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How To Manage Your Company Spending In 2024?

Vlad Falin

January 12, 2023

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When it comes to growing a business, many executives focus on increasing profits and growing revenue as the way to achieve their goals. 

However, one aspect of growth that is sometimes overlooked is the expense management of your organization, and how to make it more efficient.

Without proper spend management strategies, your efforts to grow the company revenue could be easily sabotaged by overstuffed budgets, inefficient spending, and a lack of expense tracking that hurts your bottom-line when tax season comes around.

That’s why this article will discuss the importance of managing your company spending, and how to do it efficiently!

The Importance Of Company Spending Management

Business spend management is a combination of strategies and business tools used to track, analyze, and manage business spending, in particular in regard to supplier relationships. 

When companies are unable to track and control their spending in real-time, they may expose themselves to financial leaks and lose revenue in the long run. 

The majority of a company's costs come from external expenditures, which account for 40-80% of its total costs. A lack of efficient spend management can have disastrous effects on your business; the statistics speak for themselves.

As a result, businesses that understand and wish to mitigate this risk need to use spend management software to do the heavy lifting. Not only does the software offer cost-saving opportunities, but it also prevents overspending.

A spend management solution becomes particularly crucial when it comes to tax reporting, as the expense documenting process simplifies the tax reporting, which makes it easier to receive tax breaks and avoid hefty penalties.

For the United Arab Emirates region, corporate income tax (or CT for short) will be applied to business activities starting on the 1st of June 2023. You’ll be charged 9% for taxable income exceeding AED 375,000, but 0% if your annual taxable income falls below that threshold. As such, keeping track of your expenses and managing spending will be even more important than ever.

Benefits of Expense Management

The importance of spending management is not limited to enterprises with large expenses, but also to small and medium-sized businesses looking to improve profitability, scalability, and sustainability. 

There are several benefits to spend management automation, regardless of your business size. These benefits include:

An in-depth analysis of all spending

Saving money for your business requires analyzing all aspects of it in order to find cost-cutting opportunities or other areas of improvement. 

Pluto gives you a general overview of your operations in terms of costs, as well as an in-depth analysis of your spending, making it much easier to find what you are looking for.

Maintaining an efficient budget

When it comes to proper spend management, your budget is crucial. But building a proper budget requires that you have both an eagle-eye view of your business, as well as attention to the smaller details. This is made much easier through the use of spend management software.

Control over company spending in real time

It’s much harder to make efficient decisions about your spending when you are basing them on data that is already outdated. 

With Pluto, you’ll be working with real-time data to ensure your decisions are based on current information.

An easier time identifying and eliminating out-of-policy and fraudulent expenditures

It’s harder to reduce out-of-policy spending when you can’t track it effectively. Pluto will help you automatically detect fraudulent and out-of-policy employee expenses and alert you to them.

Payables can be tracked and processed easily

If you are managing your expenses properly and using the right account payable software to do so, you won’t have an issue keeping track of your payables, as well as have a better overview of your spending.

Better negotiations with your suppliers

You can make better decisions when it comes to your supply contracts and purchases when you have real-time data of your expenses.

Using Pluto's unified spend management dashboard, finance teams can always see where money flows. Pluto's procurement software enhances the visibility of financial transactions, enabling more informed decision-making for procurement and sourcing processes.

Budgeting is the key to delivering on your promises, growing your team, enhancing your product offerings, and weathering inevitable economic downturns.

The Problem with a Manual Spend Management Process

Trying to manage business spending without proper oversight and strategies in place is like putting all your home expenses on a credit card without checking the statement every month. You might not know what you are facing until it’s too late. 

If you don't implement intentional spend controls, you may still be profitable, but you won't know when your situation will change or how close you are to the edge. 

The importance of spend control becomes more obvious to companies, especially growing ones, after they face a tight situation or a disruption to their business. As a result of these problems, businesses can experience budget overruns, erratic cash flows, supply chain management issues, and deteriorating customer relations. 

But traditional spend management techniques are limited, which is where the aid of software comes into place. If you limit yourself to manual spend management strategies, you might face the following issues:

  • Outdated spending reports: Traditional methods of managing spend tend to produce spending data that is at least a month old. As a result, finance teams have difficulty identifying and correcting unnecessary spending before the damage is done. 
  • Overspending: Overspending and budget noncompliance are a consequence of finance teams being unable to track real-time spend. Costs like these can quickly add up to cause trouble for tax authorities as well as overspending. 
  • Inefficient strategies due to lack of real-time data: If you lack real-time data and work only based on reports that are outdated, you might be missing the forest for the trees. This could have the effect of optimizing your spending rather than improving your overall business process efficiency. In order to cut costs and optimize operations, real-time spend data is essential. 
  • Manual entry errors: Data entry errors skyrocket if your finance team has to move data between multiple software programs and map employee spending manually. As a result, financial reporting could be delayed. 
  • Issues with remote working and compliance: Employees who work remotely need to pay for other business expenses quickly and in accordance with compliance requirements. The traditional spend management system, with its shared corporate cards and lengthy approval processes, simply cannot keep up.
  • Strained resources: It takes finance teams a long time to manually align expenditures to budgets after the expenditures have been made. This takes up many productive hours and, of course, can lead to errors when entering data. 

