How to Set Up Purchase Orders for Bookkeeping Control: Crawl, Walk, Run

Why a Purchase Order System Is a Non-Negotiable Financial Control for Founders

When a surprise invoice lands in your inbox for a major software subscription you never approved, the impact is immediate. It’s not just an unexpected expense; it’s a direct hit to your runway. For early-stage startups, where every dollar is allocated for growth, these unmanaged purchases create cash flow uncertainty, damage financial forecasts, and divert focus from building the business. Without a clear approval process, spending can quickly spiral, creating a chaotic financial picture that erodes investor confidence.

Implementing a purchase order system isn't about adding corporate red tape. It is one of the most effective financial controls for founders to manage spending, protect runway, and build a scalable operational foundation. This guide provides a practical, stage-appropriate framework for how to set up a purchase order system for startups, moving from a simple manual process to a fully integrated one that supports growth and accountability.

What Is a Purchase Order? A Foundational Understanding

A Purchase Order (PO) is a formal, approved promise to pay a vendor for specific goods or services. It is a commitment made before an expense is incurred, which is a critical distinction from simply paying an invoice after the fact. The document itself typically includes key details: a unique PO number, vendor information, a description of the items or services, quantities, agreed prices, and payment terms. This creates a clear, official record of a spending commitment.

The primary goal of a PO approval workflow is to ensure that every significant expenditure is reviewed, budgeted for, and authorized before the company is legally obligated to pay. This proactive approach is fundamental for expense tracking for startups and is the most reliable way of preventing unauthorized spending. It transforms purchasing from an uncontrolled, reactive activity into a deliberate, documented business process.

When Do You Need a Formal Purchase Order Process?

The tipping point arrives when informal methods create more work than they save. For most startups, this happens sooner than expected. A common observation in startup finance is that a formal PO system becomes necessary when monthly non-payroll spending exceeds approximately $25,000 across 10 or more vendors. At this scale, tracking approvals via email threads or Slack messages becomes chaotic and prone to error.

Another clear signal is the burden on your finance function. A trigger for upgrading from manual methods is when a finance lead or bookkeeper spends more than five hours a month manually matching invoices to scattered approvals. This is valuable time that could be spent on higher-value financial analysis and strategic planning. A PO system transforms spending from a reactive, messy task into a predictable, controlled process.

How to Set Up a Purchase Order System for Startups: The Crawl, Walk, Run Framework

Implementing a purchase order process doesn't have to be an overwhelming, all-or-nothing project. The most successful approach is phased, aligning the complexity of your system with the operational maturity of your startup. The Crawl, Walk, Run framework ensures you get the control you need today without over-investing in a system you won't need until tomorrow.

Phase 1: Crawl – The Zero-Cost Approval System

For pre-seed and seed-stage startups, the simplest effective system costs nothing to implement. The primary goal here is not sophisticated automation but establishing the *habit* of pre-approval across the team. This manual process formalizes requests and creates a basic audit trail for your bookkeeper to reference in QuickBooks or Xero, preventing month-end surprises.

This "spreadsheet and email" method is a powerful first step, though it typically breaks when a company has more than two non-founder employees who need to request purchases. Until then, the process is straightforward:

1. Request: Anyone needing to make a purchase completes and sends a standardized email request to a designated approver, usually a founder or department head.
2. Approval: The approver reviews the request against the budget and business need. They approve it by replying "Approved" to the email.
3. Record: The approved email is forwarded to a central address (e.g., finance@startup.com) or the person managing the books. The request is then logged in a shared spreadsheet (like Google Sheets) with key details and a status of "Approved."
4. Purchase: Only after the request is logged can the purchase be made. This creates a simple, searchable record of all committed spending. For UK businesses, remember to follow HMRC rules for VAT invoice record-keeping.

Here is a simple template to use for the initial request:

Subject: Purchase Request - [Item/Service] - [Your Name]

Vendor: [Vendor Name]
Item(s) or Service Description: [Be specific, include links if possible]
Business Justification: [Why do we need this? How does it support our goals?]
Estimated Cost: [Include currency and any shipping/taxes]
Budget Category: [e.g., Marketing, R&D, Software]

This system provides essential budget control tools with zero software cost. It won't scale forever, but it effectively closes the loop on undocumented spending and builds the financial discipline needed for the next stage.

Phase 2: Walk – Implementing Your First PO Software

As the team grows, the Crawl system’s limitations become clear. Email approvals get lost in crowded inboxes, the spreadsheet becomes a bottleneck, and duplicate orders or missed payments start to happen. This is the stage to invest in a dedicated tool to introduce automation and visibility into your PO approval workflow.

What founders find actually works is adopting a modern spend management platform. These tools are designed for startups and combine corporate cards, bill payments, and a user-friendly PO approval workflow into one system. For US companies using QuickBooks, platforms like Ramp or Brex are common choices. In the UK, tools like Airbase integrate smoothly with Xero. These systems provide a central dashboard where employees submit purchase requests with all necessary documentation attached.

