Small Business Expense Management: A Simple Guide for 2025

Running a small business is hard enough without spending hours every week tracking expenses, chasing receipts, and doing reimbursements.

But here's the thing: good expense management isn't optional. The IRS wants receipts. Your accountant wants organized records. Your team wants timely reimbursements. And you want to actually know where your money is going.

The good news? You don't need expensive enterprise software like Expensify or Concur (which cost $5-20 per user per month). You just need a simple system that actually works.

Let's build one.

Why Small Business Expense Management is Different

Personal expense tracking is one thing. Business expense tracking is a whole different beast:

1. Multiple People Spending Money

It's not just you anymore. Your team is buying supplies, taking clients to lunch, traveling for meetings. You need to track who spent what, when, and why.

2. Tax Deductions

Every business expense could be a tax deduction. But only if you have proper documentation. The IRS doesn't accept "I think I spent about $5,000 on office supplies."

3. Reimbursements

When employees spend their own money on business expenses, you need to reimburse them. Fast. Nothing kills morale like waiting weeks for a $50 reimbursement.

4. Budget Management

You need to know if you're staying within budget. Are you spending too much on marketing? Is that new hire's travel budget reasonable? You can't manage what you don't measure.

5. Audit Trail

If you get audited (or just need to review expenses), you need a clear paper trail. Who approved this expense? Where's the receipt? What was it for?

The 5 Core Components of Good Expense Management

1. Easy Expense Submission

If it's hard for your team to submit expenses, they won't do it. Then you'll have missing receipts, forgotten expenses, and chaos at tax time.

What "easy" means:

• Takes less than 30 seconds to submit an expense
• Works on mobile (your team isn't at a computer all day)
• Doesn't require filling out forms
• Allows photo receipts (no scanning required)

Example with Settler: Your employee takes a client to lunch. While walking back to the office, they send a voice message to your team's Telegram group: "Client lunch $85." Done. Settler automatically logs it, categorizes it, and notifies you.

2. Receipt Management

The IRS requires receipts for expenses over $75 (and recommends them for everything). You need a system that:

• Stores receipt photos digitally
• Links receipts to expenses automatically
• Makes receipts searchable
• Keeps receipts for 7 years (IRS requirement)

Pro tip: Take photos of receipts immediately. Thermal paper receipts (like most restaurant receipts) fade within months. A photo lasts forever.

3. Categorization

Every expense needs a category for tax purposes:

• Office supplies
• Travel
• Meals & entertainment
• Software subscriptions
• Marketing & advertising
• Professional services
• Utilities
• Etc.

Good expense management software auto-categorizes based on the description. "Lunch with client" → Meals & Entertainment. "Flight to NYC" → Travel.

4. Approval Workflow

Not every expense should be automatically approved. You need a simple approval process:

1. Employee submits expense
2. Manager gets notified
3. Manager approves or rejects (with reason)
4. If approved, expense goes to accounting for reimbursement

This prevents fraud, keeps spending in check, and creates an audit trail.

5. Reimbursement Tracking

Once an expense is approved, you need to track:

• Who needs to be reimbursed
• How much
• When it was paid
• Payment method (check, bank transfer, etc.)

Employees should be able to see the status of their reimbursement requests at any time.

Common Business Expense Categories (And What Counts)

Office Supplies & Equipment

What counts: Pens, paper, computers, desks, printers, software, etc.

Tax tip: Equipment over $2,500 might need to be depreciated over multiple years instead of deducted immediately. Check with your accountant.

Travel

What counts: Flights, hotels, rental cars, taxis/Ubers, parking, tolls.

Tax tip: Travel must be "ordinary and necessary" for your business. A weekend trip to Vegas is not deductible unless you're in the casino business.

Meals & Entertainment

What counts: Client lunches, team dinners, coffee meetings.

Tax tip: As of 2025, business meals are 50% deductible. You need to document who you met with and the business purpose.

Marketing & Advertising

What counts: Social media ads, Google Ads, website costs, business cards, promotional materials.

Tax tip: 100% deductible. Track ROI to know if your marketing spend is worth it.

Professional Services

What counts: Lawyers, accountants, consultants, contractors.

Tax tip: 100% deductible. Make sure you issue 1099s to contractors who earned over $600.

Software & Subscriptions

What counts: SaaS tools, cloud storage, domain names, hosting.

Tax tip: 100% deductible. Review subscriptions quarterly—you're probably paying for stuff you don't use.

