's about making smart decisions on where to invest and where to cut back, so you can optimize your resources and grow efficiently.

“As we strive for lean profitability, every single expense matters. I want to know every single thing we’re spending money on — I don't care if it's $10 or $100 — and Brex makes it easy to do that.” — Adam Alpert, Co-Founder, Pangea

Expense management isn’t only about controlling costs. It’s also about understanding the impact of those costs and adjusting to strategically invest (or re-invest) in areas that move the needle on business success.

The expense management process typically involves several steps:

1. Establishing company expense policies that clearly define what types of expenses are legit and reimbursable. Policies should also set spend controls and outline the approval process
2. Tracking expenses using automated expense management software, corporate cards, or mobile apps to record all business-related expenses accurately
3. Approving all expenses, ensuring they comply with company policies
4. Reimbursing employees for approved expenses
5. Analyzing spending data by regularly reviewing expense reports, identifying areas where you can adjust spending and maximize deals with vendors, and more
   

Expense management is critical because it directly impacts your company’s bottom line and overall financial health. But it’s also important to your business decision-making. More than half (55%) of decision-makers in our Forrester expense survey said they can’t make sound decisions because of gaps in their expense data. Further, clear expense policies and streamlined operational processes save time for employees and reduce the risk of fraud, allowing companies to focus on growth and innovation rather than administrative headaches.

At a basic level, effective expense management helps you control costs. Done right, it will help you identify areas of waste, eliminate unnecessary expenses, and allocate resources more efficiently. These insights lead to more informed decisions about where to invest and where to cut back, ensuring every dollar spent contributes to your business goals.

A better expense management game helps you comply with tax laws and industry regulations and reduces the risk of costly audits or penalties. You’ll also get better and more real-time visibility into your company's financial health, enabling agile decision-making so you can move fast. For your team, streamlined expense processes mean faster reimbursements and less time spent on administrative tasks, boosting both productivity and morale.

Moreover, in an era where nearly half of all organizations still rely on outdated methods like spreadsheets for expense tracking, implementing modern, automated software can give you a leg up. It not only reduces the risk of errors and fraud but frees up valuable time and resources that can be redirected toward growth initiatives. Remember, every dollar saved through efficient expense management is a dollar that can be reinvested in your company's future.

In this way, smart expense management becomes a powerful driver of business success, turning a necessary financial process into a strategic advantage.

Understanding business expenses and how they accrue is the first step to effectively managing them. One way to do this is to classify expenses by category, function, tax deductibility, or other criteria.

The table below summarizes the most common business expenses by category:

Let’s look at these expenses more closely to better understand and manage them.

Operating expenses (OpEx)

Operating expenses, also known as OpEx, are the lifeblood of your daily operations. They comprise the costs necessary to keep your business running smoothly. Operating expenses obviously vary by company and industry, but here are some of the most common:

• Employee salaries and benefits: the cost of compensating your workforce, including wages, salaries, bonuses, and benefits like health insurance and retirement contributions
• Insurance premiums: the cost to insure your business against property damage, liability, employee injuries, and other risks
• Professional fees: the cost of services provided by lawyers, accountants, consultants, and other professionals
• Utility bills: the cost of electricity, gas, water, and other utilities used in your business operations
• Office supplies: the cost of items like paper, pens, printer ink, and materials used by employees in the office
• Rent: the cost of leasing your company’s workspace

Efficiently managing these operating expenses often involves optimizing your procurement process flow. A well-designed procurement process can help control costs, ensure quality, and maintain a steady supply of the goods and services your business needs to operate effectively. By learning how to budget for recurring expenses, you can better manage your cash flow and ensure your business has the resources it needs to operate smoothly.

