How to improve your spend management strategy for better business finances
It’s no secret in the business world: to make money, you need to spend some. But the real question is, how much?
Businesses, big and small, grapple with a myriad of expenses, but the golden ticket to healthy and consistent growth lies in minimizing these costs. This means keeping a vigilant eye on every penny that goes out. The good news? With the right tools and strategies in place, learning how to track and manage spend is not just possible; it's the key to transforming your whole operation.
In this article, we'll walk you through everything you need to know to improve your spend management strategies so you can set your business up for success.
What is spend management?
Spend management is the process of analyzing, tracking, and taking control of your business’s spending. Spending management isn’t just one process — it’s a system of processes that involves analyzing spending patterns, closely monitoring expenses, managing vendor relationships, and engaging in strategic procurement and sourcing.
Mastering spend management empowers you to see how much your company is spending at a given time, get clarity on where the money is going, and fully understand the long-term impact of spending (and saving!) on company growth.
Spend management vs. expense management vs. budgeting — what’s the difference?
While spend management, expense management, and budgeting might sound like different names for the same thing, they each serve distinct functions when it comes to managing the finances of a business. Let’s break down the differences.
Spend management is the big-picture strategy for how your business spends money. It's all about making smart choices from start to finish, such as choosing what to buy and negotiating deals.
Expense management is more about the nitty-gritty details. It involves keeping up with and managing the expenses that employees rack up, like travel or office supplies, and then making sure they’re reimbursed quickly and accurately.
Budgeting is your financial game plan. Budgeting is all about deciding how much money goes where in your business, helping you stay in the green by setting spending targets.
In a nutshell, spend management is your overall spending strategy, expense management zeroes in on employee-related costs, and budgeting is about planning and allocating your funds.
How should your business categorize spending?
When it comes to spending management, you want to keep track of where your money's going in a way that's clear and makes it easier to see the big picture. Spending can generally be sorted into one of four categories: direct, indirect, tail, and rogue spend. Here’s what you need to know about each category.
Direct spend: This is what your company spends on raw materials and goods to make your products. It's usually the biggest chunk of your spending.
Indirect spend: These are the essential costs to keep your business running, like operating expenses and technology, but they don't directly tie to your product's cost.
Tail spend: These are smaller, less frequent purchases, like office supplies or maintenance, that don't neatly fit into major categories but collectively add up.
Rogue spend: The trickiest to manage, this is spending that happens outside your usual procurement process, like unexpected tech purchases or emergency buys.
How to improve your business’s spend management strategy
Without the right systems in place, it’s easy to find yourself lost in a sea of rogue spending. These six easy-to-implement spend management strategies will help you keep your finger on the pulse of company spend so every penny is accounted for and your business growth stays the course.
1. Implement a centralized expense management system
Having a centralized system for managing expenses, like Expensify’s expense management app, is a game-changer for businesses looking to manage and cut back on company spending.
Expense management software streamlines the process of recording and approving expenses, reducing paperwork and errors, and keeps everything in one place — that way, everyone has eyes on where money is going 24/7. This software saves time and gives you a realtime view of your spending, making it easier to spot trends and areas for cost-saving across the board.
2. Regularly review and analyze company spending
Regular analysis of company costs is the key to managing spend. Consider adopting data and analytics tools to provide insights into spending patterns, helping you identify inefficiencies and opportunities for savings.
By consistently reviewing your expenses, you can make informed decisions that align with your business goals.
3. Categorize expenses
Categorizing business expenses brings clarity and organization to your financial data. By dividing expenses into clear categories, you can easily see where your money is going and identify patterns in spending.
This categorization allows for more targeted budgeting and cost-control measures, making it easier to spot areas where you can save. Plus, it simplifies financial reporting and analysis, aiding in strategic decision-making and ensuring resources are allocated effectively to support business goals.
4. Integrate spend management with accounting software
Silos are never good for business. By integrating your spend management and accounting software, you simplify your financial processes, ensuring a seamless flow of data between spending activities and financial records.
This integration gives you a holistic view of your company's financial health, making it easier to monitor, analyze, and report on spending in realtime. It reduces the risk of errors and discrepancies, as data is automatically synced, and enhances efficiency by cutting down on manual data entry. Ultimately, this integration aids in more accurate budgeting and forecasting, allowing for better financial planning and control.
