Effective Expense Management For a Financially Healthy Business

Kathy (host):  

Well, hello there, and welcome back to another episode of Help! My Business is Growing, a podcast where we explore how to grow and build a business that is healthy and sustainable. I’m your host, Kathy Svetina, a fractional CFO and a founder of NewCastle Finance, a company where we believe that everything that you do in your business will eventually end up in your finances. And to get to healthy finances is, of course, to have a healthy business. But how in the world can you get there? Well, this is where this podcast comes in to help. Not having a defined expense management process leads to overspending, budget surprises, and a lot of head-scratching and confusion over where in the world the money is going. And I see this all the time with companies that are struggling with their expense management, and the solution is to implement a solid expense management practice and use the right tool to streamline the process. But it might be easier said than done, and you might be asking yourself, “How in the world can I do this effectively without pulling my hair out, and do I need to fix my financial structure or become just more disciplined in tracking expenses? And why does this problem persist? And what can you do to make sure that your solution is a permanent fix and one that your employees are actually going to be using?” Well, this is where this podcast is going to go deep into the expense management structure. You can find all the links and the detailed topics in this episode’s show notes. My guest today is John Krebsbach. He is a principal at Precision Advisors, a business operation advisory firm for companies who are growing or are looking to ignite growth. John is an experienced founder and chief operating officer who enjoys the journey of building high-growth companies with great people. He earned and refined his growth operator skill set in a variety of environments, from co-founding a startup and shutting it down, to scaling an Inc. 5000 business and building new teams within a global corporation. This is going to be a great conversation, so please join us.

Kathy (host):  

John, welcome to the podcast.

John (guest):  

Thanks. I’m excited to be here.

Kathy (host):  

I’m super excited you’re here, because we’re going to be talking about something truly relevant, and I think it’s extremely important as you’re growing your business, and that’s expense management. Because as you’re small, you know, you have a couple of bills here and there, but as you keep growing, you’re going to have more credit cards for your employees, you’re going to be issuing more bills to pay, more vendors. And that can become a little bit unmanageable. So let’s first talk about, for you and I, we come from, we call it the corporate background, expense management is very top of mind for us, and when we were talking about this, we understand what exactly it is. But let’s define for our listeners what exactly is expense management. And of course, why does it truly matter?

John (guest):  

Yes, it’s a great topic. I’m so glad to be here. As someone who has started companies from scratch and worked at global companies, as you said, we’ve seen all different kinds. I think the main thing is, I work primarily with family-owned businesses, and so you get a wide spectrum here of like, “Hey, we trust everybody. Like, there are just copies of the debit card floating around, and everyone’s buying stuff,” to you’ve got those businesses where, “No, no, the purse strings are tight. Nobody spend anything.” So when we define expense management, there are a couple of ways I look at it. One is, what money is being committed and going out the door? So do you have a handle on that? A lot of times it’s very reactive. So if you find yourself in the situation where you’re like, “I don’t really know how much we’re spending,” that might sound weird, but examples of this are receipts show up, like, two, three months later. So in using sort of the accounting speak here, when the books have already closed, and then someone’s like, “Oh, hey, we actually took our best client ABC out for dinner, and that was five grand.” Like, depending on the size of your business, you might be like, “Wow. Okay, I thought January was a great month. And then, surprise, here’s a $5,000 expense.” So expenses, as you alluded to, can show up in a lot of ways. It could be a debit card transaction, a credit card transaction that could be on a company credit card or on an employee’s own credit card. The term for that in the expense management field is reimbursements. So how do you pay employees back? And then the typical stuff is like, you get bills. So those are kind of the general things we’re talking about. And I think what is appealing about this topic, when you and I were preparing for this conversation, was there are so many opportunities now to automate a lot of these processes so that you can focus on the areas where you can really add value. So automate the things that are routine. Focus on the things that are sort of exceptions. And then just instead of making expenses a bad word, either “Oh gosh,” or “I hate collecting receipts,” whether you’re the owner, the accountant, or you’re an employee, there are a lot of tools out there now that can make this a lot less painful.

Kathy (host):  

Yeah, this is really good, and especially, you know, there are so many reasons why this is important. You already talked about if you’re getting expenses after you have closed your books for the month, and that can throw off your financials, because if you think that you had a certain amount of profit in the last, you know, three months ago, but now that you have a $20,000 bill come in, that might throw your entire plans for the next couple of months, or even for the next year, because it’s like, “Hey, I had no idea we spent this much in marketing. Where did this come from?” So it’s more about one thing. It’s about visibility, like truly knowing where you’re spending the money, because that is such an important piece of making sure that your finances are healthy and sustainable. And then the other piece is obviously understanding what are people doing with the company money? And I’ve seen this with the businesses that I go into. They have a credit card that they give out to the employees, and now they go and they charge all sorts of things, and now the bookkeeper is pulling their hair out because they’re not getting the receipts. And on top of that, a lot of times there are no limits on it, too. Yes, you might have like a $10,000 limit on a credit card, but people can actually rack up $10,000 on a credit card, and now you’re on the hook for it without a receipt, have no idea what they were actually spending on. So this is a huge problem. So let’s first, let’s talk about these credit cards. And how do you manage expenses on the credit cards and knowing what people are actually spending?

