Consequences Of Neglecting Expense Tracking & Management
If someone quizzes new business owners to list out the three most important pillars of a business’s financial sustainability, some may not be able to list the third one.
New business owners may sometimes get too blinded by revenue and profits in the initial phase of their business that expenses may get out of their field of vision. However, neglecting expense management could be a costly mistake for new businesses. Here’s why:
- Inaccurate financial reporting
Inaccuracies in financial reporting could entail different things, including adding estimates instead of actual figures for expenses that have not been tracked. Inaccuracies could lead to missed opportunities and issues, like:
- Missed tax deductions
Certain business expenses may be eligible for tax deductions. The IRAS highlights them thoroughly on their website, which gives an idea of the substantial tax savings that a business can avail of if expenses are tracked accurately.
- Difficulty with forecasting
Not tracking expenses accurately may result in discrepancies in financial forecasts. These discrepancies could compound every financial quarter and may falsely report a deflated or inflated company’s health. This inaccurate reporting can impact financial planning. Some departments may be underfunded or overfunded in reality, while the reports state otherwise.
- Missed opportunities for cost savings
Without accurate data on financial outflows, it’s difficult for a company to filter out which expenses are avoidable or negatively impacting company health. As most business owners may already realize, this could result in decreased profitability.
Restrained external financial support:
Convincing an investor to provide support requires a compelling pitch. For the pitch to be effective, an entrepreneur should know their product and workflows inside-out. Without accurate financial reports, this cannot be easy to achieve. If financial health is mistakenly reported to be weaker than how it really is, it can easily deter an investor’s interest in the company. Conversely, inflated financial figures can be problematic later when an official auditor later reveals this discrepancy. The business may be perceived as dishonest and face penalties, which can dilute the company’s reputation in subsequent funding rounds.
Integrating technological solutions in the expense reporting process can achieve better financial reporting. An automated expense management software can help here. It can automatically register details of even minor expenses paid for through the business account. Most software programs also offer dashboards that present an expense overview, making it easier for teams to identify areas or expenses that eat up a big chunk of the total revenue.
Other effects and how a digital expense manager can help combat them:
- Difficulty managing employee expenses and reimbursements
Business trips, lunches, or unexpected office expenses can sometimes require an employee to pay out of pocket. The company then becomes obligated to repay the amount that the employee spent on behalf of the company. This is also a type of expense for a business. When businesses don’t have a reimbursement system in place, employees may feel frustrated with how things work in the company. Dissatisfaction can impact performance and increase attrition.
An advanced expense management system that also covers employee reimbursement tracking would be the solution here. Employees can access their side of the software and upload receipts and other documents required for submitting a reimbursement request. Financial teams can define criteria for approving reimbursement claims, and the software can automatically approve eligible requests without requiring manual intervention at all times.
- Damaged reputation with service providers.
Businesses often partner with different vendors or service providers to improve efficiency and performance. However, when there’s a delay in clearing invoices, the service providers may feel dissatisfied and seize the engagement. Further, such service providers may even feel hesitant to restart activities in the future. This is a residual effect of inefficient expense tracking.
An expense management system can help here. Some systems that track recurring payments can send reminders before the due date. This could safeguard businesses from vendor-imposed penalties and preserve bridges.
Ending Note:
To business owners, focusing on maximizing revenue can sometimes become too big of a priority that expense tracking takes a backseat. However, neglecting this can have long-lasting consequences of damaged reputation among employees, vendors, and investors. To tackle these issues, businesses should invest in an automated expense tracking system. Not only will it save time, but it will also improve the accuracy of financial reports and expedite payment approvals.