5. Make sure your data is accurate
This one feels like a given, but you’d be surprised how often expense data goes unchecked. When businesses use inaccurate data to inform their spend management strategies, they risk making misguided decisions that can lead to inefficient spending and budget overruns.
Accurate expense data is the key to effective financial planning, as it ensures that spending patterns are correctly identified and resources are appropriately allocated. Automating your spend management processes lets you retire outdated manual data entry and maintain precise expense records — keeping you compliant and reinforcing credibility with stakeholders and auditors.
6. Get to work refining your spend management processes
After implementing these strategies, it's time to refine your processes! Remember, spend management isn’t a “set it and forget it” kind of deal. Think of your spend management processes as a living, breathing thing that needs regular check-ups and tweaks. Your processes should evolve as your business does to ensure that your business growth remains consistent and financially fit.
Why is a spend management strategy important?
A spend management strategy is the backbone of any financially healthy business. Why? Because it's not just about keeping tabs on where your money goes — it's about making sure every penny spent is working hard for your company.
As a business owner, every penny really does count, so having a strategy that efficiently manages your expenses can be the difference between surviving and thriving. It's about gaining control, achieving clarity in your financial decisions, and steering your business towards sustainable growth.
A well-crafted spend management strategy sets you up for success, preparing your business to face financial challenges head-on and capitalize on opportunities without hesitation.
Benefits of strategic spend management
There really isn’t a downside to tracking your spending, but let’s go over some of the key benefits of strategic spend management:
Improved financial visibility and control: Know exactly where your money is going, making it easier to identify wasteful spending and optimize budget allocation.
Cost savings and enhanced profitability: By minimizing unnecessary expenses, you can significantly boost your bottom line.
Better supplier relationships: Strategic spending often involves negotiating better deals and terms with suppliers, leading to mutually beneficial partnerships.
Increased compliance and reduced risk: A structured approach to spending helps ensure adherence to policies and regulations, reducing financial risks.
Data-driven decision-making: With accurate spend data, you can make informed decisions that align with your business goals and strategies.
Operational efficiency: Streamlining spend processes saves time and resources, allowing your team to focus on core business activities.
Each of these benefits contributes to building a more resilient, efficient, and profitable business, showcasing why a spend management strategy isn't just important — it's essential.
Challenges to implementing a strategic spend management process
As with any new system, implementing strategic spend management tools doesn’t happen overnight. While the end goal of achieving financial efficiency is clear, the path to get there can be bumpy. As you prepare to refine your spend management strategies, keep an eye out for these common obstacles:
Resistance to change: Employees and departments might be hesitant to adopt new processes or technologies, preferring the comfort of familiar routines.
Solution: Provide comprehensive training and support to ease the transition, emphasizing the new system's benefits to gain employees' buy-in. You can also hold open office hours in the days following training so employees know they have somewhere to go if they have any questions.
Data integration issues: Consolidating data from various sources into a centralized system can be complex and time-consuming.
Solution: Implement data integration tools or platforms that automate the process and ensure data consistency.
Inadequate technology: Existing software might not be equipped to handle the complexities of strategic spend management, necessitating upgrades or new investments.
Solution: Conduct a technology audit to identify gaps and prioritize upgrades or replacements to meet the specific needs of your new software.
Compliance and policy enforcement: Ensuring that all spending adheres to company policies and external regulations can be challenging, so be prepared to make some updates.
Solution: Regularly review and update policies, and use spend management software to automate compliance checks and approvals.
Training and user adoption: Training staff to use new systems and processes effectively can require significant time and resources.
Solution: Develop user-friendly training materials and provide ongoing support to address user concerns and encourage adoption. Recognize that the long-term benefits of implementing a more efficient system will ultimately outweigh any short-term hurdles.
Complex supplier relationships: Managing and negotiating with multiple suppliers can be tricky and may require specialized skills or resources.
Solution: Consider consolidating suppliers where possible and establish clear communication channels to streamline interactions and negotiations.
Recognizing and preparing for these challenges is crucial for a smooth transition to a more strategic spend management approach. With a little patience, persistence, and a willingness to adapt along the way, your new spend management system will be up and running in no time.
Manage spend in your sleep with Expensify
With the right tools in your arsenal, managing spend is easy, accurate, and efficient. With Expensify’s automated system for managing spend, you can take a well-deserved nap while our software does the heavy lifting.
So, what are you waiting for? Sign up today and save money in your sleep.