John (guest):  

Yeah, that’s a great one. As we were preparing for this, and I love the name of your podcast. I wish I would have thought of it myself. Help! My Business is Growing. Those are the folks I like to work with. So I call myself a growth operator. So if I start from the point of view of there are different audiences here, let’s talk about the business owner first. “Help! My business is growing.” I love that because you’re saying, “I’m doing so great. My business is growing.” Usually, these are folks who are a subject matter expert in something. They’re really good at selling, or they’re really good at recruiting, or some combination. What I’m getting at here is expense management is not the thing that rolls off their tongue. They don’t spend as much time thinking about this as probably you and I do. So I’ve lived through that. Like you said, 15 years ago, I was the controller, basically a bookkeeper of a very high-growth company, and so I lived this frustration of me and my team just getting envelopes of paper receipts, scratching our heads like, “Who did this come from? What is this for? How do we categorize this?” So the point that I’m getting at here is it’s just a huge drain on the whole company. So if you have a salesperson who’s out in the field, they hate collecting the receipts. They hate getting the questions from accounting. “What was this one for? What was this one for? What was this one for?” And if you think about someone like you, you’re a CFO who’s trying to help the business look forward. This is all stuff that’s just backward-looking. I’m just keeping score. I’m just telling you, well, this money’s already been spent. There’s really nothing I can do about it. So what we want to do is try to reframe that and say, “Okay, how can we empower your employees to go be able to do their job?” So that’s my starting point, which is, I say, “Okay, let’s assume that you got great people and you want them to be able to do their job. What are the friction points that we can remove? Let’s tell them what they’re allowed to spend.” And so when you think about this as a CFO, you’re thinking, “Oh, I want to set a budget.” Okay, so now let’s take the concept of a budget, and let’s just make it known to an employee. So let’s use a real example here. I’m Susan. I work in marketing. I want to be able to, insert here, use a tool. Maybe it’s an email marketing tool. Okay, so Kathy the CFO says, “Yes, we agree $100 a month for whatever tool Susan wants to use as her email marketing tool.” Okay, the way that that probably looks today in the business is, maybe she’s using a company card. Probably there’s just phantom spend where that’s like any employee’s just signing up for any of these subscription-as-a-service things, and then you find out later. Okay, so the way we want to flip that paradigm is there are tools out there now where you can assign a budget. So we say, “Hey, Susan, this is in the budget, $100 a month. You can choose your own email marketing platform.” Okay? So she gets assigned that. And then here’s where I really like these new tools. They have a thing that’s called a virtual credit card. It’s kind of a weird concept, but follow me here. Instead of taking the credit card out of your wallet, where you have the numbers and you type it in, and then that credit card is getting used everywhere, here’s what we want to do. Instead, we want to assign Susan a specific credit card number just for this budget. This concept is important. Here’s why. When we now say, “Susan, you can spend $100 on your email marketing tool,” and she only uses that credit card number. Now the magic happens. So here’s how. When Susan goes and enters that, let’s just pick MailChimp, she puts that into the MailChimp website. As long as she only uses that credit card number on MailChimp. Now the automation happens. So at the end of the month, when MailChimp charges that $100, the accounting team already knows what it is, because that credit card number can only be used for MailChimp. So now in terms of speeding up your month-end and closing the books, let’s not spend time reviewing expenses we already agreed to. So to see the whole cycle through, we want to set spend. Susan, you can spend $100. She’s empowered to go pick the tool she wants. She has a virtual credit card number. Now, when it’s being charged too, we can see what the charge was for. This is by MailChimp on Susan’s card for marketing, and then when the expense comes through, it’s within policy. It just gets approved, it goes right into the accounting system. It’s already coded as a marketing expense. So that’s a lot of me talking, but I’ll pause because you probably have some questions. This is a new concept, usually for people to wrap their heads around.

Kathy (host):

And as a CFO, I like this, because now the budget or a forecast becomes a real-life event. It’s not just something that we have in a spreadsheet. We said, “Hey, we’re gonna spend $100 on this particular marketing tool.” And then now we have to figure out, well, did we really? Did we not? Like, where’s the variance? Where’s the difference? This already does all the work for us, so we already know where the money is going, and we already know that if it’s going to be more than $100, the credit card is probably going to decline, correct?

John (guest):

Exactly. So that’s a great point, and now we can have the conversation about, “Hey, this tool is actually, we spent, we thought we were gonna spend $100 on it, and we thought that we are, you know, we are still in the budget, but all of a sudden,” and I have seen this with SaaS vendors, and they’re very sneaky about this, that the first year, it might be $100 because you’re in this introductory rate, and then the next year, when you’re renewing it, it’s going to be, you know, $200, sometimes even $300. That was not in the budget. And then we’re scratching our heads here, like, “What? What went wrong? What happened?” You want to know that before you’re actually paying for that tool, so you can make a decision. “Hey, do we want to keep it or what do I want to do there, right?”

