Startup Expense Management 101

How important is Expense Management for a startup? You should set up a system to track expenses from day 1, even before you incorporate or have a business bank account. The Best Expense Management Software can help.

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Startup Expense Management 101

Startup Expense Management 101

FIRST THINGS FIRST - SET UP A SYSTEM

Set up a system to help with expense reporting and tracking. It’s not a bad idea to do this really early - even before incorporating or setting up a standalone bank account! You want to make a very clear distinction between your personal account and your business account from day one in order to save a lot of time, money and complexity later. It’s also normal for a company to have some (typically small) expenses that the founders have put on their personal credit cards that get reimbursed once a company gets funded (make sure the investors know if you are going to do this). So good tracking will help you get going, raise funding and have solid financial metrics.  And, as I discussed with the New York Times, you want to make sure you have everything tracked properly in case you are audited by the IRS.

Expense Management Tools Before You are Funded

Before you have a bank account/get funded there are a few ways to manage your expenses.

  • Use a dedicated expense management software
  • Get an expense management system that is bundled with a bank or cash account
  • Use a spreadsheet

The spreadsheet isn’t the greatest option - it requires manual work to maintain and will need to be manually put into your accounting system. But we’ve seen hundreds of organized founders use spreadsheets when they first found their companies, so we know it’s possible.

Expense management software can be cheap and very effective. Expensify has $4.99 per month plans for individuals, and this is a good option to use before you’ve been funded and have a bank account. 

Two of our favorite finance tools, Rho and Brex, have a bank or cash management solution built into their expense management tools, which makes them possibilities for a company that has yet to fund raise but where the founders will kick some cash into the business. Rho is a real bank, and is used to working with pre-funded startups, so that’s our current recommendation if you want a bank + expense tool bundle prefunding.

Expense Tools After You are Funded

After you’ve gotten financing, even if it’s just $250,000, you’ve got more options. And if you are going to hire quickly, you’ll have employees - who will need to get reimbursed for items they put onto their own cards for the company, or who will need corporate cards. 

At this point, you NEED an expense management software. Look for an automated expenses management system that can: document the paper trail of expenses for IRS audit purposes, help keep founder and business expenses cleanly separate, and easily integrate with your accounting system. The best expense management tools have a mobile app for scanning receipts on the go, accept invoices and payment records via email and have a killer web app for managing your records. 

Some of the key features to look for in a system:

  • Rock solid approval workflow
  • Easy connection of the company’s bank account
  • Easy connection to the employees bank account (for reimbursement funds flow)
  • Easy connection to the company’s accounting system for painless bookkeeping
  • Good customer service
  • Virtual credit cards - the best expense reporting / management apps have credit cards that are easy to provision (learn about some on our best startup credit cards page)

Comparing the Best Expense Management Software

 
Ramp
Brex
Rho
Expensify
Cost of Basic Expense Management Free Free Free $5 per mo per user
Cost of Advanced Expense Management Free $49 per mo (unlimited users) Coming Soon $9 per mo per user
Corporate Card or Expense Management Software? Card Card Card Either
Requires Solution Specific Card Yes Yes Yes No
Approvals? Yes Yes Basic Yes
Receipt Scanning App Yes Yes No Yes
Customer Service Great Good Great OK
Online UX Excellent Excellent Excellent OK
Virtual Cards for Employees Yes Yes Yes Yes
Has a Bank or Cash Management System No Yes Yes No
  Visit Site Visit Site Visit Site Visit Site

So which should you use?

If you are just starting out, and are prefunding, consider Expensify or Rho. If you’ve raised money, then you should consider Ramp, Brex and Rho.

Expense Management for Startups - Best Practices

  • Use a software
  • Have an expense management policy - who can expense what and when
  • Record all business expenses
  • Reconcile bank statements and credit cards with your corporate books
  • Store receipts so you can be ready for an IRS or accounting audit
  • Reimburse employees if they use their own cards
  • Generate monthly expense reports 
  • Organize expenses into categories so you can understand your spend
  • Track every individual expense so you can spot irregularities

One way to automate Employee Reimbursements

One tip we have for companies that are going to have recurring reimbursements to specific employees is to use a payroll system that actually automates these recurring reimbursements. For example, Rippling has a great feature whereby you can send the same reimbursement to an employee every month. For example, if you pay $50 for an employee’s cell phone or home internet connection, why go through the hassle of having them submit an expense report every month for that? Read more about how to choose the best payroll system for your company.

The Sooner you Automate, the Better

Save future you (and your future accountant) a ton of time and headache. If you’re planning on growing fast after you raise capital, get a solid expense management solution set up. If you’re really early, go sign up for Rho. If you’ve already got some funding, you have more options like Brex and Ramp. But all are easy - do it now!

Want to know more?

IRS audits and expense tracking

Detailed comparison of Brex vs Ramp

If you are storing all of your receipts in a shoebox? Or stuffed in the glove box in your car? (Yes, this really does happen.) No problem, Kruze Consulting can help you get organized. Just set up a time to talk with us.

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