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It goes without saying that a 10-person company spends differently from one with 500 employees. It's not just a matter of size - your challenges change completely as the business scales.
So what should a business expect from one growth phase to the next? And how can you manage spend smoothly without it becoming a burden for finance and administrative teams?
In this post, we examine the ways that spending changes as the company grows. More importantly, we outline your best options to stay on top of it, while keeping your team members efficient and effective.
What do we mean by company scaling?
The terms “growth” and “scaling” are often used interchangeably. In some cases this is fair, but we think there’s a pretty clear distinction between the two.
Some publications differentiate startup and scaleup simply by the number of employees you have. The Wikipedia definition of “scaleup” factors in both the number of employees and the amount of return you see.
But we prefer to focus on the funding you have and your plans for immediate growth. A scaleup is very much in the “growth phase,” and scaling a company involves growing at a faster than normal rate.
If you’re about to open new branches - especially internationally - and/or dramatically increase the size of your team, you’re a scaleup. If you’re growing steadily and plan to continue on this course, that’s great, but you’re not exactly scaling.
And as we'll see, startups often have vastly different spending challenges than scaleups and more mature businesses.
How spend evolves as the company scales
Naturally, the way a company spends differs drastically depending on where it is in this journey. Brand new businesses don’t spend the same as mature companies - obviously.
Here are the main challenges affecting your company at each growth stage, and the way you should approach spending based on these.
Seedling startups: No clear spend culture
And no real need for one. In a very small startup, you typically have the whole team in the same room 90% of the time.
If an employee needs to spend, they can simply ask the CEO or office manager for the credit card. Or they spend with their own money and claim reimbursement.
While we don’t like expense reports or company credit cards at all, they’re manageable at this size. You’ll spot irregularities pretty quickly, and the number of payments is still so low that these processes aren’t a huge administrative burden.
At this stage, you don’t travel often, don’t process many invoices, and have a very low risk of fraud. And the biggest focus is on getting the company up and running - not ramping up spend.
Level of spend management required
Low:
Company credit card for most payments, including online.
No real need for expense automation.
Accounting done externally or with intuitive free tools.
Growing startups: The first signs of spending strain
Once you have a product in place and your ideal customers in mind, it’s time to start generating revenue. A lot of time and energy goes into improving that product and keeping bugs at bay.
At the same time, you introduce real marketing and try to keep your sales team as busy as possible.
But things are still scrappy. You haven’t raised the big Series B round yet, and you don’t have a long fiscal runway. Which means that the volume of spending is still pretty low - even if it feels like you’re churning through money.
Even so, your salespeople are starting to get out on the road. They’re meeting prospects and clients, and bringing back small stacks of receipts.
You’re also starting to see the effects of software sprawl. Every team requires new tools just to do their work, and soon it’ll be hard to keep track of all of these.
For now, spending is pretty much under control. You have a few months where the administration feels like a major headache, but nothing you can’t handle.
Level of spend management required
Low but growing:
Consider an expense automation tool to capture receipts.
Also consider a tool to keep growing software subscriptions in control
Company credit cards are still not a major concern
Not yet wasting serious amounts of time reconciling payments
Scaleups: A major increase in spending
This is the exciting moment when that big Series A or B funding hits your bank account. And usually with it come clear instructions: more and faster. You need more customers and more revenue coming in, and you need them as quickly as possible.
And in most cases, that means spending money. Which is exactly what your new funding is for. You’re hiring as fast as you can, but also pumping money into search and social advertising, bringing in agencies to run campaigns, and getting all those flashy tools you couldn’t afford before.
Plus, there’s the new coffee machine, office snacks, and sexy swag to show off at industry events.
At this point, keeping the spend culture you had before is a recipe for disaster. You no longer have everyone in the same country, let alone the same room. Teams now have dedicated budgets, money is flying out the door, and you can’t afford to bog everyone down in paperwork.
This is where our old nemeses company credit cards and expense reports can really hurt.