John (guest):

And this is where I could talk about this for days, so you’ll have to interrupt me or ask me to explain things, but just to riff off of that, there is one tool that I like in particular, so we’ll talk in generalities today, but here’s one specific example. So Ramp, R-A-M-P, ramp.com, and we’ll have a link in the show notes for your listeners. There’s a $500 sign-up bonus for them if they use the link that we share. Ramp has a feature in their platform. It’s called SaaS Insights. They’ll actually tell you by looking at their whole network of customers, what are other people paying for the same software that you’re using? Let’s now then keep going with that virtual card. So we gave Susan a virtual card. Here’s other stuff that happens. Sure, they can give you an introductory rate. Or what also happens with SaaS products is the prices go up based on tiers. So maybe Susan used it, but then all of a sudden she’s like, “Well, now I got to work with Joey. Well, once we got over five members, then all of a sudden the price went up.” So here’s the cool thing about that virtual card. You can set the spend either as a dollar limit, or you can set it as a budget that multiple people could share. So now that might be okay. We could say, “Okay, the whole marketing team is now going to use MailChimp. We’re going to allocate a budget now of $200 a month, and that budget can be shared by three people within the company.” You can also do other things where you can say that expense, you can make it recurring over a certain time period. So maybe you’re going to get, like, a 20% discount by paying in advance. We could now take that expense and say this expense recurs annually. Or here’s another cool one that I really like to prevent the SaaS creep. You know when you sign up for a thing and they’re like, “Oh, you got to enter your credit card. But don’t worry, we won’t charge you for seven days.” Well, everybody forgets, right? Okay, here’s a cool thing. With these virtual cards, you can set a date where it automatically locks and will decline any charges. So here’s a cool example. Create a virtual card, make it expire tomorrow, enter the credit card number, and as long as your team doesn’t want to use the tool, then that card is just going to turn off and the expense will just be declined. There’s no way, or you could say, “We’ve been using this card for a long time,” sort of like back in the day with the gym memberships that were impossible to cancel, you could do the same thing. We’re like, “You know what, we’re done. We don’t want to continue with this tool.” You can literally just in a web interface, just turn off a card. And so that goes back to this concept of, “Yeah, John, this sounds really confusing. Why would I want all these different credit cards when we just have one card?” Well, because the benefits massively outweigh any sort of perceived administrative burden, and if you have one card that everybody is sharing, you have no idea who’s doing the spending. You can’t possibly prevent spend that’s unauthorized in advance. And then you can’t turn things off if you want to prevent a vendor. And then you can’t automate your accounting. There’s really not much value added in having a bookkeeper look at the same 10 expenses every month. We always use the same 10 providers for these different tools. Stop reviewing those expenses. There’s no value there. Just code them, put them in the books. Spend your time focusing on the outliers.

Kathy (host):

Yeah, that’s great. And the other thing that’s really, really important here is the internal controls, because if you have multiple people using the same credit card, even if it’s just two people using the same credit card, you’re never going to know who was actually using it that did that charge. And it can be, you know, it can be one of those situations where there’s just pointing fingers at each other, like, “He did it,” “She did it,” whatever, and you have no idea. So this is really important in terms of knowing exactly who charged what, how much they charged. And on top of that, extremely important, putting limits on there as well, because you always want to make sure that you’re not giving them everything, that they have limits based on what you’re comfortable with, and also based on, you know, if you have layers in the company, management layers, that certain people only have certain spend that they can use.

John (guest):

I personally like that. But if I was going to play devil’s advocate to you, I might go, “No way, Kathy, I trust everybody here.” I don’t… Well, then the point of view that I would take is, I would say, “Listen, business owner, how about this? You trust yourself. What if I gave you, like, a $50,000 credit card limit? You don’t want to be sharing your card with,” insert here, “admin, team leader, whatever.” And so that’s usually where I pick up on what you’re recommending, Kathy, as I say, let’s just right-size the expenses to the person’s role. And so what you’re talking about is a lot of these platforms will do that. They, if a company has an HR tool, they’ll actually automatically integrate. They can do some really cool things, like detect as soon as a new employee is hired, and they’ll just automatically send a credit card to that new employee. So that’s one other thing I should mention. You do still get a physical credit card, and you have these virtual cards in the web, but the flip side of that is, you probably want a tiered approach of like brand new hire, maybe that’s a $5,000 limit; a manager, maybe that’s a $10,000 limit. And maybe the few owners of the company, maybe that’s like a $50,000 limit. You can do that with this program. And then in the unfortunate event that someone leaves, even if it’s a happy separation, it’s super easy to just turn that off. And the cool thing is, with all these virtual cards, you can transfer those virtual cards to someone else, versus with a lot of legacy providers, if Susan was using her one credit card from whatever bank you like, and she was using that one credit card number with 10 different providers, most banks are going to just like, turn off the credit card and be like, “Okay, Susan doesn’t work here anymore.” At least with a lot of these virtual expense management tools, you can just reassign those virtual cards to somebody and not incur any of the headache of having to change the cards.

Kathy (host):

We talked a lot about credit cards and credit card charges, but how about businesses that are still very much check and ACH heavy? How would that work in that situation?