Setting Up Your Expense Management System

Step 1: Choose Your Tool

You have three options:

Option A: Spreadsheet (Free, but painful)

• Pros: Free, full control
• Cons: Manual entry, no automation, easy to make mistakes, time-consuming

Option B: Enterprise Software ($5-20/user/month)

• Pros: Full-featured, integrations with accounting software
• Cons: Expensive, overkill for small teams, complex setup

Option C: Simple Modern Tools (Free to $5/month)

• Pros: Easy to use, affordable, mobile-first, automation
• Cons: Fewer features than enterprise tools

For small businesses (under 20 people), Option C is usually the sweet spot.

Step 2: Set Up Expense Categories

Create categories that match your tax forms (Schedule C if you're a sole proprietor, or your business tax return categories).

Minimum categories:

• Office Supplies
• Travel
• Meals & Entertainment
• Marketing
• Professional Services
• Software
• Utilities
• Other

Step 3: Create an Expense Policy

Document what's allowed and what's not:

• What expenses are pre-approved? (Office supplies under $50?)
• What requires manager approval? (Travel, client entertainment?)
• What's not allowed? (Personal expenses, alcohol without clients?)
• How quickly must expenses be submitted? (Within 30 days?)
• How are reimbursements paid? (Bank transfer, check?)
• What documentation is required? (Receipts over $75?)

Share this policy with your team. No surprises.

Step 4: Train Your Team

Show your team how to:

• Submit expenses
• Take receipt photos
• Categorize expenses
• Check reimbursement status

The easier your system is, the less training you need.

Step 5: Set Up Approval Workflows

Decide who approves what:

• Under $50: Auto-approved
• $50-$500: Manager approval
• Over $500: Owner approval

Adjust based on your business size and trust level.

Best Practices for Small Business Expense Management

1. Separate Business and Personal

Get a business credit card. Use it ONLY for business expenses. This makes tracking infinitely easier and protects you legally.

2. Track Mileage

If you or your team drive for business, track mileage. The IRS allows a standard mileage deduction (67¢ per mile in 2025). This adds up fast.

Use a mileage tracking app or just note start/end locations and miles driven.

3. Review Expenses Weekly

Don't wait until tax time. Review expenses weekly to:

• Catch errors early
• Spot unusual spending
• Approve reimbursements quickly
• Stay on budget

4. Reimburse Quickly

Aim to reimburse within 7 days. Your employees are essentially giving you an interest-free loan when they spend their own money. Don't abuse that.

5. Keep Digital AND Physical Receipts

Take photos of all receipts and store them digitally. But also keep physical receipts for at least a year (in case the IRS wants originals).

6. Document Business Purpose

For meals and entertainment, note:

• Who you met with
• What you discussed
• Business outcome

"Lunch $50" won't cut it in an audit. "Lunch with John Smith (potential client) to discuss Q2 marketing contract - $50" will.

7. Set Spending Limits

Give each team member a monthly spending limit. This prevents surprise expenses and keeps budgets in check.

Common Mistakes (And How to Avoid Them)

Mistake #1: Mixing Personal and Business Expenses

The Problem: Using your personal credit card for business expenses (or vice versa) creates a mess at tax time.

The Fix: Separate credit cards, separate bank accounts. No exceptions.

Mistake #2: Not Tracking Small Expenses

The Problem: "It's just $5 for parking, I won't bother tracking it." But $5 x 200 times per year = $1,000 in lost deductions.

The Fix: Track everything. Use a tool that makes it easy to track small expenses.

Mistake #3: Waiting Until Tax Time

The Problem: Trying to reconstruct a year's worth of expenses in April is a nightmare.

The Fix: Track expenses as they happen. Review monthly.

Mistake #4: No Receipt Policy

The Problem: Employees submit expenses without receipts. You can't deduct them without proof.

The Fix: Require receipt photos for all expenses over $25. No receipt = no reimbursement.

Mistake #5: Slow Reimbursements

The Problem: Employees wait weeks or months for reimbursement. They stop submitting expenses or start looking for new jobs.

The Fix: Set a 7-day reimbursement policy and stick to it.

Why Settler Works for Small Businesses

We built Settler for small teams that need expense management without the enterprise price tag:

• Works in Telegram: Your team already uses it. No new app to download.
• Voice & text entry: "Client lunch $85" - done in 5 seconds.
• Automatic categorization: AI detects expense categories automatically.
• Receipt photos: Just snap and attach to the expense.
• Multi-currency: Perfect for international teams.
• Approval workflows: Set spending limits and approval rules.
• Reimbursement tracking: See who needs to be paid and when.
• Export for taxes: Download all expenses for your accountant.
• Affordable: Free for basic use, way cheaper than Expensify/Concur.

Stop drowning in receipts. Start managing expenses like a pro.