Capital expenses (CapEx)

Capital expenses (or CapEx) represent investments in assets that will benefit your business in the long run. They’re typically one-time purchases of high-value items. These items tend to be physical but can also be intangible, like expense management software fees. Examples of CapEx include:

• Software licenses to use software applications essential for your business processes
• Purchase of new equipment or machinery to increase efficiency and productivity
• Real estate, such as land or buildings for business operations
• Vehicle purchases, such as delivery trucks or company cars

Cost of goods sold (COGS)

The cost of goods sold encompasses all the direct expenses you incur to produce the goods or services your company sells. You can calculate your COGS by adding any new purchase to the difference between your beginning and ending inventories. COGS typically encompasses the following expenses:

• Manufacturing overhead: indirect production costs, including utilities, factory rent, and depreciation of manufacturing equipment (though some businesses list this as a separate expense)
• Direct labor costs: the wages paid to employees directly involved in manufacturing products or providing the service your company offers
• Raw materials: the cost of the basic materials used in production

COGS is the most significant expense for the average manufacturing company. The cost of goods sold amounts to around 50% of total revenue, with raw material costs representing over 80% of those costs. However, COGS hovers around only 15% of revenue in the professional service industry.

Selling, general, and administrative expenses (SG&A)

Selling, general, and administrative expenses are costs you incur in running your business that you can’t directly tie to production. Since they are not directly involved in delivering a product, they can be a bit of a gray area. But these expenses are still essential for your business to function and grow. SG&A expenses include:

• Salaries for administrative staff, such as HR professionals, legal counselors, accountants, and other employees in administrative roles
• Expenses related to conferences, workshops, industry events, and seminars for professional development and networking
• Marketing and advertising expenses you incur to promote your products and services through various physical and digital channels
• Business travel expenses, including airfare, hotel stays, and local transportation

It’s worth noting that SG&A expenses vary from company to company, depending on factors like industry and size. For example, travel is a significant expense for many enterprise companies, with an average of 25.1 daily travelers per company in 2023.

The average domestic flight booking price hovers around $400 per flight (see below). Therefore, those 25.1 daily flights total more than $3.65 million annually. Finally, considering that airfare makes up roughly 11% of the total cost of a business trip, travel alone tops $33 million in this example.

Financial expenses (a.k.a. cost of capital)

Financial expenses are the costs of borrowing or raising capital to fund business operations. While these expenses may seem burdensome, they are critical business startup costs and are often necessary to fuel growth and expansion. The most common financial expenses are:

• Interest on loans: the cost of borrowing money from banks or other lenders (including mortgage interest), calculated as a percentage of the loan amount
• Bank charges: fees charged by banks for services such as account maintenance, wire transfers, and foreign currency exchange
• Fees related to debt issuance: costs incurred when issuing debt instruments like bonds to raise capital
  

Effective expense management hinges on accurate and efficient expense tracking. By implementing the following strategies, you can manage your expenses and gain insights into your company’s spending.

Step 1. Open a business bank account

The first step in tracking business expenses is to open a dedicated business bank account. This type of account separates your personal and business finances, making tracking business income and expenses easier.

To open a business bank account, you’ll typically need:

1. A government-issued ID, such as a driver’s license or passport
2. Your business registration, i.e., your articles of incorporation or a business license proving your business’s legal existence
3. A tax identification number, such as your Social Security Number (SSN) if you’re a sole proprietorship or your Employer Identification Number (EIN) if you’re not

Choose a bank offering services tailored to your needs, such as free online banking, mobile check deposits, and business credit cards.

Brex offers a business account that serves companies large and small with checking, treasury, and vault options in one place. This flexible cash management account lets you choose different allocation strategies for your funds, allowing you to earn high yield while maintaining 100% liquidity. Plus, get FDIC insurance for up to $6M through 20+ program banks.

Step 2. Get a corporate credit card

A corporate credit card is a powerful tool for tracking business expenses. It allows you to consolidate expenses onto a single statement, simplifying record-keeping.

Brex issues corporate credit cards (both physical and virtual cards) on the worldwide Mastercard network. Brex cards are designed to meet the unique use cases of businesses of all sizes, from startups to enterprises — including T&E cards, purchase cards, vendor cards, fuel cards, fleet cards, you name it.

With a Brex corporate card, customize spend controls for your teams, track expenses in real time, and even automate expense reporting with leading ERP integrations. You can also get Brex cards in more than 20 local currencies and avoid costly foreign transaction fees. These global capabilities make Brex one of the top cards for organizations operating in multiple countries.

Additionally, Brex typically offers higher limits than traditional providers like American Express and features an extensive rewards program with no annual fee. Brex even allows businesses to apply for a credit card with EIN only so there’s no personal guarantee.