John (guest):

Oh, I love it. This is where I sometimes intentionally use a very controversial point of view just to evoke a response. A lot of times, if I go into a business that still is making payments by check, I will say, “You are wasting money.” And then that’s intentional to get a response, because we all get stuck in the ways that we’re comfortable with. Maybe you’ve always sent a check to that person you like, who washes your windows in your office, or that’s what your office administrator is comfortable with. Here’s the reality and the problem with checks. One, they are highly prone to fraud. They just are. Two, the Postal Service has posted in recent years that checks are increasingly being stolen, and then that feeds into fraud. Three, you have lack of insight into whether the check is being cashed. So you just have to kind of put it out there. The term for that is float. As soon as I write the check, now I have to keep track of that in my bank ledger or my accounting system, like “I wrote this check, it could be cashed at any time.” And so the last part, it’s hidden. But depending on any sort of consulting firm, if you go look at their metrics, handling a physical paper check is anywhere from $30 to over $100 of just hidden cost. There’s a person, they have to write it, they print it, reconcile it, mail it all. But it’s just inefficient. So I’m glad you mentioned that, because yes, there are lots of companies that still use checks. And so a lot of these expense platforms will allow you to do what they call either procurement or purchasing, so to be able to set up a vendor. Let’s take that example of someone who washes windows at your office. What’s cool about these platforms is you’ll be able to set them up. So Clark Window Washing, let’s say you put them in as a vendor in this platform. The cool thing is, a couple things will happen. One, the thing I like the most is they’ll get an email and they’ll say, “Hi, Kathy now would like to pay you using her expense platform,” and they’ll invite that vendor to create a profile. If you’ve worked at really large companies, this starts to sound like procurement management like SAP Ariba or something, but it’s much more friendly and user-focused. So now Clark Window Washing gets an email. They get to go and type in their bank details so that they’ll get an ACH payment. The other thing is, when Kathy gets an invoice from Clark Window Washing and she uploads it, in terms of efficiency, you’re going to get what’s called OCR, Optical Character Recognition. It’s like AI where it’ll just read the invoice. So now we’re going to eliminate any manual coding in your business where someone has to read a paper invoice and input it. Okay? So we’re going to automate that. It gets put in your system. You can have approval processes where you can say, “Yeah, we pay $100 a month to Clark Window Washing. If the invoice was $200, like, whoa. Policy violation here, someone needs to approve that.” But if everything’s fine, what happens is, when you receive the invoice, Clark Window Washing actually will get an email and say, “Kathy has received your invoice. She has scheduled this for payment on the 30th of June.” So now you’re actually increasing your communication with your vendors where they’re like, “Oh, okay, good. They got my invoice. They’re going to pay me.” So you’re providing a better experience to your vendors. They feel reassured that they’re going to get paid. They get to control how they get paid, and then you are not maintaining that information. There are a lot of scams and cyber risks that are emerging right now where vendors are calling companies and saying, “Oh, hey Kathy, yeah, I’m calling from Clark Window Washing. Turns out I’m actually John and I’m a bad guy.” “Okay, yeah.” “Clark Window Washing, we just changed our bank accounts. Can you just update that for us?” You don’t want to deal with that. You don’t want to subject yourself to that risk. So the best thing you can do is say, “Oh, great, thanks for calling us. Just go ahead and log into your vendor profile.” And then the cyber attackers are kind of like, “Wait, what?” You’re like, “Yeah, we don’t update bank account information for our vendors, you have to update that.”

Kathy (host):

There are so many good things here, and let me just go down the list. The last one with the vendor actually being in charge of their bank accounts is so beneficial on both sides, because you’re minimizing that security risk on your side and on their side, because now you’re not sending payments to, you know, a fraudster unknowingly, which, again, is going to impact your insurance policy as well. So now you don’t have to have as much in your insurance policy as you, you know, would have to if you’re sending out checks. So that’s a benefit right there. And the other thing here too is that the vendors feel more comfortable, I would at least hope so, to actually update that themselves, so that they know that it’s correct, that the check is not going into, you know, wherever, into never-never land. And the other thing that I really like here too is when you have that, you know exactly what is usual for that particular vendor. So if I’m usually sending checks or expenses out between, I don’t know, $100 and maybe even $5,000, but then all of a sudden, they send me a bill for $10,000 or maybe even $15,000, it’s going to flag it for you and say, “Hey, this is an unusual activity for this particular vendor. Is this correct? And do you want to pay this?” It already, like, it proactively looks at what you’re spending, how much you’re spending, and it does your internal controls almost for you. And you don’t have to worry about now approving something. And then it’s like, “Oops, I approved something that I didn’t think it would be,” you know, so it’s, there’s so much benefit to this. And then the other thing that I would like to add here too is it saves so much time.