How To Manage Company Spending

Managing your company spending is both a science and an art, but much more the former than the latter. 

Each business will have its own unique challenges to overcome when it comes to spending, but there’s still general strategies you can adopt that will fit most situations.

Create a Budget that Accounts for the Future

When it comes to budgeting, you shouldn’t just think about the expenses in front of you, you also have to consider potential unexpected expenses. 

If you limit yourself to budgeting for the present, you’ll have a hard time dealing with expenses that can pop up out of nowhere.

Your budget should be realistic, but also reviewed frequently to ensure it is still appropriate for your business as it grows and evolves. 

Creating a good budget will require that you examine your current and past expenses, take a look at your spending habits, and consider your potential expenses as your business grows. 

This will give you an opportunity to review your existing processes, expense policies, and track expenses that you might not be thinking about.

Use Zero-Based Budgeting

It’s not uncommon for organizations to focus on past expenses and budgets when creating a new one. 

However, businesses and the environments around them change, and so budgets need to change as well. 

That is where zero-based budgeting comes in. This technique creates a new budget from scratch for each budgeting period. The budget is then compared to past budgets and weighed against current expenses.

In a company, zero-based budgeting can be used to keep your expenses under control. Your budget needs to be a living breathing element of your operation, and as such you need to constantly evaluate it to find realistic cost-cutting opportunities and areas that can be made more efficient when it comes to expenses.

Report and Track Your Expenses

Any expenses incurred should be documented and filed as soon as possible. This way, your business expenses are accounted for when filing its tax return. This is one area where the use of spend management software becomes crucial, as it dramatically simplifies the process of reporting and tracking your expenses. Pluto helps to categorize said expenditure, further assisting you when it comes to tax season.

Use a Spend Management Platform to Automate Processes and Digitize Expenses

As your business grows, you’ll find that using a spend management tool to track your expenses saves you a lot of time and money. In addition to tracking expenses, it tends to offer many other features, such as the ability to track invoices, payments, and credits all in one place. 

Furthermore, Pluto gives you the ability to assess your expenses on the go, thanks to mobile apps and online dashboards.

It is easier to keep track of your expenses and receipts by digitizing them. Employees can do this by taking pictures of their receipts as soon as they receive them. These images can then be uploaded and tracked through Pluto.

Automating your approval workflows and processes will help to reduce, if not outright eliminate, human error.

Key Spend Management Software Features

Using spend management software is almost mandatory if you want to make your spend tracking and reporting as efficient as possible. 

When looking to choose a platform, consider the following features:

Complete Control Over Spending Data 

If your finance teams don’t have complete control over spending, real-time data cannot be of much use to your business. 

Pluto allows your business finance managers to streamline and automate processes with superior customizability and control over workflows. 

This freedom allows admins to change or optimize workflows as business/processes scale. 

Real-time and in-depth spend analytics

Managing company funds efficiently is the essence of spend management. In order to do that, you need to keep track of your employee expenses as they occur. 

Pluto records employee expenditures in real time and provides you with a reliable picture of what they are spending. 

You can control expenses by using real-time expense tracking without restricting your employees’ work.

Additionally, Pluto provides your finance team with insights and analytics based on all the data it gets. A feature like this is crucial for proper management, especially if your goal is to cut costs and optimize spending through automation. 

Your finance team will struggle to drive meaningful change without detailed analytics, requiring them to go through reams of data and make sense of it. 

Reports on expenses provide an overview of your expense history, making it easier to track down individual purchases. Maintaining accurate records, limiting expenditures, and avoiding fraud are all made easier with this functionality.

Easy to Use

The most advanced software in the world is worthless if no one wants to use it. Simplicity and ease of use of essential business software, such as spend management, should therefore be a priority. 

You might find, for instance, that employees don't use your spend management software if they find it clunky and difficult to use. This can result in a manual spend reporting process that is time-consuming and error-prone. 

A lot of time is spent by businesses storing and processing invoices, receipts, and purchase orders. 

Pluto makes it easy to retrieve and keep track of essential documents, including matching documents to authenticate transactions, for record keeping and due diligence.

An all-in-one platform

Your spend management platform should be a centralized solution for all your spending needs. Keeping all company spending in one place, in real time, is more efficient (and more secure) than using multiple smaller tools. 