Key advantages of this approach include:

• Automated Workflows: Managers are automatically notified to approve or deny requests within the platform, eliminating email back-and-forth.
• Controlled Spending: Once a request is approved, a virtual card can be issued for the exact amount, or a formal PO number is generated to send to the vendor. This prevents overspending at the point of purchase.
• Real-Time Visibility: The system offers a live view of committed spend, answering the question, “How much have we promised to vendors this month?” before the invoices even arrive.
• Simplified Reconciliation: The approval is digitally tied to the eventual transaction, which dramatically simplifies the process of matching invoices and receipts.

This move to software solves the pain of manual reconciliation and gives founders a real-time understanding of their company's financial commitments.

Phase 3: Run – Building an Integrated System with Three-Way Matching

For companies approaching a Series B financing round or preparing for their first financial audit, financial controls need to be more rigorous. At this stage, the goal is an integrated system capable of performing a “Three-Way Match.” This process is the gold standard of purchasing control and is a key part of supplier management basics. An integrated, three-way match system is an expected control for companies at this stage.

The three-way match is an automated process that compares three key documents before an invoice is paid:

1. The Purchase Order: What you agreed to buy and the price you agreed to pay.
2. The Receiving Report: Confirmation that the goods or services were actually received as specified. For SaaS, this might be an email from IT confirming user licenses were provisioned.
3. The Vendor Invoice: What the vendor is billing you for.

The system flags any discrepancies, such as being billed for 10 SaaS licenses when the PO was only for 8. This systematic check prevents overpayments, guards against fraud, and provides a rock-solid audit trail. Auditors and investors look for these controls as evidence of operational maturity.

This level of integration directly benefits accrual accounting, which is required under both US GAAP and UK FRS 102. When a PO is approved and the service is delivered, the system allows you to accrue the expense in the correct period, even if the invoice has not been received. For instance, a Deeptech startup can accurately record the cost of a contracted research project in the month the work was done, not a month later when the invoice is paid. This provides a more accurate financial picture, which is critical for investor reporting and internal planning. In the US, be sure to follow IRS guidance for tax recordkeeping. These integrated systems sync approved POs and reconciled bills directly into QuickBooks or Xero, eliminating data entry and ensuring financial records are always up-to-date. Using a standard chart of accounts ensures this integration is clean and effective.

Key Takeaways for Implementing Your Purchase Order System

Implementing a purchase order system is a journey in operational maturity. It’s about building the financial discipline that allows your company to scale efficiently while protecting its most valuable resource: cash. The key is to match the solution to your current stage, avoiding unnecessary complexity while still solving your most pressing control issues.

Your path forward can be summarized with this action-oriented guidance:

• If you are a founding team with a few contractors, start with the “Crawl” phase today. A structured email template and a shared spreadsheet are enough to stop surprise spending and create a basic approval log. This builds the right habits from day one.
• If your bookkeeper spends hours untangling email chains or you’re spending over $25,000 per month with vendors, it’s time to “Walk.” Invest in a spend management tool like Ramp, Brex, or Airbase to automate approvals and gain real-time visibility into your cash commitments.
• If you are preparing for a Series B round or your first audit, you must “Run.” Implement a system capable of a three-way match to ensure your financial controls meet investor and auditor expectations. This demonstrates your business is built on a solid, scalable foundation.

By taking these deliberate steps, you move financial management from a reactive chore to a strategic advantage. You build a scalable foundation that supports growth, instills confidence in investors, and ultimately gives you better control over your company’s destiny.

Frequently Asked Questions

Q: What is the difference between a purchase order and an invoice?

A: A purchase order (PO) is sent by the buyer to the seller to formally request goods or services *before* a purchase is made. It is an "approved promise to pay." An invoice is sent by the seller to the buyer *after* goods or services have been delivered to request payment.

Q: At what stage should a startup implement a PO system?

A: Startups should implement a simple, manual PO system (the "Crawl" stage) almost immediately to build good habits. A formal software-based system is typically needed when non-payroll spending exceeds $25,000 per month or when manual tracking consumes more than five hours of administrative time monthly.

Q: How does a purchase order system help with budget control and forecasting?

A: A PO system ensures every expense is approved against a budget before it is incurred, which is a primary tool for budget control. It also creates a real-time log of committed spending (accruals), giving you an accurate picture of future cash outflows for much more reliable financial forecasting.

Q: Can you use purchase orders for recurring expenses like software subscriptions?

A: Yes. For recurring expenses, you can issue a standing or blanket purchase order that covers a specific period, such as a full year. This PO authorizes the recurring charge for that timeframe, so you do not need to create a new PO for each monthly payment, simplifying the PO approval workflow.