John (guest):

Yes, we didn’t even scratch the surface on what’s happening in the background here. So I personally, when I was a chief operating officer of a high-growth company, I loved working with my customers who had a vendor portal for me, because if I ever needed to update something, sure, people don’t change banks that often, but when it’s in my control, it’s so much easier versus over the process of implementing a new bank account, it took like a year to update our payment information with some of our customers. So think about it this way, if, like what you said, we were like, “Yeah, your vendors might not want to do it,” even if you had to get your accounts payable team or your office manager to invest a bunch of extra time to get them comfortable with this, that one-time investment is going to pay off in so many other ways, which you just alluded to. So here’s the cool part. We were talking up front about saving time, saving money. Here’s how we start to save time with the virtual cards. Okay, let’s not review the ordinary expenses. Same thing here, where we’re getting an invoice and then we’re paying for it by ACH. Okay, same principles apply here. Clark Window Washing, if we’re going to code that to a facility expense, now in our expense platform, we have Clark Window Washing as a vendor that is going to link to your accounting system. So if you’re going to implement something like Ramp as a new Ramp customer, but you’re going to connect it to QuickBooks, Xero, NetSuite, whatever, they have a native bidirectional sync. So the first time I go into Ramp and I enter Clark Window Washing, they’re actually going to look in QuickBooks and they’re going to go, “Looks like this is Clark Window Washing? Is that who you meant?” “Yes.” So they’re going to connect that to your accounting system. If not, they will create a vendor inside of your expense tool, like a Ramp, and then they’ll push it into accounting. So here’s the thing, we’re reducing the amount of work. And then within Ramp, if we add that invoice and we say we want to pay Clark Window Washing, that gets created as a bill in the accounting system, the invoice will automatically be attached. So now, if your accountant is just living in the world of “I live in QuickBooks,” they’re still going to see the bill from Clark Window Washing with the invoice attached, but your team may have input that from Ramp, because a lot of folks don’t live natively in the accounting system, and that’s the difference here. There are a lot of folks, either banks or accounting systems, who will try to do expense management, and that’s where we come back to the tagline of your podcast. “Help! My business is growing.” What got you here probably won’t get you there. When you get to the point of like, “Oh my gosh, who is spending what? I have no idea what’s going on,” that’s when you start to need a tool. And then you’re going to reap the benefits of automation.

Kathy (host):

Exactly. And let’s talk, let’s stay with the vendors a little bit. Let’s say that you are completely bought into this. “I need to do this. I need to get an expense management tool that is going to help me do all of this. And I want to bring my company into the 21st century and really use these tools to my advantage.” However, your vendors are kind of stuck in the paper and pen type of situation, and they’re really reluctant with that. What would be your advice when you are interacting with those types of vendors? What would be helpful?

John (guest):

So I guess my cop-out answer will be, you can still sort of force it on them, meaning a lot of the expense management tools, and I know Ramp in particular, will allow you to enter the invoice and enter the payment information. And so if you can’t sort of force it, where sometimes on an invoice, a company will include their banking information, but if they don’t include it, and they won’t give it to you, you can think of Ramp or these other expense platforms as almost like they’ll pay within your bank. They’ll actually still mail a check on your behalf. So now the difference is, we’ve taken that off of your workload. You don’t have someone in your office, so you don’t need to worry about printing out the checks. Keeping up, if you really have to, you could still enter it as a bill, reap all the benefits of the approval processes and the integrations, and then you could still mail a check. So it’s kind of there if you need to, but it’s worth the investment up front to kind of talk to your vendors. Maybe you need to write up a little form letter and say, “Hey, this is coming. Here are the benefits for you,” right? So as long as you, as the vendor, perceive that you’re doing it to help them, usually they’ll come along. But if you need to, like, keep a couple of stragglers on paper checks, you can do that, just don’t do the paper checks yourself. What I would recommend any business owner do is say, “We, internally, we no longer use paper checks.” Banish them, lock them in a filing cabinet, shred them if you want to make it a goal for yourself to just not use any paper checks, and then let a platform like your bank or Ramp mail the checks for you. Is that kind of an answer?

Kathy (host):

You know, it always goes into the “What’s in it for me?” type of situation, especially with the vendors. I mean, the same thing with your employees too. You’re giving them autonomy. Your employees have autonomy with having those credit cards. They know you trust them, and you’re giving them these credit cards. But you also have oversight on the back end. And with the vendors, they don’t have to worry about the checks being lost in the mail or stolen or whatever. I mean, there are all sorts of scenarios that can happen. I mean, there are true benefits from the vendor side and also on the employee side as well.

John (guest):

It doesn’t help with cash, so I can’t help you there, but the other things it’ll help you with are like 1099 reporting. When you add a new vendor, it’ll be like, “Okay, we have to request the W-9 from this vendor of yours,” and then it’ll integrate with doing your 1099 reporting at the end of the year. So it’s kind of like you really want to do it, and there are so many more reasons why you should, that even if there’s one vendor who’s like, “I don’t want to do this,” I really have a hard time seeing how that should stop anyone from moving forward. It would be a lot better to have to figure out some exception for somebody who just absolutely has to be paid in cash, versus all the overwhelming benefits of going down this path.

Kathy (host):

Exactly. So if someone is listening to this and they’re like, “Okay, I get it,” but what would the process be of actually starting to implement these types of tools in my business, especially if the bookkeeper or the accountant that they have, they might have them outsourced, or they might have them in-house as well, they don’t understand those types of tools, and there’s going to be a lot of research that needs to be put in. I mean, these types of tools are an investment in time and in the business as well. So we’re not talking just about the cost. We’re talking about you’re doing things differently. So the processes and the systems that you have in the business are going to change. They’re going to change for the better, but there’s still going to be some of that, you know, growing pains at the beginning, because you have to implement it. So if someone is trying to implement this in their business, like, what would be your process to get this done in the least painful way?

