Curbing the 'shop til you drop' habit: "a budget tells us what we can't afford, but it doesn't keep us from buying it," said American author William Feather. If he were alive now, he might change his tune, since we now have technology tools and policies that can curb employee spending.

• Author: Vergantino, Bill
• Position: EXPENSE MANAGEMENT

Call it the yin and yang of finance in a thriving small or mid-sized business. Company executives are focused on two primary areas: growing revenues and managing expenses. Whether business is booming, growing at a manageable rate, or facing financial challenges, top executives know that without oversight and involvement, spending can easily spiral out of control.

Consider that in small and midsized companies, spending occurs in every aspect of a business. It is not uncommon for individuals, departments and offices to purchase the same items from multiple vendors at varying costs, wait until the last minute to obtain airline tickets and submit expense reports with questionable items.

The finance team continually reminds everyone about obtaining approvals for purchases and booking travel through the preferred provider. But no matter how hard finance pushes, it seems as if the sales force thinks the Four Seasons is the only hotel in New York and employees continue to buy office supplies on an ad hoc basis without a thought given to cost.

One of the best ways to stop the seemingly endless cycle of unapproved and over-the-limit expenses or to empower more people to spend on behalf of the company without fear of losing control is to establish company spending policies. Without them, it is difficult to set boundaries and create controls, much less enforce them.

Why a Spending Policy Is Sensible

The benefits of establishing company spending policies are substantial. A spend management study from Triple-Tree, a research-based investment banking firm, shows that a 1 percent decrease in operating costs has the same impact on profitability as a 10 percent increase in revenue. And a study from research and advisory firm Gartner Inc. cites, similarly, that a 5 percent reduction in operating costs in the expense-management process has the same effect as a 30 percent boost in sales.

Creating better cost controls is a high priority for many small and midsized businesses. American Express found that 78 percent of the midsized companies it polled earlier this year said they planned some or many improvements to their cost-management methods over the next year; another 13 percent considered cost management their top target for improvement. In line with their overall design for tighter cost management, 74 percent surveyed said they'd improve monitoring employee compliance to spending policies.

But for many finance executives in small and mid-sized companies, the thought of imposing spending policies can produce a great deal of anxiety and dread, notes PayStream Advisors, an expense management research and advisory firm. Will...