Step 3. Choose an expense management tool

A business expense management automation tool can take the manual work out of your expense tracking and reporting processes. While there are different types of expense management solutions in the market, most offer similar core features. Look for a tool that offers:

• Automated expense reporting: Automatically capture and categorize expenses from receipts (even paper receipts) and credit card statements for physical and virtual business credit cards.
• Mobile app: Employees can submit expenses on the go with an expense management app for mobile devices.
• Integration with accounting software: Bi-directionally sync expense data with your accounting software or ERP for improved accuracy.
• Real-time reporting: Get up-to-the-minute insights into your spending.
• Approval workflows: Remove the human bottlenecks and automate the expense approval process.

Selecting the appropriate expense management tools can significantly improve your business's financial operations and efficiency. Here are the top three expense management tools available in the market:

1. Brex

Yep, we truly believe Brex is the best expense management platform because our integrated approach combines corporate cards, expense tracking, automated bill pay, business banking, accounting automation, and more.

Brex’s AI-powered automation eliminates manual data entry and streamlines your entire expense management process. And because all of these solutions are integrated into the same platform, our comprehensive reporting features provide real-time visibility into spending, empowering finance teams to make data-driven decisions.

2. Expensify

Expensify is a popular cloud-based expense management software that allows employees to track and submit expenses with its user-friendly mobile app. Expensify offers intelligent receipt scanning technology that automatically extracts expense data, saving employees time and reducing errors.

However, compared to Brex, Expensify lacks the powerful automations for tasks like expense categorization and approval workflows, potentially requiring a more manual process from finance teams. Some G2 users have also complained about scanning errors and duplicate receipts that they have to fix manually.

3. Zoho Expense

Zoho Expense is another comprehensive expense management tool with features like mileage tracking, receipt scanning, and expense approval workflows. Zoho Expense integrates flawlessly with other Zoho products, making it a convenient option for businesses already using the Zoho suite.

Those not using the Zoho suite may prefer solutions like Brex that have more integrated card and expense management features. Some Zoho users have complained about limited functionality, and other users wish for more personalization features and bill payment integrations.

Effectively managing your business expenses will create a culture of financial discipline and help your business reach its full potential. Here are some of the key benefits for businesses with good expense management.

Error reduction

Manually recording and submitting expenses is bound to introduce errors, especially when dealing with employee-initiated expenses. These errors range from misplaced receipts to incorrect data entry and categorization, which can lead to inaccurate financial reports, budget overruns, and compliance issues.

Your goal should be to automate many of these processes with an expense management solution and reduce the risk of human error and improve the accuracy of your financial data. Automated expense management can significantly streamline the expense reconciliation process, ensuring that all reported expenses match actual transactions and receipts. This not only reduces accounting errors but also saves time for your finance team, allowing them to focus on more strategic tasks.

More accurate budgeting

Reliable financial records are the foundation of accurate budgeting. When you have clear insights into your spending patterns, you can allocate funds more effectively to different departments and projects.

Expense management software like Brex offers features such as automated notifications and real-time spend reporting, allowing you to track your budget in real-time and re-allocated funds as needed. By leveraging these tools to improve working capital, businesses can enhance their financial flexibility and be better prepared to seize growth opportunities or weather unexpected challenges.

Increased efficiency

You’ll be surprised how the right expense management approach can amplify your business's overall efficiency. By automating expense reporting and approvals, you’ll free up valuable time for your finance team to focus on more strategic tasks.

According to a recent IDC report on optimizing cash flow, robust expense management can make a huge impact on your bottom line. The IDC report states that large Fortune 500 companies can save upward of $40 million annually with automated expense management.

"Brex is helping us control our expenses, as well as be more efficient with our No. 1 resource: our employees." — Teddy Collins, Vice President of Corporate Finance, SeatGeek

Compliance

Well-managed expenses are crucial for maintaining compliance with tax regulations and internal policies. Expense management tools can help you:

• Generate reports that meet regulatory requirements
• Ensure accurate record-keeping
• Track tax-deductible expenses
• Implement and enforce a clear procurement policy

A robust procurement policy, as part of your overall expense management strategy, helps ensure that all purchases adhere to both internal guidelines and external regulations. This policy can define approved vendors, spending limits, and required approvals, further strengthening your compliance efforts.