John (guest):

I love that question. I would start by, if the person who’s working with me, because this is what I do, is I help people implement these systems, I would ask them, what is motivating them to pursue this change? So for example, there can be folks who come to me who have just had a really horrible experience they’re recovering from, whether that’s being subject to embezzlement or lots of bad expenses. And so that type of environment is usually a, “Okay. How quickly is possible? Can we get better visibility and start to rein things in?” Generally speaking, those circumstances start with a highly clamped-down, locked-down approach, and then we work on, like, easing things up over time as people become more familiar. The alternative is, hopefully more of your listeners are in this camp. “John, Kathy, okay, maybe it sounds cool, but like, everything is awesome here. We’re just growing so fast we can’t possibly take the time to do this, and we just trust everybody.” Okay, cool, no problem. Here’s what I would say. Let’s start first with only a few people. So if you’re thinking, “I don’t want to do this for my whole sales force,” maybe I would try this as, like, just me, the business owner. We could do that. We could actually start with just a small group of people, just the business owner, or maybe just the managers. And what I would do is, I would say, “Where’s all your current spend? Is it on your Amex card? Is it on your bank debit cards?” What we would do is we would go look at your statements for the past probably quarter, and what we’re looking for are, what are the most recurring purchases? That’s where we’re going to reap the biggest gains right away. So we go in and say, “Okay, how much do you typically spend each month? Who are you spending it with?” It’s the classic 80/20 rule. Probably 80% of your spend is going to just 20% of your vendors, and therefore 80% of your effort from accounting automation will come from just those. So we found just 10 vendors that you were paying kind of the same amount every month. We go, “Cool. Here’s the low-hanging fruit. Let’s get 10 virtual cards. Let’s take some time this week, when your office manager has time, she’s going to go log into all those different websites – Grasshopper for phones, virtual assistant, call waiting, whatever that stuff is. She’s going to take some time, she’s going to log in and change those credit cards from the Amex that everyone uses over to a virtual credit card.” Within the first month, then you will see, “Oh, wow, we didn’t have to review any of those expenses at the month-end close. They just automatically coded themselves. Window washing went to facilities, the call waiting attendant went to phones, under utilities, all that stuff just went into the accounting system. It was just automated.” Then from there we can say, like, “Okay, now what? If this is going well, do you want to go down the credit card route? Do you have a lot of people who are spending? Do you have a lot of field people? Do you need to charge back expenses to customers? Do you need to, like, put that into your invoicing process? Or do you mostly have a lot of vendors?” And then we would manage this rollout where we say, “Okay, where’s the biggest benefit? Are we trying to minimize risk? Are we trying to implement lockdown controls? Are we trying to help people do their job better?” which is more of a mentality of like, “Hey, anytime someone goes on a customer visit, we’re comfortable with them spending up to $2,000.” The process we might design for that is, you log into the platform, there’s a little button that says “Request Spend.” So I would click “Request Spend,” I’d say “Kathy’s my manager. I’m John. I’m a field sales agent. I’m going to Denver next month.” Kathy looks at that, she goes, “Yep, approved. $2,000.” What I then do is I start to book my flight, my hotel, my car.  What we also didn’t talk about is automating expense policy. So a lot of companies are like, “Ah, whatever. We don’t do that.” Okay, but probably not a bad idea to do it. And if you think about it less from the policy perspective of like being heavy-handed about rules, it’s more about just expectations. My experience shows that employees are more comfortable when they know what to expect. So if you say, “Hey, we’re comfortable with you spending $2,000 per trip. Please fly in economy class and don’t spend more than $300 per hotel night,” instead of looking at it as, like, draconian, if you’ve never done that before, it’s actually just clarity. And because what we’re doing here is we’re saying, instead of trying to review every single expense and go, “Does that seem reasonable?” You’re just drawing a line in the sand where you’re saying, “Everyone has limited time, so as the business owner or the CFO, I don’t care. I don’t want to know about any hotel room that’s under $300. We’re just fine with that.” Now what you’re doing is you’re then using a tool like Ramp or something else to say, “Flag!” John went to Denver, and I don’t know what he was thinking, but he stayed at the Waldorf Astoria, and that was $400 a night. Well, now the tool is just automatically going to flag that. So what your day-to-day workflow is, either as a CFO, a manager or the owner of a business, looks like you could simply log in and just say, “Show me all the expenses that are out of policy.” So if there are maybe 100 transactions going on in your business – it’s like people putting gas in the van, it’s getting lunch, whatever – who cares if 80% of your transactions are all pre-approved. When you click the button to say, “Just show me out of policy,” oh, makes it so much easier. Now, all I got to do as a manager is just go talk to John. “Hey, man. What’s up? How can you spend $400 at the Waldorf?” Like, have a conversation. A CEO that I worked for, who I really respected, said to me, “Manage to exceptions. Don’t manage to policies.” So even if the platform here calls it a policy, let’s just think about that as expectation setting. “Hey, employees, we trust you. Whenever you’re going to go on a trip, just log into ‘Request Spend.’ We just want to know so we can plan for the business, right? We actually want you to have the tools to do your job. Okay? And here are the general guidelines. Fly in economy, no more than $300 a night. Cool.” Now they’re just getting back to work, right? And then you’re managing to exceptions. So, “Hi, John, why are you staying at the Waldorf? That’s not really in keeping with our company, right? Like, that’s a little excessive. Could you maybe just, like, take it down a notch? Could you, like, stay at the Hilton Garden Inn? Could you do that next time?” So that’s kind of how this manifests in real life, because it’s just going to automatically go check how people are spending against the policies that you’ve set.

