Business travel, fuel costs, car rentals, and networking meals are just a few of the many expenses you’ll encounter when running a small business. If you’re a team of one or have just a few employees, you’ll likely start covering these costs with the business credit card. 

But as your business grows, it's not uncommon for employees to cover expenses with their personal credit cards and submit for reimbursement later. 

For this process to go smoothly, you’ll need business expense reports, and while dealing with them might not be the most exciting task, it’s indispensable to ensure employees get reimbursed on time, and you maintain accurate financial records.

What is on an expense report?

An expense report typically includes the following:

• Date: When the expense occurred
• Amount: The total cost of the expense
• Vendor: The merchant or service provider
• Description: Details about the nature of the expense
• Notes: Any additional information, such as the business purpose

How do you create an expense sheet?

Creating an expense report, also known as an expense sheet, involves organizing and documenting your business expenses systematically. 

Let’s walk through a step-by-step process to create a foundational business expense report that makes it easy for your employees to get reimbursed and for you to streamline expense management.

1) Create a travel and expense policy 

Before you create a business expense report, establish a clear travel and expense (T&E) policy. This will establish the foundation for managing business expenses, ensuring compliance, and equipping employees with clear guidelines as to what is and isn’t eligible for reimbursement. In turn, you’ll maintain consistency, prevent misunderstandings, and promote transparency and efficiency across the business. 

When drafting your T&E policy, include:

1. Purpose and scope: The policy objective and to whom it applies, such as all employees, contractors, or specific departments
2. Eligible expenses: The types of costs eligible for reimbursement (think business meals, office supplies, client entertainment, etc.) 
3. Non-reimbursable expenses: Expenses not eligible for reimbursement, like personal items, fines, luxury upgrades, or meals that surpass per diem 
4. Expense limits: Spending limits for various expense categories to prevent excessive spending and include guidelines on acceptable price ranges for flights, hotels, meals, etc.
5. Documentation requirements: The documentation required for each type of expense, like receipts, invoices, and business purpose explanations in the notes, and when and how these should be submitted 
6. Approval process: The approval workflow for expense reports, including who needs to approve them and any required pre-approvals for specific expenses
7. Submission deadlines: Deadlines for when expense reports should be submitted to ensure timely reimbursement and accurate financial tracking
8. Reimbursement process: How and when employees will be reimbursed for approved expenses, whether through direct deposit, checks, or other methods

 2) Choose an expense report template or tool

Building a business expense report requires organization and documentation, and you’ll need a template or tool to gather this information into a clear, easy-to-understand report. 

Some small companies start with a basic spreadsheet template for expense reports. These templates provide a simple way to list business expenses, categorize them, and calculate totals. 

However, while this approach can work for small teams with limited expenses, it can become cumbersome with frequent travel or a high volume of employee reports. Manually entering data can be time-consuming and error-prone, and consolidating reports from multiple employees will eventually become a logistical nightmare.

Expense management software offers an automated and more efficient way to handle expense reporting all in one place. 

Adopting such a tool is a great option not only for businesses with a high volume of transactions or those requiring detailed financial oversight but also for any small business looking for a solution that can scale and automate business processes. An expense management platform will inevitably save you time and resources that can be better deployed into strategic initiatives and real value adds for the business. 

A tool like Extend can help you reconcile your credit card statement, track employee out-of-pocket expenses, and it also offers other helpful features that further simplify the expense reporting process, for example:

1. Receipt management: Employees can easily capture and upload receipts straight from their phones, ensuring key details like date, vendor, and amount are saved for each transaction. And, with just a click of a button, you can send receipt reminders to those missing receipts.

2. Real-time expense tracking and reporting: You can set up custom expense categories to match your general ledger, simplify reconciliation by tagging cards and transactions, and download data-rich statements with matching receipts. 

3. Integrations: Finance teams can seamlessly integrate with your accounting software, like QuickBooks or Netsuite, and ensure smoother reconciliation every month.

Ultimately, the tool or template you choose should make expense reports easier and less time-consuming. 

When making your decision, consider factors like the size of your business, the volume of business expenses you have now and expect to have down the line, and the level of detail and automation you need in the expense reporting process.

3) Customize columns

Once you choose your template or tool, customize the columns in the expense report.

Start with the standard columns in your template or expense management software. 

These usually cover primary fields like:

• Date
• Amount
• Vendor
• Description 

However, the real value lies in tailoring these columns to reflect the specific types of expenses that regularly occur in your company. 

Moreover, it will be helpful to add expense types within your columns to better classify expenses and ensure they map to your general ledger. For example, if business trips are a common business expense, consider adding expense types for mileage, accommodation, and meals to provide clearer insights into travel spend.