Pluto has it all: 

- Unlimited virtual cards

- Efficient reimbursements

- Spend management platform

- Real-time analytics

- Real-time spend control

Essentially, anything that will allow you not only manage your expenses, but really take you spending under control and make sure that everything is at it's maximal eff

Key Takeaways

Managing your company spending is a crucial aspect of company growth that is sometimes overlooked. Proper spending management strategies can help you find cost-cutting opportunities, gain a better overview of the health of your business, and simplify your tax reporting to avoid penalties.

When it comes to developing effective spending management strategies, you should focus on creating a budget that can evolve with your organization, reporting and tracking your expenses in real time, and using a spend management platform to automate and simplify your expense tracking and reporting.

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Learn how Pluto is helping Keyper        to eliminate petty cash spending and optimize spend management

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At Pluto Card, our mission is to assist businesses of all scales make well-informed choices. To uphold our standards, we follow editorial guidelines to guarantee that our content consistently aligns with our high-quality benchmarks.

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Vlad Falin

Petty Cash Reconciliation: What It is, How to Do It, & Best Practices

The panic sets in when the custodian makes the entries for petty cash expenses and the balance mismatches by, let's say, AED 1500. 

When discrepancies happen, you have two options: mark it as a write off, or spend hours carrying out an investigation. Write offs are generally not accepted in companies and can lead to problems during audit season. The best option is to investigate. 

While the amount is meager, this cashier must scrutinize each voucher and receipt for the next few days to find the loophole. The employee in question will have to review over 100+ documents to spot the discrepancy, disrupting the petty cash operation and causing delays in closing the books.

This post will cover how to reconcile petty cash and optimize the process, so you never have to face this situation. We will look at some best practices to ensure the custodian does not spend weeks accounting for the missing AED 1500.

What is Petty Cash Reconciliation?

Petty cash reconciliation is the process of matching opening and closing balances of petty cash, where the difference must be equal to the total of documented petty cash expenses. 

Either the custodian or someone from the finance department performs this function to ensure the accuracy and completeness of records. It helps identify and rectify discrepancies that may arise due to errors of omission, commission, or principle. 

How Often Should Petty Cash Be Reconciled?

Petty cash reconciliation is generally done once a month if you rely on manual processes for petty cash management. It allows for timely identification of discrepancies, ensures efficient tracking of small expenses, and facilitates prompt resolution. 

However, if you have an expense management platform to record all the petty cash expenses digitally, you reconcile petty cash in real time. Since you directly add all the transactions on the platform, reconciliation becomes easy with the ability to track each cash money movement in an auditable platform. As a result, you identify discrepancies at the earliest and avoid a balance mismatch.

What Are the Steps of Cash Reconciliation?

If you use a digital platform for petty cash management, reconciliation becomes easy as the system highlights any discrepancy in the real time. So, it is as simple as flagging transactions with missing receipts.

petty cash reconciliation

However, if you have a manual petty cash process, here are the petty cash reconciliation steps:

1. Ascertain Fund Balance

Begin by determining the existing balance in the petty cash fund. This involves counting the physical cash on hand and comparing it to the initial amount allocated to the fund.

2. Gather Documentation Proofs

Collect all receipts and documentation related to petty cash expenditures. Ensure each expense is supported by a valid receipt, providing a clear record of how the funds were used.

3. Categorize Total Withdrawals and Spends

Categorize the various expenditures based on their nature (e.g., office supplies, refreshments, etc.). Tally the withdrawals within each category to gain insights into the distribution of expenses.

4. Reconcile Differences

Compare the total of documented expenses with the physical cash on hand. Identify any discrepancies or amounts that are unaccounted for. This step is crucial for ensuring that all expenditures are correctly represented.

5. Record in General Ledger

Record the reconciled petty cash transactions in the general ledger. It formalizes the financial entries and ensures that the petty cash activity is accurately reflected in the organization's overall accounting system.

6. Replenish

If the petty cash fund is running low or depleted, replenish the funds. Submit the reconciled documentation to the finance or accounting department for approval and allocate the necessary funds to restore the petty cash balance.

Challenges of the Manual Petty Cash Reconciliation Process

Here are the top four challenges of the manual petty cash reconciliation process:

1. Risk of Fraud, Waste, and Misuse

With manual reconciliation, it becomes easier for individuals to manipulate or misappropriate funds without proper oversight. The absence of real-time tracking leads to instances of waste or misuse of petty cash, posing a significant challenge to financial integrity.

For instance, an employee might submit duplicate receipts for the same expense, pocketing the reimbursement and leading to financial discrepancies. Duplicate receipts are difficult for custodians to keep track of when there are 1000’s of receipts. 

2. Custodian Chasing for Receipts

In a manual system, the petty cash custodian has to press the employees for the collection of receipts for expenses. It is time-consuming and delays the reconciliation process. It also leads to incomplete and missing documentation.

