Category-based expense approval matrix: a practical workflow to protect your runway

Why Startups Need a Formal Expense Approval Process

As your startup grows, the informal ways you manage spending start to break. What once worked with a handful of people, like quick approvals over Slack or a verbal go-ahead, becomes a bottleneck. You’re left wondering if a purchase was approved, who approved it, and if it even fits the budget. This friction is not just an annoyance; it’s a risk to your runway. Wasting founder and staff time on manually routing invoices leads to payment delays and unhappy suppliers, while unauthorized expenses can slip through without a consistent audit trail. A formal expense approval process becomes a priority once a startup has more than 10 to 15 employees or a few distinct teams.

Implementing this structure is about creating clarity and control so your team can spend confidently on the right things without creating unnecessary bureaucracy. The goal is to build a scalable foundation for financial discipline while maintaining operational speed. For more on this, see our expense categorization hub for consistent tagging across functions.

The Approval Matrix: Your Single Source of Truth for Spending

An expense approval matrix is a framework that outlines who can approve which expenses, up to what amount. It’s your single source of truth for company spending, replacing ambiguity with clear, consistent rules. Instead of a single, universal spending limit for everyone, which is often too restrictive for some roles and too permissive for others, a matrix uses categories to provide context. This approach recognizes that a $2,000 marketing campaign is fundamentally different from a $2,000 annual software contract or a $2,000 legal bill.

A category-based system allows for more intelligent expense limits by role. The goal is empowerment, not micromanagement. By defining clear rules, you give team members the autonomy to make decisions within their domain, freeing up founders and leadership from approving every small purchase. In practice, this shift from ad-hoc approvals to a defined structure helps you build financial discipline from the ground up.

How to Set Up Your First Expense Approval Process in 3 Steps

The trigger point for implementing an approval matrix is typically post-seed or around the Series A funding stage. At this point, you likely have distinct teams and a real budget to manage. Building your first matrix does not require expensive software; a shared spreadsheet in Google Sheets or Excel is the perfect place to start. The process is about codifying the logic your business needs to manage spending effectively.

Step 1: Define Your Core Expense Categories

First, you need to answer the question: what are the main ways your company spends money? Your chart of accounts in your accounting software, such as QuickBooks or Xero, is a great starting point. Group your spending into logical, high-level buckets that everyone in the company can understand. Avoid getting too granular; aim for 5 to 7 core categories at first. For most early-stage startups, these categories provide excellent coverage.

Typical expense categories for early-stage startups include:

• SaaS & Software
• Marketing & Advertising
• Travel & Entertainment (T&E)
• Office & General Admin
• Professional Services & Contractors

Your business model will influence which categories are most important. For a SaaS startup, software subscriptions will be a major area of focus. For an E-commerce business, Marketing & Advertising will likely be the largest variable expense outside of inventory. And for a professional services firm, contractor costs might be the most significant line item tied directly to revenue. Defining these buckets creates the columns for your approval matrix and the foundation for a more insightful approval process for business expenses.

Step 2: Set Practical Approval Thresholds and Expense Limits by Role

Next, you need to answer: what dollar amount represents a significant decision for each role? These thresholds are the rows of your matrix. The key is to set practical limits that control spend without slowing down the team. A $500 expense might be routine for a department head but a significant decision for a junior team member. Start with your operational reality to establish these tiers.

An example of approval thresholds for a Series A company might look like this:

• Up to $500: Manager or Team Lead
• Up to $5,000: Department Head or VP
• Up to $25,000: Founder, CEO, or CFO
• Over $25,000: Requires Board or Investor approval

Critically, you must distinguish between a single payment and the total commitment. This is especially important for subscription software. A common mistake is for teams to approve the first monthly payment without considering the full liability. For instance, a $300 per month SaaS subscription represents a $3,600 annual commitment, also known as the Total Contract Value (TCV). Your approval process must be based on that TCV, not the small initial invoice. This ensures that significant long-term commitments receive the appropriate level of scrutiny before a dollar is ever spent.

Step 3: Build the Matrix by Mapping Roles to Categories and Thresholds

Now, you combine the categories, thresholds, and roles to build the matrix itself. This step answers how roles, categories, and thresholds create a functional system for managing employee spending. The matrix visually lays out the rules of engagement. In your spreadsheet, list your expense categories across the top (columns) and the dollar thresholds down the side (rows). The cells will contain the title of the required approver.