This step creates a framework that captures all the details you need to ensure accurate records. The correct set of columns should enable you and your team to quickly input data, easily update records, and efficiently extract meaningful insights from expense reports. 

 4) Gather receipts and invoices

Once you have created your expense report, your team can instantly use it. To start, they’ll need to gather every receipt and invoice for every transaction they plan to include in their expense report. 

This is an important step for compliance, tax, and audit purposes. It gives your finance team a clear picture of when transactions took place, how much was spent, and what exactly company dollars went toward.

If you only have a handful of employees, collecting receipts and invoices might not be a challenge at the beginning. But this will quickly become a hassle if you’ve got a bigger team. You’ll often find yourself chasing paper and constantly reminding employees to keep and submit their own receipts. 

As a small business owner, you have more important things to take care of, so consider using a tool like Extend to digitize receipts and invoices and streamline the out-of-pocket expense process for your team.

 5) Enter the expenses

Your employees should enter the expenses for which they need to be reimbursed into each relevant column of their expense report. 

Having a template or tool already in place should make this process easy and straightforward. However, make sure to train your employees to avoid errors or discrepancies. 

For instance, employees should always include proper documentation in their expense reports and ensure the details for each listed expense match the details on the receipts and invoices they’ll attach, including:

• Expense type 
• Date
• Amount
• Vendor

Employees should also add any relevant notes to their reports that might be useful to the accounting team or auditors. 

Notes can be added to explain the purpose of an expense, any unusual circumstances, or details that aren't immediately apparent from the receipts and invoices. For example, in Extend’s T&E policy, whenever an employee lists a business meal, they need to include the business purpose and attendees as supplementary information in the notes on top of attaching the receipt. 

6) Submit the expense report

After employees have entered their expenses, receipts, and notes, they are ready to submit their expense reports. 

Encourage them to double-check that:

• They’ve entered all the expenses for which they need reimbursement for that reporting period.
• Expense types, dates, amounts, and vendor details are correct. 
• All receipts and invoices are correctly attached, and they’ve included any relevant notes.
• All expenses adhere to the company’s expense policies.

If you’re using a tool like Extend, your team can submit digital out-of-pocket expense reports, and the platform will automatically direct submissions to the designated expense report reviewer. 

However, if you’re taking a more manual approach and using a template, like a spreadsheet, they’ll likely need to save the document and send it to the appropriate person in finance via email or any other communication tool you use in your business. 

As soon as employees submit their reports, the process then moves to the finance team, which will need to review, approve, and process it before issuing any reimbursements. 

 7) Review expenses and issue reimbursements

Now, your finance team will need to review the business expenses in each report submitted. 

This is critical to:

• Ensure accuracy and compliance with your business policies and tax regulations
• Maintain financial integrity 
• Gain valuable insights into spending patterns and potential areas for cost savings

These steps are pretty straightforward:

1. Go through each listed expense and compare it to its corresponding receipt or invoice. 
2. Make sure dates, amounts, vendors, and expense purposes match. (This is important to safeguard against inaccuracies, detect discrepancies that might indicate errors or even fraudulent activity, and prevent employees from seeking reimbursement more than once for the same transaction.)
3. Assess the legitimacy and necessity of each expense. Is it a justifiable business expense that aligns with your company's spending policies? 
4. Consider the timeliness of business expenses. Late submissions or reports of old expenses can complicate financial tracking and budgeting. 
5. Make sure each expense is properly categorized according to your company’s established expense categories and evaluate the impact on approved company budgets. 

Once finance reviews and approves an expense report, they can reimburse the employee who submitted it. They can do this through direct deposit to the employee's bank account or a company check.

If your finance team rejects an expense report for any reason, be it missing documentation, policy violations, or other discrepancies, they should communicate this clearly to the employee and provide clear instructions on resubmitting for approval or guidelines and policies to keep in mind when submitting expense reports in the future. This process will be easier and much more transparent if you leverage an expense management system for smoother communication and record-keeping instead of long email chains or Slack threads.

How do I manage my expenses in Excel?

Managing your expenses in Excel will be heavily manual, but if you're starting out or have a small team with fewer transactions and want to leverage Excel, follow these steps:

1. Download an Excel expense report template or create a blank spreadsheet.
2. Add the name of your company, the date, and your name.
3. Set up columns and expense types to categorize your expense information.
4. Itemize your expenses.
5. Add up all the costs and include the total amount.
6. Print or email your expense report alongside receipts and invoices.

Manage employee expenses all in one place with Extend

Following these steps will help you establish an initial framework for efficiently creating and using business expense reports. But as your business grows, manually managing this process will quickly become a challenge. 

Discover how Extend can help you streamline expense management, from capturing receipts to real-time expense tracking and seamless integration with your accounting software.