Jeb Molony

For most businesses expenses are simply the money attributed to the business that makes it operate from day to day. Common expenses include utilities, rent, meals and entertainment, and depending on the good or service the business sells there are expenses customized for the business. Managing expenses can be as simple as coding debit entries inside of QuickBooks, but as a business starts to grow two of the most difficult elements to keep control of are expenses that should be billed to a client and the problem is compounded by additional credit cards and bank accounts.

Clients often want a business to purchase any goods necessary for their service in advance and then be billed for them later. For a service provider these expenses are essentially a cost of goods sold. There are tax consequences associated with these types of transactions so be sure to consult a tax professional before you begin purchasing equipment and billing customers. The purchases need to be tracked carefully so that they may be billed to a client at a later date. Often businesses markup such purchases using one of two methods.

Two approaches to marking up client expenses are a straight percentage markup or a time tracking for shopping. A percentage markup is a straight percentage that is added to the expense then billed the customer while a time tracking model simply has employees bill time for shopping for a client. Unless you understand financing and are prepared to build a model and track the rates of return for your purchases over at least a rolling thirty six month period it may be best to avoid financing purchases for clients. Many businesses do not track their rate of return on financing client expenses and because most companies are not in the business of lending money it may not be wise to front expenses for clients. While financing client expenses is a major consideration for a business the more important issue for this post is how to track the expenses.

Every business invoices on a cycle, most are monthly so that will be the example. If a company invoices monthly then it should review expenses and make sure they are properly assigned prior to sending the invoices. In order to assure all expenses are accounted for a business should first reconcile all accounts that expenses are possibly drawn from in order to confirm every transaction has been entered. After the reconciliation a report should be run on every account which shows the debits from that account and to who they are assigned. After reviewing that report adjustments should be made in order to assign every expense that should be assigned to a client. After the expenses have been marked it is time to run the invoices for expenses and send them to the clients. Once a process has been put in place for handling expenses on a single account a company can expand its number of accounts and simply replicate the process.

Handling multiple sources of expenses is the most difficult element to control as a business grows. The more sources of expenses the more likely an error is going to occur and an expense will be missed. Unfortunately a missed expense means a loss for the company so it is imperative to stay organized and develop a process for managing expenses. The good news is once a system for managing expenses inside one account has been created it can replicated with other accounts as the business grows. The decision of whether to purchase client expenses is one that each company will have to make at some point, so be aware that the decision should not be taken lightly as a lot of work goes into tracking and managing such expenses.