3. Lack of Internal Control

Manual processes lack the robust internal controls that automated systems offer. This absence of controls makes enforcing consistent adherence to organizational policies challenging and increases the risk of errors or unauthorized use of petty cash.

For example, an employee may submit incomplete or inaccurate receipts for petty cash expenses, leading to inconsistencies. As a result, it becomes difficult to ensure adherence to documentation standards.

4. Missing Cash or Documentation

The manual handling of petty cash poses a threat to losing physical money or documentation. Misplacement of receipts or cash, whether intentional or accidental, leads to hindrances in the reconciliation process and compromises the accuracy of financial records.

For instance, an employee may unintentionally misplace a set of petty cash receipts during an office activity. The missing documentation will create difficulty reconciling expenditures, introducing uncertainty into the financial records.

From these challenges, we understand that while we focus on optimizing the reconciliation process, we must first refine our petty cash management process. 

Instead of focusing on improving the assessment process, we shall first work on the internal procedures of approvals and documentation. It will ensure the completeness and accuracy of records and save custodians from spending weeks matching the balances.

Best Practices for Petty Cash Reconciliation

To avoid mismatches and ensure the accuracy of records, adopt the following best practices:

Maintain Receipts Digitally

Digitally store receipts using an electronic system or expense management platform to ensure a secure and easily accessible record of all transactions. It eliminates the risk of physical receipt loss or damage and facilitates efficient reconciliation.

Stringent Documentation and Regular Review

Ensure clear and detailed receipts for all expenses to enhance accountability. Regularly review these documents for prompt identification of discrepancies. It fosters transparency and helps maintain a true and fair view of the financial statements.

Set Controls

Establish precise petty cash policies and procedures for petty cash management, including predefined spending limits and approval processes. Such controls prevent misuse and ensure that expenditures align with organizational guidelines. You can additionally specify the expense category and vendors for enhanced control.

Securely Store Cash and Documents

Designate a locked and controlled space, like a safe or lockable drawer, for physical cash and accompanying documents in the petty cash system. Limit access to authorized personnel to minimize theft or mishandling risks. Regularly reconcile cash on hand with documented transactions to promptly identify and address any discrepancies, ensuring the overall integrity of the petty cash process.

Maintain a Log

Keep a detailed log or ledger of all petty cash transactions, including dates, amounts, and purposes. It serves as a comprehensive record for reconciliation and provides a historical overview of petty cash usage. A better way would be to maintain a digital log, which will be more accessible and accelerate the reconciliation process as well.

Use of Virtual Cards

Shift to virtual or prepaid cards for the petty cash process. Virtual cards allow for controlled and traceable spending with transactions automatically recorded. This digital approach enhances security and simplifies the reconciliation process. 

However, these virtual cards should not be mistaken for shared corporate cards or employees' personal debit cards, which could be reimbursed later. Such confusion makes the petty cash process more chaotic and takes away the ease of reconciling with digitization. You lose visibility, and the employees wait weeks to get reimbursed.

Digitization Simplifies Petty Cash Reconciliation

Petty cash reconciliation strengthens when the foundation is set right. It means having defined policies and methods. 

An expense management platform further assists the teams to manage effectively by providing real-time visibility. It helps you enforce the policies with advanced control and simplifies the approval and documentation process by providing all the details on a single dashboard, leaving no loopholes for any mistakes. 

Book a demo today! See how you can digitize your petty cash process to save time and ensure that a mismatch, even of an insignificant amount, never haunts your team. 

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Understanding Business Expenses

All companies and businesses will incur business expenses, but how can you know what exactly is considered business expenses? And how will the introduction of UAE corporate taxes affect business expenses and income reports?

What are business expenses?

Business expenses are costs a business incurs to run the business properly. In simpler terms, they're expenses made by the business for the business.

With the UAE introducing corporate tax laws in 2023, it's crucial for businesses to be able to track and categorize their business expenses, as some of them may be tax deductible.

While the IRS may divide business expenses into ordinary and necessary business expenses, the UAE takes a different approach.

Ordinary business expenses are anything that is "common and accepted" to a business, whereas necessary expenses are anything that is "helpful and appropriate" to a business but not essential.

The federal tax authority in the UAE does not take a similar approach and only considers business expenses as tax deductible or not. We will discuss this in a later section.

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Examples of business expenses

Business expenses include a wide range of expenses, from insurance to office space, to online subscriptions, such as Zoom, Figma, or Adobe.

Let's break it down; if a design agency bills a client AED 120K per year, that doesn't mean they made a profit of 120K. When a business brings in revenue, it must account for the business expenses made to provide its clients with its services. These services include digital software subscriptions, office rent, employee wage, and/or wifi fees.