Company cards: First, not everyone who needs to spend has access. This is a blocker right away. But credit cards are also notoriously hard to track, and you’ll find yourself wondering what all these payments are even for.
Expense reports: When you had to process 10 claims a month, it wasn’t a big deal. But you’re now looking at hundreds. Which means data entry and paper receipts, email reminders to all staff, and countless other nuisances that slow your finance team - and the whole company - down.
At the very least, each of these creates serious work for your finance team. Suddenly they’re dealing with hundreds of expense claims and countless untracked credit card payments.
This can make the financial close process a week-long affair. Reconciling messy spend chains your finance to their desks and ties your otherwise fast-moving sales and marketing teams down too.
Conversely, good spend management processes are one of the best scaleup tools available. When you combine customisable expense cards with clever software, you eliminate most of your biggest headaches in one swoop.
In short, until now spend management was a luxury - “nice to have.” As the company really starts to accelerate growth, you can’t afford to be held back by poor spending processes.
Level of spend management required
High:
Company credit cards should be replaced with prepaid or debit expense cards
Online spending should be done via unique virtual cards
Approvals must be tracked
Receipts should be saved digitally
A final thought: We’re going to look next at mature businesses and the large, complex tools many rely on. These tools - such as ERPs - can be downright vital for large companies.
The trouble is that they take months (if not years) to roll out effectively. This can’t be done on the fly, and it really shouldn’t be done when your biggest priority is fast growth. You want to remain agile and swift, and these tools are anything but.
Mature companies: Sustainable, safe spending processes
Here, we’re talking about businesses who’ve finished their big growth spurt and need to remain efficient long-term. You have shareholders to worry about, and the amount you spend on everything from travel to coffee pods now comes under scrutiny.
At this stage, companies often do two things:
Invest in large, all-encompassing software to control company data
Become fixated on rules and regulations, and less worried about efficiency
In general, this doesn’t have to be bad. Some companies need ERPs, purchasing tools, and teams of accountants. They also need to stick to the law and ensure that their employees do the same.
But this doesn’t mean that they shouldn’t have best-in-class technology. Especially when that tech actually protects them from major issues like fraud and helps them keep an eye on their team.
Consider life for most companies with an ERP in place:
They have great control over data in the back-office (assuming the tool is well-run).
But individuals still rely on expense claims, which the company itself has very little control over. You don’t know what’s been spent until an employee makes their claim weeks or months later.
Online payments are still made with company credit cards, which again give you very little control. You rely on people asking for permission to make a payment, and managers and administrators keeping a close eye on spending.
Employees and managers (outside of finance) don’t use the ERP, so they don’t have a clear idea of their own team’s spending either.
So if the goal is to be more financially rigorous and track spending closely, the ERP is only part of the solution. You still need to ensure that good data goes in, and most companies simply can’t do this.
Which is why spend management still needs to be part of your arsenal. And most vitally, you need to move away from company cards and expense reports, and towards expense cards (more on this shortly).
These let you control spending before it happens, track it as it happens, and then have reliable, actionable data based on what was spent.
Level of spend management required
Integrated:
An ERP tool can still be your “one source of truth”
A spend management platform (and expense cards) works on the front lines and gives team members something simple and quick to use
Procurement and purchasing tools can also be used for supplier management
Spend management for scaling companies
As is hopefully clear by now, good spend management involves two important elements:
Smart payment methods that give employees access to company funds. These can be physical prepaid or debit cards (also called expense cards), plus virtual cards for safer online spending. The point is: no more credit card sharing, and no expense reports!
Powerful but simple software to monitor spend as it happens. This is so valuable to finance teams, but also lets managers and their teams keep track of their own payments. It also includes approval workflows, so you don’t have to rely on messy email chains.
Of course, different companies have their own requirements. Some never travel but have high amounts of online advertising and subscription tools. Others have shopfronts and still need petty cash.
Whatever the case for your business, make sure that your spend management solution can handle it. You want something that’s quick to set up and easy to understand, even if your company itself is anything but.
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