Here is how the matrix from our examples looks in practice:

1. SaaS Subscription: A marketing manager wants to purchase an SEO tool for $300 per month on a one-year contract. The TCV is $3,600. Looking at the matrix, a purchase in the "SaaS & Software" category valued between $500 and $5,000 requires approval from the Department Head, such as the VP of Marketing.
2. Legal Bill: Your company receives a $7,500 invoice from its corporate law firm. Under "Professional Services," this amount falls between $5,000 and $25,000, requiring approval from a Founder or the CFO. This higher level of oversight is common for strategic expenses.
3. Travel Expense: An account executive needs to book a flight and hotel for a client visit, estimated to cost $1,200. Under "Travel & Entertainment," this falls into the "Up to $5,000" tier and can be approved by their Department Head, such as the VP of Sales.

This structure provides a clear, consistent audit trail and ensures the right person is accountable for each spending decision. Having clear records is also important for compliance. For instance, IRS guidance explains recordkeeping for deductible business expenses in the US, while HMRC guidance details VAT invoice record-keeping in the UK.

Putting Your Expense Approval Workflow into Practice

With your matrix designed, the next step is implementation. This involves communicating the new policy to the team, establishing a lightweight process for submitting requests, and knowing when your simple system is ready for an upgrade to digital expense approval tools.

When to Graduate from Spreadsheets to Automated Tools

Initially, you do not need to buy dedicated software. A shared spreadsheet combined with a dedicated Slack channel or email alias works perfectly for most companies in the pre-seed and seed stages. However, as you scale, this manual process becomes its own source of inefficiency. When the time your team spends chasing approvals outweighs the cost of a tool, it is time to upgrade.

Startups should consider graduating from spreadsheets to automated tools around Series A, or when they have more than 20 employees across multiple departments. At this scale, the volume of invoices and reimbursement requests makes manual tracking difficult and error-prone. Digital expense approval tools like Ramp, Brex, or Bill.com integrate directly with your accounting software to automate routing, enforce policies, and create a solid audit trail. This transition helps you formalize your expense policy setup and scale your financial operations efficiently.

Common Pitfalls to Avoid in Your Expense Policy Setup

As you implement your expense approval process, watch out for a few common mistakes. These issues can undermine the effectiveness of your new system and create frustration.

• Overly Complex Matrix: The goal is clarity, not friction. Avoid creating too many categories or approval layers. An overly complicated system creates confusion and slows things down, defeating the purpose of an efficient workflow. Stick to high-level categories and a logical number of approval tiers.
• Poor Communication: Do not just send out a spreadsheet and expect compliance. You must communicate the policy and, more importantly, the "why" behind it. When your team understands that the goal is to protect runway and enable smart decisions, adoption is much smoother.
• A "Set and Forget" Mindset: Treat your approval matrix as a living document. Your company will change, teams will grow, and new spending needs will arise. Plan to review and update the thresholds, categories, and roles quarterly or semi-annually to ensure they still make sense for your business. For more on managing overhead, review our G&A expense allocation best practices.

Key Takeaways for Setting Up Your Expense Controls

Setting up an expense approval process is a foundational step in building a financially disciplined startup. It moves your company from reactive, chaotic spending to a proactive system of control that supports growth. The key is to start simple and evolve the process as your organization matures. Begin with a straightforward matrix in a spreadsheet, focusing on your core spending categories and practical thresholds that empower your team leads.

Always emphasize approving the Total Contract Value, not just the first invoice, to gain true visibility into future commitments. Communicate the framework clearly to your team, framing it as a tool for smart, autonomous decision-making. As you grow past 20 employees or raise your Series A, transition to an automated platform to maintain control without sacrificing speed. This structured approach to managing employee spending does not just prevent unauthorized purchases; it provides the visibility and accountability needed to manage cash flow and extend your runway. To continue improving your financial operations, explore our expense categorization hub for tagging best practices.

Frequently Asked Questions

Q: What is the biggest mistake startups make when setting up an expense approval process?
A: The most common error is approving expenses based on the first monthly invoice instead of the Total Contract Value (TCV). A $500 monthly software subscription is a $6,000 annual commitment. Approving based on TCV ensures significant long-term expenses receive the proper level of review, protecting your cash flow.

Q: How can I get my team to follow our new expense policy?
A: Successful adoption depends on clear communication and simplicity. Explain why the policy exists, focusing on how it protects runway and empowers them to make decisions. Make the submission process easy and ensure approvals happen quickly. When leadership follows the policy consistently, the rest of the team will too.

Q: Can I set different approval workflows for different departments?
A: Yes, and you should. An approval matrix is designed for this flexibility. For example, your sales team may have higher, more flexible limits for travel and entertainment expenses, while your engineering team might have specific workflows for software and cloud infrastructure purchases that require technical review.