Here are some examples of the most common business expenses:

  • Advertising and marketing
  • Business travel (fuel, airfare, taxis, etc.)
  • Employee costs (payroll, salaries, insurance, perks, etc.)
  • Employee equipment (such as laptops, monitors, phones, etc.)
  • Legal fees
  • Office space rent & utilities
  • Software subscriptions

While many more expenses are considered business expenses, these are the ones most businesses will incur.

Types of business expenses

When setting up a budgeting plan, business expenses play a vital role in keeping the businesses' financials in check. When preparing a budgeting plan, finance teams typically begin by looking at the three types of business expenses incurred.

These business expenses include:

3 types of business expense; fixed, variable, and periodic

1. Fixed expenses

Fixed costs are costs that do not change; they happen at known intervals, such as month to month.

With predictable costs, budgeting is more straightforward, as these costs are always expected and never come as a surprise.

Examples of fixed expenses include:

  • Rent
  • Employee payroll/salaries
  • Utility bills
  • Insurance

2. Variable expenses

Variable expenses are business expenses that change from month to month. These costs vary depending on a company's production or sales volume; if production or sales increase, variable expenses increase, and if production or sales decrease, variable expenses decrease as well.

Variable expenses are typically a business's largest expense, as some may be unexpected or unaccounted for.

To calculate the variable cost, multiply the quantity of the output by the variable cost per unit of output.

Total variable cost = Total quantity of output X Variable cost per unit of output

Examples of variable expenses include:

  • Shipping expenses
  • Sales commissions
  • Raw materials (used in production)

3. Periodic expenses

Periodic expenses are business expenses that happen infrequently or, sometimes, semi-regularly.

Typically, periodic expenses happen on a quarterly or yearly basis, such as annual car insurance, but can also come as a surprise, such as a company car repair.

Budgeting can be tricky with periodic expenses, especially when expenses are infrequent.

Examples of periodic expenses include:

  • Maintenance & repairs
  • Merger and acquisitions costs
  • Major equipment purchases

Profit and loss statement report

A profit and loss (P&L) statement, also known as an income statement, is commonly used when businesses record business expenses. Through the P&L, businesses can determine their taxable income. This is especially important for UAE businesses with an annual net income above AED 375,000.

The 3 categories of an income statement include the following:

1. Costs of goods sold (COGS)

Costs of goods sold are the costs associated with the production of goods sold by a company. This typically includes direct costs only, such as materials used and labor costs to create the goods sold. Indirect expenses are not calculated regarding COGS; these include sales and marketing.

For a business to determine gross profit, the costs of goods sold must be deducted from its revenue. They also affect how much profit a company makes on its products.

2. Operating costs

For a business to run, operating costs are unavoidable.

Generally speaking, operating costs relate to a business's daily maintenance and administration. These include costs such as COGS, payroll, rent, and overhead costs. However, non-operating costs, such as interest and investments, are excluded from an income statement.

An income statement reflects operating income after operating costs are deducted from revenue.

3. Depreciation

When accounting for depreciation, there are two types to look at:

a. Depreciation expense

A depreciation expense is a loss in value of fixed assets that companies record through depreciation. During the period you use an asset, its value decreases, and the price you originally paid for it is allocated over time.

An example would be a physical asset that loses value over time, such as a car or vehicle.

b. Accumulated depreciation

Accumulated depreciation refers to the accumulated depreciation charge a specific asset has taken as it wears down or becomes obsolete. Accumulated depreciation is shown on the balance sheet, unlike depreciation expenses reported on the income statement.

Personal and business expenses

Knowing the difference between personal and business expenses incurred is vital, especially with the UAE corporate tax law coming up. Business expenses can be used to lower a business's taxable income; however, personal expenses incurred are not considered deductible expenses.

So, what's the difference between personal and business expenses?

Personal expenses

Personal expenses are purchases made for personal reasons and cannot be used as deductible expenses.

If you make a purchase for the business but add in an item for personal use, it is crucial to have two transactions to avoid mishaps coming your way. Having two receipts will help you record and store the receipt so the business expenses can be used as deductible expenses.

Business expenses

If you're making purchases that benefit the business, such as driving more revenue, they can be considered business expenses. When making business expenses, it's essential to keep a record of the purchase by storing the receipts. By doing so, you can use these business expenses to lower your tax liability by deducting the amount from your income.

Tax deductible expenses

We've reviewed personal expenses, the 3 types of business expenses, and what goes into P&L statements. But which of these are considered tax-deductible expenses? In a nutshell, all the above, other than personal expenses. Let's delve deeper into tax-deductible expenses.

Tax deductible expenses are business expenses that help businesses generate revenue. These expenses are deducted from the company's income before applying any taxes.

Examples of tax-deductible expenses:

  • Administration fees
  • Advertising and marketing
  • Bank charges
  • Insurance
  • Legal fees
  • Maintenance and repair
  • Office expenses
  • Office rent
  • Payroll/salaries
  • Supplies
  • Travel and transportation
  • Utilities

Non-deductible tax expenses

Non-deductible tax expenses cannot be deducted from a company's income.