Improved compliance reduces the risk of audits and penalties and instills confidence in your financial practices. By integrating your procurement policy with your expense management software, you create a comprehensive framework that guides spending decisions, promotes transparency, and supports regulatory compliance across all aspects of your business expenditures.

The benefits of effective expense management are undeniable, so what’s holding businesses back from doing so? Here are some of the most common challenges.

Data visibility

Disparate software and multiple card programs make it difficult to aggregate expense data and get a comprehensive view of spending. This lack of visibility can hinder your ability to identify cost-saving opportunities and make informed financial decisions.

Tracking real-time data

Traditional expense management processes often involve delays in reporting and approvals, making it difficult to track expenses in real time. Any delays can lead to surprises on monthly statements and make it harder to promptly identify and address spending issues.

Data entry errors

Data entry errors are a top symptom of poor expense management. These errors range from simple typos and transpositions to more complex issues like duplicate entries and miscategorized expenses. An employee might accidentally enter $100 instead of $10, for example, or they might categorize an entertainment expense as a travel expense.

These errors can throw off your financial reporting and lead to budget overruns, but they’re also quite costly. According to a 2023 GBTA Survey, a single expense report takes 20 minutes and $58 to process. Nearly 1 out of every 5 of those reports (19%) contain errors, and correcting those errors requires an additional 18 minutes and $52 to fix.

Lengthy expense approval and reimbursement cycles

Other significant challenges to managing business expenses efficiently are lengthy expense approval and reimbursement cycles. These can be a source of frustration for employees and finance teams, and making employees wait weeks or months to get reimbursed for business expenses negatively impacts employee morale.

Furthermore, delays in expense reimbursement can complicate financial reporting and budgeting. When reimbursements lag behind the actual spending, it becomes difficult to get an accurate, real-time picture of company expenses. This can lead to budget overruns and missed opportunities for cost savings.

Brex’s AI-powered spend management software simplifies and automates the expense management process. Here’s how Brex can transform the way you manage your business expenses.

Customizable policies

With Brex, you can customize policies by use case, job level, department, or another mechanism and even block or require special approval for specific categories and merchants. For instance, a policy that prohibits alcohol can automatically block the purchase or flag that item on a receipt. These auto-enforced rules make in-policy spend seamless and prevent overspending or unauthorized expenses before they happen.

Powerful automation

Brex automates many of the tedious and error-prone tasks associated with expense management. For example, Brex automatically adds receipts from thousands of merchants and auto-matches them to the appropriate credit card transactions, eliminating the need for manual data entry. Brex also automates expense reviews and approvals for faster, more efficient processing.

Seamless integrations

Brex integrates with thousands of popular business tools, including accounting software, travel booking platforms, HR software, and ERP platforms like NetSuite. These built-in integrations help ensure your expense data is always up-to-date and accurate.

Real-time visibility

Brex’s intuitive dashboard provides a centralized view of your business expenses. Track spending by category, department, or employee and generate reports with just a few simple clicks.

You can also create custom spending limits and alerts, helping you stay within your allotted per diem for travel and expense management spend.

“The transparency into spend that Brex provides our team is unparalleled. Our finance partners are ecstatic to be able to see how spend is trending at any point in time. We donʼt get that with legacy systems." — Jerome Barley, Head of Global Travel & Expense, DoorDash

Instant tracking and account controls

With Brex, create high-level budgets, provision spend limits with built-in spend controls, and empower employees to spend with confidence. These features not only help you use your budget more effectively but also provide opportunities to reduce business expenses through better oversight and control. With this kind of detailed tracking and proactive management, you can identify areas of overspending quickly and take immediate action to curb unnecessary costs.

“We use Brex for all of our company expenses. With set Brex budgets, our employees have a lot of autonomy to use their card to help out the greater team or for one-off expenses like dinner with a client.” — Jake Disraeli, Co-Founder and CEO, Treet

Effective expense management is essential for any business’s financial health and success. It can simplify reporting and compliance, reduce errors, lower costs, upgrade efficiency, and provide valuable insights into your business spending.

Brex offers comprehensive solutions to help you achieve these goals. With AI-powered automation, seamless integrations, and an intuitive dashboard, Brex empowers businesses of all sizes to take control of their expenses and drive growth.

Ready to transform how you manage your business expenses? Get started with Brex today, or see a demo for yourself and experience the future of expense management.