Why Every Business Needs Clear Rules About Spending Money

Every company has a similar genesis when it comes to spending. Someone needs something, they get it, they ask perhaps, they don’t. In the earliest stages of a company – a handful of people – this is fine. Everyone knows what’s reasonable, what’s not.

But this loosey-goosey mentality has an expiration date. Most business owners don’t realize when it expires until it’s too late.

An employee submits a request for a $400 hotel room because he forgot to check out of his hotel room on his way home the same day. An employee goes out for an extravagant meal that he justifies by saying he took a potential client to dinner but also included his spouse and children. People realize that there are no rules; everybody makes their own assumption of what is permitted.

When does “Just Be Reasonable” Not Work Anymore?

The biggest issue with “just be reasonable” as the spending policy is that reasonable means different things to different people. What one person feels is a typical business expense meal is excessive to another. One employee believes taking a business class flight for a six-hour flight is acceptable; another would never do that.

It’s not necessarily anyone’s fault. Employees come from diverse backgrounds, different funds available to them from prior jobs, and different personal lives. They’re literally guessing.

There are two main problems with guessing. First, it creates awkward conversations that occur more than once. Someone submits a spend; finance pushes back; the employee gets defensive because no one told him he couldn’t do that, and now someone is either going to have to approve something they don’t want to approve or reject it, so someone feels like they did something wrong.

The second problem is inconsistency. If one person’s expensive meal is approved, and another’s is denied, then that’s unfair. Employees talk to one another. They compare apples to apples. Now you’re dealing with morale issues atop budget issues.

What Spending Policies Actually Cover

A solid expense policy doesn’t need to be 50 pages long and completely forgotten about but it should cover the basics most commonly seen in day-to-day business operations.

Travel is a top expense. Hotels, flights, meals on the road, ground transportation – they all add up and they’re also the most varied in expense expectations. Many companies have set per-night dollar amounts for hotel stays based on major cities or ranges, or if over a certain amount, pre-approval is necessary. It doesn’t necessarily matter what specifically is written down but rather that something exists for people to check.

Meals and entertainment are always tricky due to the gray area. Is a coffee with a potential client an acceptable expense? What about happy hour drinks with the team? Most companies will draw lines by whether or not a client is involved, what the intention was, and how much seems reasonable for the context. A $200 meal for four people (which includes your major client) is probably acceptable; a $200 meal for you alone is probably not.

Then there are supplies and equipment. Who can buy their own software licenses? A better monitor? Standing desk? While these seem like small purchases, they add up across a growing workforce and without guidance become huge problems with wildly different interpretations of what’s acceptable.

What Receipts Say

Finance departments get crazy about no receipts. It’s simple enough not to submit notes without receipts or just a credit card statement, but you’d be surprised about how many expense reports fly through like that.

Most companies require receipts above a certain dollar amount; typically $25 or higher. Lower than that it’s rarely worth the hassle. But anything higher requires proving what was purchased. A credit card receipt that simply says “Restaurant” does nothing to prove that this was a proper business meal versus dinner with your family.

The other major credit card guidance is time. How long do employees have to submit expenses? Some companies say 30 days; others say 60 or 90. The longer you wait, the less likely anyone will remember what it was for – and the longer it takes to reimburse employees who are patiently waiting for their money back.

Why Employees Want Guidelines

You’d think employees wouldn’t want an expense policy because they feel restricted. However, most prefer guidelines so they don’t have to guess if what’s reasonable and what’s not before submitting for approval.

When someone is renting a hotel room, wondering whether to book the $150 room or the $250 room under the guise of “my boss will judge me if this looks like waste,” they’re not using logical rationale in attempting to save money – and probably putting themselves in an unfavorable position along the way – when all they had to do was follow policy that said, “This is acceptable so long as it’s under this dollar amount.” They wouldn’t be scrambling hoping their boss will approve it on moral grounds since they’ve never traveled before.

The faster people are reimbursed for expenses, the better it is for finance departments, too. Expenses go through easily and quickly when they align with policy; when they don’t, inquiries slow everything down as everyone must wait for a response.

Why No Guidelines Hurt People

The easiest way why no policy or guidelines works against companies is budget chaos. When there are no known limits on spending, personal and professional expenses climb until they’re almost impossible to keep track of how small increments from various employees combine toward rapidly depleting budgets. Yes – a few extra dollars here and there are innocent enough; however, once you’ve let your travel budget double halfway through the quarter because people assumed it was okay without any checks – and no one in finance has time to investigate every receipt filed – you’re out of luck.

But worse yet – and less apparent – is good employees who spend less than they’re allowed because they’re afraid of overstretching. Someone buys the cheapest airline ticket available and ends up on a series of buses instead because they assume flying at all would be out of their price range; someone books a hotel room in a questionable area because they do not want to feel guilty for spending “too much.” Someone skips buying tickets for a conference he knows his department would benefit from because he assumes it’s not allowed.

That’s money you’re supposed to spend but actually avoid since people operate out of fear instead of clarity.

How to Implement Your Own Guidelines

If you don’t have guidelines yet for spending policies, you needn’t worry yourself into overthinking them right away! Start with situations that most easily apply to your business’s needs. If your company does little traveling, you don’t need pages of travel policy; if client entertainment isn’t part of your sales process, keep that part simple.

Just ensure it’s accessible. If it’s in some document somewhere where no one can find it, it won’t help. Some companies put policy in their employee handbook; others put it on intranets while others implement these types of guidelines within expense processing software so people can see what’s acceptable while they’re filing expenses.

Finally, your first draft doesn’t have to be perfect! You’ll find gaps where things come up that you never thought about. That’s okay – just don’t let it stop you! Make sure something is documented so people can reference instead of speculating what’s appropriate.

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Becky

Meet the award-nominated UK lifestyle blogger behind Spirited Puddle Jumper – a mum of three living in South East London! Becky shares the real ups and downs of family life, parenting tips, and lifestyle inspiration, proving that being a mum doesn’t mean you stop being fun or having other interests! Follow along for honest insights into UK family life and opinions on a whole range of topics, from travel and food, to beauty reviews, home and DIY, business and health and wellness.