In the UAE, there are 3 main categories for non-deductible tax expenses:

1. Related party payments from the mainland to a Free Zone Person

The related party payments made to a Free Zone Person that is taxed at 0% on receipt of the income will not be deductible for CT purposes. However, if the payment is attributed to a mainland branch of the Free Zone Person, the related party can claim a deduction.

2. Entertainment expenses

Because these types of expenses often also have a non-business or personal element, businesses can deduct up to 50% of the expense incurred to entertain customers, shareholders, suppliers, and other business partners.

3. Other expenses

No deduction will be allowed for certain specific other expenses, such as 

  • Administrative penalties
  • Recoverable VAT
  • Donations paid to an organization that is not an approved charity or public benefit organization.

How to keep track of business expenses

To maintain your business, it's important to track your business expenses. There are several ways to track business expenses; however, you will need to establish a system to account for costs and accurately manage your business.

Here are 6 steps to keep track of your business expenses:

1. Open a business bank account

A business bank account should be completely separate from your personal checking account and must only be used for business expenses/purposes. This will help you manage your business expenses easily and give you eligibility for business credit cards or, even better, Pluto corporate cards.

2. Select an accounting system

If you haven't chosen an accounting system yet, choosing one that's appropriate for your business is vital. Some businesses opt for spreadsheet software, such as Microsoft Excel; however, to simplify the accounting process, we recommend going for accounting software that will automate the process for you.

3. Choose cash or accrual accounting

Choosing cash or accrual accounting typically depends on the size of your business.

Small businesses can use cash accounting and record transactions when they happen, as volumes are small.

For bigger businesses, accrual accounting is essential, as they have high volumes of transactions. With accrual accounting, only the product sold is recorded, rather than payment received for the product. Similarly, an expense is recorded when a bill is received rather than when an invoice is paid.

4. Store receipts

Storing receipts is essential, as they are proof of business expenses made. You can store receipts by scanning them, taking photos, and keeping digital copies.

5. Regularly manage and record expenses

It's important to track spending and categorize them accordingly. Examine every transaction to compare these business expenses to your revenue.

6. Consider subscribing to an expense software

For some businesses, it is worth looking into expense management software to automate the process of tracking, managing, and recording expenses.

Tracking business expenses with Pluto

If you choose to go for an expense management software, it will help you automate the tracking, managing, and recording of expenses. But Pluto's expense management software offers more than just tracking, managing, and recording your business expenses.

Pluto will keep detailed records of all your expenses, reduce your taxable income, and help you if you are audited or need to reconcile accounts.

With Pluto, you'll be able to do the following:

Store receipts

  • Upload your receipt through Whatsapp or the Pluto app as soon as a business expense is made
  • Store all digital receipts on Pluto's software
Upload receipts using Whatsapp

Record business expenses

  • All transactions are recorded on the software automatically when using Pluto corporate cards
  • Petty cash is automated, meaning expenses are recorded on the spot
  • If an expense is made using an employee's personal card, the expense is recorded automatically as soon as they file for a reimbursement

Track business expenses

  • All business expenses made by employees can be tracked through Pluto's dashboard
  • Daily, weekly, or monthly expense reports are available in real-time
Real-time reporting through Pluto

Accounting integrations

  • Pluto integrates with all major accounting platforms

Auto-categorization

  • All expenses recorded are auto-categorized through Pluto's AI technology
  • Pluto categories are synced to your GL codes

Create tax codes

  • Create and activate tax codes that sync with your accounting platform to mark expenses as tax deductible or not
Create and activate tax codes on Pluto's dashboard

Business expense FAQs

More often than not, business expenses have many different rules. Here are the commonly asked questions about business expenses:

How do I categorize expenses?

Most accounting software already has business categories incorporated in the software, so you can use them and amend them as needed.

Pluto's expense management software allows integrations with significant accounting platforms and automatically syncs to your GL codes and chart of accounts.

Do fuel costs count as business expenses?

If the fuel cost was made for business purposes, such as travel for a client meeting, then yes, it is counted as a business expense and can be considered tax deductible.

However, driving to and from work is rarely considered a business expense.

Can business expenses be carried forward?

The UAE corporate tax law details report still hasn't come out yet. We will update this question once the Federal Tax Authority shares more details in the UAE.

Is personal expenses tax deductible?

No. Personal expenses are not tax deductible.

Is my rent deductible if I am self-employed and my home is my office?

In some cases, yes, it is possible if you are self-employed, but only a certain percentage of your rent will be considered a business expense, for example, 25% of your rent.

5
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Procurement
November 2, 2023

Mohammed Ridwan

Why A Legacy ERP Is Not Enough For Modern Procurement Teams

In today's fast-paced business environment, most organisations rely on Enterprise Resource Planning (ERP) systems as foundational tools to manage and integrate various business processes. ERPs traditionally offer a broad spectrum of functionalities, assisting in handling essential operations such as procurement, data management, accounting, and supply chain management.

