Frameworks & Finance

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How to create spending guardrails in your business

spend management Dec 07, 2023

Growing from a one-person shop to a true business can be a difficult transition.

Today we talk about how to start allowing others to spend money on your behalf, while still assuring they follow your intent.

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When you start a business, you and you alone determine how to spending your money.

As you add people to the team, spending still goes through you, the business owner as the new hires come one by one with each request.

But at some point this becomes overwhelming and some processes need to be introduced.

While I can’t tell you the exact process you need, below are 3 types of guidance you need for employees to be able to act without asking you.

Create a budget

We’ve just spend the last 2 months talking about the importance of budgeting, so hopefully you see the value in this exercise.

I believe a budget should be present from day one in a business, so if you don’t have one you should create it.

A budget allows you to think about the possible scenarios and provide staff with guidance on how to spend. It acts as a pre-approval on spending so employees don’t have to come ask you about every expenditure they need to make.

Some items on the budget will be large enough you still want to give an approval, though. This is where the next item comes in, spending policies.

Create a spending policies

When offloading the ability to spend, there needs to be specific guidance. Creating a spend policy will give your employees rules to follow, which will allow them to make decisions without your input.

A policy should identify:

  1. Approval workflows
  2. Reimbursement procedures
  3. What can and can’t be spent on
  4. Spending limits by type of spend
  5. Credit card usage requirements
  6. Reporting & recording expectations

This could be one policy or multiple policies, depending on the needs of the business. These are best written as they’re needed and updated regularly.

When starting, it’s hard to know what you’ll want/need, so being willing to update these will allow you to optimize the deliverables and communication.

Having tight deadlines is important to get compliance, because the longer someone has to do their reporting the more likely they’re going to be missing some documentation.

But, the deadline is only as good as your enforcement of the deadline. People will naturally get lazy about reporting if Accounting is not checking in when they miss deadlines.

Provide general guidance

This is the spot where most people fail. They establish a budget, identify limits, create a reporting schedule/process, and create an approval hierarchy, but there are still questions left unanswered.

The result is staff that either spends without approval or still asks a ton of questions to the supervisors or owner.

While the workload is still better than before, the “exceptions” create problems.

First, it’s distracting and frustrating. The leaders feel like babysitters and it creates tension.

Second, it creates a culture where it’s best to ask the question first. That means eventually you’ll have people asking questions about things that even fall inside the policy.

Instead of the typical policy, I like to create a narrative (with questions) that lets them into the way I think about the spending. This gives them deeper context, which allows them to feel more comfortable spending without asking.

This can go into the policy document or be in addition to it. The type of documentation you have at your workplace is going to determine what works best for your organization.

With this type of narrative, if there are questions after someone has spent money, it’s a good tool to use to ask them the reasoning for the decision. As you see how they use it, you’ll make updates and improve it.

The key is to not make too extensive and keep it as brief as possible. No one is reading a 10-page document, so do your best to remain concise.

In the document, it’s good to use questions to get them thinking about the spend. Some examples of these questions would be:

  1. Is it in the budget? If not, does it align with budget intent?
  2. If outside policy limits, why should we make an exception this time?
  3. Is it necessary? What would happen if we couldn’t buy it?
  4. How will it help you achieve your identified goals?
  5. Does it align with the values and mission of the organization?
  6. Is it consistent with all our policies and general expectations?
  7. Does the spend provide a short-term or long-term benefit? We prioritize long-term.

By providing these questions as a lens for employees to look through, you’re giving them insight into how you think about spending. Providing a narrative of how you’d navigate these questions also provides additional context that gives them the comfort to own spending.


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