Kathy (host):

And then the more employees you have, and the more they travel, I mean, especially if you have a sales force that they’re seeing a lot of customers around, you know, even in the US, or maybe outside of the US, you don’t have to worry about looking at all the transactions. And that could be a lot of transactions in there, if you say, “Well, you know, I’m good with this much amount of money. And these are the vendors.” You probably could do preferred vendors as well if you wanted to, correct?

John (guest):

Preferred vendors, yep. And even, a lot of these platforms have different ways of helping with travel bookings where it’s either like, there are no fees for booking with like a Travelocity if you book it through the expense platform, or even things like, if you had that example of like, “We’d like you to try to spend $300 a night,” you can kind of gamify this and share the savings with the employees, and you can define it. But let’s say if an employee stays under $300 a night, we’ll split the savings with you 50%. So let’s say, simple math, now instead of me traveling and trying to get one over on the company and hoping I stay at the Waldorf for $400 and no one catches me, now the difference is, I found a room at the Hilton Garden Inn. It’s actually closer to my customer. It’s a brand-new hotel, and it’s $200 a night. Well, because that was under the company’s threshold of $300, they’re actually going to give me $50 back. So now you’re incentivizing a savings mindset. So yes, there are lots of ways to kind of accomplish that.

Kathy (host):

And the big thing that I got out of this for myself, from the finance perspective, is, obviously, all of this is super beneficial, but it’s that you don’t have that much volume of transactions to go through and figure out, “Hey, is this okay? Is this not okay?” As you said, it’s this 80/20 rule – looking at what is out of policy. And let’s focus on that. And the rest of it is just business as usual, which really should be it. It’s funny, I always say this – like business, eventually, if it’s run well, should be running like a well-oiled machine. And it should be a little bit boring actually, because that means you’ve kind of got the holy grail of processes, systems, people are all working the way how they should be, versus the sky is falling all the time. And, you know, we have chaos everywhere. But that’s, that’s a topic for another podcast, I think.

John (guest):

Well, that’s the thing, right? Is, I think as we talk about this topic, and there are different audiences – the business owner, “Okay, what’s being spent? Who’s spending it? Do I feel comfortable with that?” The accounting and the finance team – transactions and volumes and categorizations and month-end close. But then the end user, really here, is the employee. So if we say, “Hey, look, we trust you. We want you to have the tools to do your job, here are our expectations. And by the way, here’s a great tool for you. It’s automatically going to pick up your receipts. If it comes to an email, if you’re traveling, you can just take a picture and text it to Ramp, and they’ll associate it automatically. They’ll read the receipt and automatically associate it with the expense. Or if you didn’t have your Ramp card with you for some reason and you had to spend it on your own, submit a reimbursement, and then we’ll get you paid back quickly.” So there are ways of tailoring all these benefits to your audience so that it doesn’t have to feel draconian. Now, on that one topic, I would say eventually you might want to get to the point where it feels a little draconian in terms of, if you do not request spend in advance in our platform, it will be declined. That’s kind of the goal here is to say, like, “Hey, we want you to do your job. So click ‘Request Spend’ when you got to go on that trip or whatever.” I get, there are exceptions. But the point is, you want to shift that mindset from reactive to proactive. You want employees to feel encouraged to say, “I’m planning this trip. I need that tool.” You want to get away from the surprise culture. So what I mean by that is when you said preferred vendors, this goes back to like SaaS creep. You want to instill a culture of, “You need to request spend.” Because especially if I have a larger organization, it’s very possible that someone’s already using a tool that does that thing in a different department or a different division. So we don’t want five email tools. We don’t want five project management tools. This really helps the IT department then, where we say, “Normally you have to request in advance,” because then at least someone can go, “Oh, that’s interesting. Somebody over in the engineering team is requesting a Canva license. Marketing has been using Canva for a long time, we should just connect those people to each other.” That is the other power of having preferred vendors – is saying, “Okay, everybody, just use the platform, request what you need to do your job. But if you don’t do that, it’s probably going to be declined. So don’t try to slip one underneath the radar.”

Kathy (host):

That’s really good, especially as the business grows and you start having different departments, and the more departments and the more people you have, unfortunately, they might not be talking to each other all the time. The IT department may not know what the marketing is doing, or the sales sometimes doesn’t know what the marketing is doing. You kind of force that interaction and make sure that, you know, you’re not doubling your expenses unnecessarily. And this is where the value of the finance comes in, because they can be that enforcer, and they’re actually seeing all the expenses, all the credit cards, everything that’s coming through. And they can really be that facilitator between the departments and say, “Hey, go talk to the marketing or salespeople. They have that.”

