Procurement process design for startups: building a scalable financial foundation

Procurement Process Design for Growing Startups

In the early days of a startup, buying things is simple. The company card pays for a new software subscription, a founder covers a conference ticket, and an engineer expenses a piece of equipment. This ad-hoc approach works when the team is small and communication is effortless. But as a startup scales, this informal system quickly transforms from a feature into a liability. Suddenly, surprise renewals appear on bank statements, multiple teams pay for the same tool, and there is no clear picture of committed spending. Runway, your most critical resource, starts to shorten from a thousand tiny, untracked cuts. Learning how to set up a procurement process for startups isn't about adding bureaucracy; it's a foundational step for managing growth and preserving capital.

The Tipping Point: When Informal Purchasing Breaks Down

For most early-stage businesses, the transition from informal purchasing to needing a formal structure is not gradual. It often feels like a switch flips overnight. The pattern across SaaS, Biotech, and Deeptech startups is consistent: the tipping point for needing a formal process usually arrives at 15-20 employees. At this size, communication is no longer automatic, and the finance or operations lead starts spending more time chasing receipts than performing strategic work.

The signs of breakdown are clear. A Slack message asking “Who has the login for our analytics tool?” reveals that three different teams are paying for three separate, redundant subscriptions. A large, unexpected invoice arrives from a contractor, but no one can find the original statement of work to verify the billing terms. These incidents are not just minor annoyances; they represent a material loss of control over cash flow and future financial commitments.

This is where ad-hoc purchasing without clear approval or budget checks lets spend spiral. Relying on spreadsheets to track what has been bought is purely reactive. This method tells you where money has already gone, but it offers zero real-time visibility into your cash commitments for the next month or quarter. For a pre-revenue Biotech startup managing grant funding or a SaaS company modeling its burn rate for the next fundraising round, this lack of foresight is a significant risk. The shift to a defined process becomes necessary to move from reactive expense tracking to proactive spend management.

Level 1: Establishing a Clear Purchase Request and Approval Flow

The simplest and most impactful first step is to formalize how team members ask for things. This is the core of a startup purchasing workflow: creating a clear, auditable path from request to approval. The goal is not to slow people down, but to ensure every purchase has a documented business justification and an owner before any money is committed.

How to Implement a Simple Request System

This initial process can be implemented without expensive software. A dedicated Slack channel like #purchase-requests or a simple Google Form can serve as the central intake point for all spending requests. The form should capture essential information to enable a quick decision:

• What is being purchased? (e.g., product name, service description)
• Why is it needed? (e.g., business case, problem it solves)
• Who is the vendor?
• What is the estimated cost? (Include currency and state if it is a one-time or recurring fee)
• Who on the team is the budget owner for this purchase?

This simple checkpoint creates a crucial moment to review spend against budget and strategy. It is remarkably effective at catching unnecessary expenses. In fact, a simple approval flow can cut 20-30% of duplicative or non-essential software spend in the first quarter alone. To make the process work smoothly, you need clear approval thresholds so everyone knows who needs to sign off. A typical structure for buying controls for small companies looks like this:

• Spend under $500: Approval from the team lead is sufficient. This covers smaller items like software subscriptions or office supplies.
• Spend between $501 and $5,000: Approval from the department head is required. This applies to more significant purchases like marketing campaigns or specialized equipment.
• Spend over $5,001: Approval from a founder or the finance lead is necessary. This ensures senior oversight for major commitments like annual software contracts or new contractors.

This tiered approach empowers team leads for small purchases while ensuring senior oversight for significant financial commitments, providing an essential foundation for expense management for startups.

Level 2: Gaining Control with Purchase Orders and Invoice Matching

Once an approval flow is in place, the next level of maturity involves distinguishing between the intent to spend (the purchase request) and the formal commitment to spend. This is the primary function of a Purchase Order (PO). A PO is a formal document sent to a vendor confirming the specific details of a purchase: the items, quantities, and agreed-upon prices. It serves as a contract and a critical record of a future financial obligation.

Implementing a Pragmatic PO System

For a growing startup, a PO system solves the critical pain point of having no visibility into future cash outlays. Initially, a simple PO log in Google Sheets, with columns for vendor, amount, PO number, and expected invoice date, can become a powerful, forward-looking cash management tool. When the finance team receives an invoice, they can match it to a PO number. This simple step prevents surprise bills and provides a clear audit trail from approval to payment.

This process is the foundation of the 'three-way match' concept, simplified for startups. It involves asking three basic questions before paying any invoice:

1. Does the vendor invoice match the Purchase Order we issued? (Correct price, quantity)
2. Does the Purchase Order match the goods or services we actually received? (Confirmation of delivery)
3. If both are true, approve the invoice for payment.