ERP systems provide a comprehensive suite of software functionalities to enhance and optimise various aspects of business operations. Over time, these systems have evolved, shifting from on-premises solutions to cloud-based platforms. However, organisations still face challenges when implementing ERP solutions across their enterprise.

One significant aspect often overlooked in ERP systems is their limitation regarding financial operations & intelligence. ERP solutions primarily focus on improving business processes and management but do not directly handle monetary transactions or provide financial products. This necessitates the integration of external financial institutions and banks with ERP systems.

Moreover, traditional ERP systems struggle to keep pace with the dynamic demands of modern procurement, particularly in the ever-evolving supply chain environment. Today, ERP systems need to be more proactive, incorporating features like real-time analytics and flexible processes to meet the ever-shifting requirements of procurement. Adapting to these changes is essential for businesses aiming to enhance their procurement efficiency and agility.

ERP Systems vs Procurement Solutions: How Are They Different?

ERP systems were initially designed to automate business processes and offer insights for internal controls, while procurement solutions comprehensively manage the ecosystem.

A P2P or a procurement solution is primarily built to meet an organisation's procurement and supply chain needs, an arena always problematic for traditional ERP.

Innovative organisations are now adopting leaner and cheaper solutions for their procurement processes. These tools can deftly handle specialised tasks and yield instant results.

Limitations of ERP

Factors like market volatility, evolving work dynamics, and shifting supply chains have made it challenging for businesses to integrate their procurement processes into their current ERP systems. Hence, it is vital to use specialised solutions to cater to dynamic business processes.

But before exploring the benefits of specialised solutions, let us consider the limitations of ERP:

Long Implementation Duration that Impedes ROI

Customising legacy ERP to meet procurement or supply needs is a hassle. It contributes to a longer implementation duration lasting several months. Customisation projects are resource-intensive. That makes a fast ROI virtually impossible to achieve.

Moreover, businesses must hire ERP consultants or trained partners for the implementation. The success rate and the implementation duration heavily depend on the expertise of such third parties.

With many companies already strung tight regarding capital, implementing legacy ERP to function as procurement systems may prove counterproductive.

Expensive Implementation and Maintenance

Legacy ERP licenses come at a high price. Depending on your software, ERP implementation costs can range from $150,000 to $750,000.

Moreover, procurement processes almost always require extra modules that can further increase costs. It also includes the additional burden of maintenance costs and training employees to use the software.

Failures To Meet Business Goals

The success rate of ERP implementation is dwindling. Recent studies from Gartner indicate that the failure rates of ERP implementations can exceed 75%. McKinsey, a reputed global consultancy, supports this claim as it quantifies the failure rate of all digital transformations to be higher than 70%.

One famous example is Hershey's ERP implementation failure in 1996 as they set out to replace their legacy IT systems with an integrated ERP environment. They chose SAP's R/3 ERP software, and an implementation time of 48 months was recommended, which was later cut down to 30 months. The result - a $10 million investment leading to a loss of $150 million in revenue, a 19% reduction in share price, and a 12% loss in international market share.

With such massive costs and periods involved in achieving numbers from legacy ERP solutions, using specialized procurement systems can make achieving business objectives far easier.

Lack of analytics and insights

ERP systems often fail to deliver the necessary analytics and data for effective operations. Managing vast volumes of data within these systems can be daunting. Challenges include ensuring data quality, the lack of real-time insights, limited data analysis capabilities, and integration issues with other software applications.

Poor User Experience

Many ERP systems require makeshift solutions to modify their functionality according to user demands, leading to frustration with end-users.

Legacy ERP systems are notoriously complex, making them challenging for end-users. Frequently, users must navigate between multiple interfaces, hindering productivity and adoption.

Furthermore, the lack of mobile apps and scattered functionalities exacerbate the issue—problems that a dedicated procurement solution can readily address.

Complex User Interfaces

ERP systems offer enterprise-grade capabilities, yet their inherent complexity and poor user experience pose significant challenges. Users often struggle with confusion, as traditional ERPs are overly intricate. The need for add-ons further exacerbates the complexity, as these additions must seamlessly integrate with the existing ERP system. This constant juggling of different user interfaces not only hampers productivity but also hinders widespread adoption.

Compromised Collaboration

One of the most disappointing aspects of legacy ERP systems is the lack of in-built communication channels. ERP systems struggle with establishing themselves as a medium of dialogue between internal business users and external suppliers, as they are not accessible from outside the business network. It tangles communication channels through unnecessary phone calls and scattered information exchange lines.  

They are also severely limited in their capacity to maintain supplier pipelines, requiring most data to be entered and managed through several spreadsheets.  