John (guest):

Yeah, and you’re spending time on the activities that you want to spend your time on, versus no one enjoys the month-end close when it’s just hundreds of transaction lines that just need to be reconciled. That’s not fun for anybody. 

Kathy (host):

It’s not. And you know, some people find it fun, but also it takes a long time to close the books, and the longer it takes to close the books, the longer you will have to wait for that insight. And because you’re using that to plan for the future, you’re going to wait for that as well. So the more efficient and effective you can be, the better it is for everyone, for the company, and for your money. So John, we have, we’ve given people a lot here. 

John (guest):

We went, we went really deep. 

Kathy (host):

So if someone is saying, “Okay, I get it. I want to start to implement this. But I have no idea, where’s that next step that I can do?” Is there something actionable that someone can do in the next week or two to get this implemented?

John (guest):

I think I would start by reflecting internally first. So what’s the state of my business right now? Is the state of my business that everyone has access to the same credit card number? Do I feel comfortable with that? What’s the biggest dollar amount surprise that I’d be willing to take on the chin and then move forward? If that number is really large, and there are no boundaries around that, then after that reflection, it’s probably a good time. So if you’ve got multiple people spending on the same cards, or if you feel like, “I just don’t know what we’re spending, like, it’s cool that I work with Kathy and we have this budget, and we want to spend $10,000 a month, but my gosh, every month we always, it’s like we spent $14,000. I just, I don’t know why. How does this keep happening?” If those are the things that you’re feeling, then I would say it’s time to look into this. So a couple of things you could look at – the players in this space that are, I would say, politely, a little bit traditional, are like Concur, American Express with their card expense management, and then, even more recently, Expensify. I liked Expensify for a number of years, but I got a bad taste in my mouth in the past month. This is in June of 2024, they announced, within the period of a month, they were like, “We’re getting rid of our free plan. Good luck. You need to change in a month.” Those companies now, I don’t recommend to anybody. The companies you could look at would include Brex, Ramp, and Rho. Rho is spelled R-H-O, Rho is okay. They’re not my preference because they combine a bunch of banking solutions in with card management. I think a lot of clients already have banking and they already have it set up. And depending on what your preferences are, with all these like neobanks, who are like technology layers on top of banks, you kind of get to make that choice for yourself. But I’d say if you boiled it down, you kind of end up with Brex and Ramp, who can issue cards, do expense management and help you with purchasing and with vendors. Now the reason I personally like Ramp, and I help companies implement Ramp as an affiliate of theirs, is because Brex, in 2022, pulled out of the SMB market and left a bunch of my friends and clients just sort of high and dry. Brex said, “Hey, it was cool working with you, but we’re just going to move up into the enterprise space. So sorry about your luck.” And just canceled a bunch of their tools. So I’ve been using Ramp long enough that I like the product. I like their team, I trust them. Sure, things can change, but for now, Ramp is the one that I tend to recommend to folks. And so if you want to get started, go to that link in our show notes. Here it’s ramp.com/partners/precision-advisors. So that’s where I work, at Precision Advisors, and we help companies with their growth operations. And so for going over there, you get a $500 signup credit. I think if you go to their website directly, you get $250. So they’ll double your sign-up credit. And then the other thing we didn’t talk about was cost. The cool thing is, for the most part, this is actually free to use. Now we should always be wary of what does that mean, because there is no free lunch, especially if your business accepts credit card transactions. This will probably make sense. So generally speaking, when someone swipes a credit card, there’s like a 3% roughly, credit card fee. What’s happening on the back end with Ramp and Brex and a bunch of others is they’re going to take that processing fee and kind of split it with you. So if you use Ramp, at the end of every month, you get one and a half percent cash back. So to sum up, if you feel like, “I don’t know where my spend is going, and a lot of people are sharing expenses and credit cards,” you might want to look at Ramp. You can not only use the core functions for free, but you will get cash back. So deciding to not do this is deciding to not put money in your pocket. So it’s for all those reasons, it’s kind of a no-brainer. Aside from the, “Okay, I’m going to invest the effort to help my team adopt a new tool.” But beyond that, you’re going to get a bunch of automations, way better visibility, and probably even some cash back at the end of the month.

Kathy (host):

Awesome, John. And thank you so much for adding that cost portion in there too. Because I think it’s an important factor when you’re making these types of decisions. So you talked about the website that people can go to, but where can people actually find you on the interwebs?

John (guest):

Oh, I am at precisionadvisors.com. It’s just a small little web page because I primarily work all with referrals. So if folks are listening here, they’re probably a good match, and I’d love to talk to them. I don’t do a lot of demand marketing because I really like to work with clients who are growing their businesses, and that’s a highly curated set of folks who I find through people like you. So I’d love to partner with like-minded, forward-thinking folks like Kathy. So if Kathy is not already your fractional CFO, you should probably rethink that, since she’s got all these great ideas and so many good friends on your podcast. I definitely learned something new every time I listen to your podcast, so I think you’re doing a great job, and I appreciate being invited.

Kathy (host):

Thanks so much, John. I really appreciate it. All right. Thank you for being on the podcast, and we’re going to put all of these URLs and your website in the show notes, so I invite the listeners to go look at it. All right, thanks John. Thanks, have a great day. You too.