Why Growing Companies Hit a Wall With Their Old Expense System
Written by
- Redaction Team
- Business Planning, Entrepreneurship
There’s an interesting pattern that occurs as organizations get bigger. Everything works swimmingly when there are, say, 10 or 15 people on staff. One employee buys something for work, snaps a picture of the receipt, sends it off to whoever handles the books, and the expense is good to go. That’s all she wrote. Easy enough.
Then organizations get bigger. They add more staff. They open another location. They begin sending staff to conferences and events. Suddenly, that easy system is no longer easy. People forget about receipts. Approvals take forever. The person in finance who spent two hours handling the expense reports each week is now bogged down with mountains of requests. And everyone still scratches their head wondering where all the money goes.
This is the wall. It’s not a wall because anyone does anything wrong – it’s a wall because tools and systems for small teams simply fall apart at scale.
The Approval Backlog is Out of Control
One thing that breaks when an organization grows is approvals. When an organization is that small, one person might be the approval for all expenses. Or, managers can approve their own department’s requests. There aren’t that many expenses filtering through to make this a problem.
When an organization scales, however, the approval system becomes a nightmare. Department heads receive 30 expense reports a week. They’re traveling for work themselves and can’t approve right away – employees aren’t reimbursed months later for expenses they incurred months ago for work. Finance isn’t closing the books because half the company still needs to submit receipts for last quarter.
While this isn’t ideal, it’s compounded by lack of visibility into what’s happening – managers don’t know if they’re approval is holding up another 10 approvals behind them. Finance doesn’t know if they’re deadlocked on two requests needing the same stamp of approval. Executives have no real-time sense of how much the organization spends at a given time since they simply sit in a backlog as fiscal close efforts get underway.
Policy Violations Get Missed
When companies are small, it’s relatively easy to see when someone spends outside of their means. They buy that plane ticket more than what the policy allows, they expense that meal more than what the policy allows and with only a handful of people expensing efforts, it’s easy to catch red flags like this in short order.
When organizations grow, however, it’s impossible to ensure policy compliance with basic tools. Spreadsheets don’t track penalties; someone needs to review every single entry and compare against policy and when they have hundreds of these, things fall through the cracks.
This isn’t to say that individuals should not be penalized but instead that companies should be aware so these things never happen again – when one employee sees another getting away with whatever they want without penalty (or, more importantly, not being caught), they push boundaries more and more. Before long, the company is spending far more than it ought to be on minor expenses – and no one knows why this has started happening. With growing organizations experiencing this breaking point, enterprise expense management solutions help to prevent policy violations by enforcing them automatically before problems arise.
Reporting Becomes a Full-Time Job
The finance team comes to a point of needing granular reporting. Executives want to know spending by department, by category, by location. The board wants quarterly reports breaking down every single place where money goes. Auditors want backing for every line to show it was legitimate and approved.
With basic systems in place, these reports are hard to come by – someone has to dig information up; some expenses exist in spreadsheets; some are hidden away in email chains; some are misplaced from an old software system that hasn’t seen sunlight since v2 came out last year. They need to be categorized manually. Duplicates need elimination. Credit card statements need reconciliation against what was submitted.
What should take a few hours takes a few days – and compounding efforts mean reporting only happens on a monthly or quarterly basis as opposed to an ongoing basis. By the time leadership sees hard numbers, they’ve already lived through another budgeting cycle without getting their questions answered about what’s already happened.
Multi-Location Madness
This one punches organizations in the gut when they open their second location – or start working cross state lines or across borders. Suddenly there’s currency conversion at stake for what constitutes a reasonable dinner expense in Manhattan versus Long Island (or Toronto). There’s tax implications. There’s spending regulations that differ from state to country.
Basic expense systems are not set up to accommodate this complexity – someone needs to note different currencies translating it back to dollars based on current exchange rates. Someone needs to keep tabs on taxes differently charged per state or country regulations. Expense categories must be careful – each has a line item on applicable financials.
But this all becomes time-consuming busy work that people overlook – in tax season and company audits, these rubrics could become important down the line.
Moreover, when time zones are different (California expenses going up for approval from New York management who checked out at 5 pm their time), approvals sometimes fail before they even begin – what should be easy becomes lost in translation over days.
The Fraud Factor Nobody Wants to Talk About
Most employees will keep it honest but as companies grow, as oversight becomes impossible where employees feel like nobody’s watching, opportunities arise for fraud – someone submits the same receipt twice by accident – or not by accident; they round up expenses figuring nobody will care or they create completely fake expenses.
Small businesses usually catch this stuff because one person knows everyone and has eyes on everything; at scale, once the finance team gets hundreds of transactions each week – and they’re overwhelmed – they fail to see fraudulent expenses until weeks later – and by then, it’s too late.
It’s not only about the money lost – but also about time lost figuring it all out; awkward conversations arise; sometimes even legal action takes place – all because expense systems weren’t set up for checks and balances in the first place to keep these things from happening.
Finance Team Fatigue
One other thing that isn’t discussed enough is that when expense management goes unmanaged, it’s an absolute crushing blow to the finance team – the finance team filled with professionals who should be strategically planning spending patterns and cost savings while helping executives paint wise financial pictures – they’re bogged down in images of receipts and boxes of lost expenses.
They spend way too much time chasing down people who forget to submit expenses; data entry becomes manual; problems become resolved with no clear reason why; approvals drown in an endless sea of bureaucracy.
It’s not only inefficient – good finance pros who want to keep it moving leave for companies where systems are put in place to minimize manual work; now organizations need to hire someone else and train them up again.
Make the Change Before You Hit The Wall
Companies who grow into bigger organizations recognize these breaking points before they hit them – they see their approval delays building or they see their policy violations coming slowly but surely into alarming territory.
Usually making changes before hitting that wall means stepping away from spreadsheets/basic tools toward an enterprise solution that scales upwards continuously – from automating approvals based on request versus denial to flagging policy violations in the moment before expenses can be completed.
These systems integrate with corporate cards capturing every transaction along the way instead of optional upload time; these systems save reports with click-of-a-button ease as opposed to clicking foot-in-mouth levels.
The wall isn’t permanent – but punching through it requires understanding that what works for a 20-person startup simply won’t work for a 200-person company. The sooner growing businesses embrace this shift of changeup, the less painful each transition becomes – and how much time and money they’ll save it in the long run will be better for everyone involved!
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