This simple check dramatically reduces the risk of overpayments, duplicate payments, or paying for incorrect items. Research from Ardent Partners highlights the significant time that finance teams spend on manual invoice processing, much of which this system helps to reduce. For US companies using QuickBooks or UK startups on Xero, both platforms offer basic PO functionality to get started. As you scale, modern spend management platforms can automate this entire workflow. For example, Airbase's case study shows how automation removes manual steps and improves PO controls and visibility.

Level 3: Systematizing Vendor Onboarding and Management

As your startup grows, so does your list of suppliers, from global software vendors to specialized R&D contractors. Without a system, vendor information and contracts get scattered across personal inboxes and local hard drives. This creates compliance risks and financial leakage, especially when it comes to inconsistent vendor onboarding and poor contract storage.

Creating a Centralized Vendor Process

A structured vendor approval process ensures you collect the right information upfront, before any work begins or money changes hands. These essential supplier onboarding steps include:

• Collecting key information: This includes legal company name, address, and primary contact details.
• Gathering compliance documents: For US-based vendors, this means a W-9 form to issue 1099s. For UK suppliers, it includes company registration and VAT details.
• Securing a signed contract: A signed agreement or statement of work should be in place before any project starts.
• Establishing a central repository: Create a centralized vendor file, even in a shared drive, to ensure this information is accessible to the company, not just one individual.

This system is your primary defense against one of the most common financial traps for startups: the automatic renewal. A scenario we repeatedly see is an e-commerce startup signing up for a high-cost marketing analytics tool. The marketing lead who championed it leaves, the contract is stored in their email, and a year later, a $20,000 auto-renewal charge hits the bank account for a tool the new team does not even use.

A simple contract repository prevents these surprises. A spreadsheet listing the vendor, contract value, renewal date, and notice period is a perfectly pragmatic starting point for cost control in early-stage businesses. While later-stage companies may adopt dedicated contract management tools, a well-maintained spreadsheet provides immediate value.

A Realistic Roadmap for Implementing Procurement Best Practices

Implementing a full procurement process overnight is unrealistic and unnecessary. What founders find actually works is a phased approach that matches process complexity to company stage. This ensures the controls support growth rather than hindering it.

Phase 1: Seed Stage (5-15 employees)

Your focus should be purely on Level 1: visibility and approval. The goal is to move spending from reactive to intentional. Implement a lightweight purchase request flow using a Slack channel or Google Form. Establish clear, simple approval thresholds and communicate them to the entire team. You do not need POs or complex vendor files at this point; the priority is eliminating surprise spending.

Phase 2: Series A (15-40 employees)

Now is the time to introduce Level 2 concepts to gain control over committed spend. Start using POs, even if they are just sequential numbers tracked in a Google Sheet and referenced on invoices. Begin using the native PO features in your accounting software, whether it is QuickBooks for US GAAP or Xero for UK FRS 102 reporting. This discipline is crucial for improving financial forecasting and providing accurate reports to investors.

Phase 3: Series B (40+ employees)

At this stage, you should systematize Level 3. Formalize vendor onboarding with a mandatory checklist and create a central contract repository to actively track renewal dates. The volume of suppliers and contracts now justifies the administrative overhead. This is also the point where investing in a modern spend management platform often makes sense to automate the entire procure-to-pay cycle, freeing up your finance and operations teams for more strategic work.

Ultimately, procurement best practices are not about creating friction. They are about building a scalable financial foundation that protects your runway, gives you clear visibility into your financial commitments, and ensures every dollar spent serves the strategic goals of the business. For further guidance, you can review this industry note on vendor management audits: ISACA: five controls to consider when auditing a vendor-management program.

To explore broader finance setup and process design, continue at the hub: Setting Up Your Finance Function.

Frequently Asked Questions

Q: How can we set up a procurement process without slowing everyone down?A: Focus on simplicity and empowerment. Use familiar tools like Slack or Google Forms for requests. Set clear approval thresholds that allow team leads to approve small, routine purchases quickly, saving senior review for significant financial commitments.

Q: What is the difference between procurement and just expensing things?A: Procurement is a proactive process of requesting, approving, and formally committing company funds *before* a purchase is made. Expensing is a reactive process of reimbursing an employee for a purchase they have already made with their own money.

Q: Do we really need purchase orders for subscription software?A: Yes, especially for annual contracts. A PO for a SaaS subscription creates a formal record of a long-term financial commitment. This is crucial for accurate financial forecasting and managing your cash flow, as it documents a future liability.

Q: At what company size should we hire a dedicated procurement manager?A: Most startups do not need a dedicated procurement manager until they are well past 100 employees and have significant purchasing complexity. Initially, procurement responsibilities are typically handled by an operations lead or a finance manager as part of their broader role.