Urgent reports, design changes, and other important information cannot be communicated promptly, which may lead to losses. It leads to unnecessary time consumption and inaccuracies.

Solving ERP Issues with Dedicated Procurement Solutions

Addressing the limitations of ERP systems, organisations are increasingly turning to dedicated procurement solutions to streamline their purchasing processes and enhance efficiency. These specialised solutions offer advanced analytics, real-time insights, and improved data quality, making it easier for businesses to manage their procurement operations effectively.

By integrating dedicated procurement solutions with their ERP systems, organisations can bridge the gap between data management challenges and their need for comprehensive procurement intelligence, ultimately driving better decision-making and cost savings.

Addresses Overspending Issues

Integrating P2P software with ERP can prevent overspending in procurement. By harnessing ERP with eProcurement solutions, you can efficiently assess expenses across purchasing categories.

It allows you to manage budgets and increase savings. Moreover, integrating procurement solutions with ERP simplifies procurement management by automating approval processes.

Boosts Vendor Collaboration

Vendor collaboration is one of the most essential aspects of procurement. Keeping them informed of the relevant business operations helps avoid miscommunication.

By integrating procurement solutions with ERP systems, buyers and suppliers can access real-time data, empowering them to make informed decisions. This integration brings advantages such as:

  • Enhanced collaboration: Seamless collaboration between buyers and sellers, achieved through transparent access to purchase orders, invoices, and receipts.
  • Supplier empowerment: Suppliers are empowered with real-time insights into payment statuses via a supplier portal, which enables sound financial planning.
  • Stronger buyer-supplier relationship: Heightened transparency nurtures and strengthens the critical relationships between buyers and suppliers, a fundamental cornerstone for any successful business.
  • Improves Scalability and Flexibility

As businesses expand, stakeholders must seek platforms that can swiftly adapt to increased operational demands and changes in the operational cycle.

Procurement software provides essential features like mobile and remote access that most businesses require to scale operations. It also allows businesses to create highly specialised and efficient platforms, saving money, time, and human resources.

Helps Eradicate Duplication Issues

Procurement solutions can help connect all departments to ensure office supply orders are placed through a centralised system. They help share real-time data across tech, IT, finance and accounting, HR, sales, and marketing teams. It helps prevent duplicate purchases by coordinating buying across departments. Improved coordination also allows teams to maximise discounts and negotiation opportunities while saving time, money, and effort.

Reduces Procurement Errors Through Automation

Specialised software can help organisations optimise deals, accelerate processes, and reduce errors through automation. It helps allocate repetitive and simple tasks to the system rather than to users.

For example, businesses can automate their supply ordering with this technology. Automation helps set limits to ensure timely orders, prevent shortages, and follow any restrictions they have in place.

Handles Compliance and Risk Management Issues

Managing procurement-related risks and complying with regulations can be pretty challenging. An ERP-procurement integration empowers the software to handle compliance matters and mitigate risks during procurement processes, even involving multi-currency transactions.

Supplier Performance Management

Managing supplier performance during the procurement process can be quite challenging without the right tools at your disposal. However, by integrating procurement software with an ERP system, you can simplify collecting and analysing data related to supplier performance.

This valuable information encompasses delivery times, product quality, and responsiveness, enabling you to decide whether to maintain or end supplier relationships.

Inventory Management

Inadequate inventory management can result in too much or too little stock. These outcomes affect working capital and operational efficiency. One practical approach to tackle this problem is integrating procurement solutions with ERP systems. Such integration offers benefits like:

  • Real-time visibility into inventory levels, allowing for monitoring.
  • Automated reordering process, reducing the burden on manual efforts.

For example, a supermarket chain can leverage sales data to automate the reordering of items, minimising waste and ensuring the availability of products.

Provides Analytics for Better Insights

By integrating procurement solutions with ERP, businesses gain a flexible data model capable of handling big data. It manages the data and offers valuable insights to enhance information generation, storage, and decision-making. Procurement software encompasses advanced spend analytics, supplier benchmarks, and comprehensive performance management.

Drastically Improves End-User Experience

Procurement solutions are built from the ground up, keeping procurement operations as the top priority. It helps avoid a cluttered, mismanaged UI that comes with legacy ERPs, enabling users to be more productive.

End-users can adapt to changes in the software much quicker, increasing efficiency.

Conclusion

Procurement and sourcing processes require a dedicated platform in 2023. Unlike legacy ERP, such dedicated solutions can handle complex sourcing and procurement operations. They ensure a streamlined and seamless flow of relevant information between internal business organisations and external suppliers, allowing all stakeholders to have complete project visibility.

The outcome of implementing a smaller yet far more efficient tool will facilitate faster time to market, subsequently letting you achieve your ROI at an expedited rate.

While customising an ERP may sound enticing, opting for an eProcurement solution is smarter.