Strategic Business Spend Management for Growing Businesses
Business spend management is less about eliminating costs and more about getting the most out of your allocated business budget. Clearly, business managers want to optimize departmental spending, minimize risks, boost profitability, and enhance operational efficiency with as little resources as needed.
This alone brings a fresh perspective on business spend management, which puts these objectives within reaching distance. In this article, we unveil the full scope of spend management, its challenges, and how expense automation with TravelBank can support your coordinated response against unnecessary spending.
Table of Contents
- Business spend management is an umbrella term for a breadth of activities intended to track and analyze company spending across supply chain management, to processing, and invoicing.
- While business spend management and expense management sound identical, expense management bolsters employee accountability for the use of company money. Business spend management, on the other hand, secures greater control over the company’s overall expenses, exposing gaps and discrepancies.
- Cost-cutting is not the only primary objective of business spend management. Business spend management further seeks to maximize the value brought in by the company’s financial investment. The result often ranges from better risk management to enhanced operations, and increased productivity.
- Business spend software is an essential part of company-wide business spend management, providing a greater overview of how the company spends its resources. Automation eliminates human error in identifying ways to streamline company spending.
Why is Business Spend Management So Important?
Reeling from the effects of soaring inflation and unprecedented uncertainty, business managers have come to the realization that reliance on decentralized networks of departmental spend management processes doesn’t cut it anymore.
Non-compliant spending accounts for up to a 20% rise in costs. A centralized business spend management process consolidates key stakeholders, employees, and management, calling each department to better account for their spending of company resources.
Business spend management takes a well-rounded approach to cost optimization – a series of activities intended to bring greater clarity to spending, improve redundant systems, and minimize spend leakage with a keen focus on the company’s obligations and key performance indicators.
Business spend management further surfaces unnecessary spending areas arising from unauthorized or wasteful purchases. As such, managers are able to take action and prevent another drain on the bottom line.
Navigating Common Business Spend Management Challenges
Bringing all your spending information in a consolidated report can spark a revolution in how you manage your business. It provides a clear overview of your spending habits, enabling managers to wring out unnecessary tail spend and keep employees on their best behavior regarding company resources – essentially, a financial eutopia that’s far from reality with manual business spend management.
Yet, only a handful of organizations are able to fully realize the impact of streamlined business spend management with a detailed view of their expenses. And that brings us to the most common business spending management challenges:
1. Manual Tracking and Control of Spending
Business managers have to deal with mountains upon mountains of paperwork every month. At this pace, putting all the pieces together into a detailed picture of how company resources are spent breeds room for fraudulent purchases, delayed reimbursement, and inaccurate financial data.
Not to mention, employees, too, are subjected to manual time-consuming procedures and paper receipts. Automated expense tracking can take the hassle out of business spend management. Finance and accounting no longer need to wait till the end of the quarter or year to bring the pieces together and understand how company resources are being spent.
2. Fraud Risk Management
Manual processes are often ridden with minor yet potentially devastating risks if not caught early on. Fraudulent transactions not only encompass those purchases intended to deceive finance; some incidents of non-compliance with expense policies, too, may also be considered fraudulent depending on the situation.
The consequences of fraudulent transactions present significant hurdles for the company and call for strict measures to ensure compliance and proactive monitoring of financial decisions. Monitoring financial transactions in real time allows for the identification of suspicious patterns or anomalies that may indicate fraudulent behavior.
3. Inaccurate Data and Analytics
Fraud risk management is just one aspect of effective business spend management. Inaccurate data and analytics also present challenges that need to be addressed to ensure assertive financial decision-making.
Inaccurate data signals disaster in the making in one of many ways:
- Inaccurate forecasting – Inaccurate data results in unreliable forecasting. For seasonal businesses that depend on forecasting to meet demand, inaccurate forecasting spells out missed opportunities and rocky supplier, relationships.
- Increased business costs – Inaccurate data can lead to errors in budgeting and planning, resulting in higher costs and potential financial losses. Businesses miss out on potential cost-saving opportunities or fail to identify areas for improvement in spending patterns.
- Compliance risks – Inaccurate spend data can make it difficult to identify and address compliance issues, exposing your business to legal and regulatory consequences.
In short, business spend management demands sound data and analytics sourced from accurate and reliable sources. Be sure to evaluate your data collection and keep your records clean for more accurate reports.
4. Opaque Finance Processes
When finance processes are opaque, it means that they lack transparency and clarity, making it difficult to understand and track where money is being spent within your organization. This lack of visibility can lead to deeper problems in the long run.
While there is no single solution to illuminate opaque financial processes, standardized procedures, and real-time reporting, provide clear visibility into your organization’s financial transactions and enable effective management of business spend.
5. Resistance to Change and Insufficient Support from Management
The implementation of successful business spend management procedures rallies support from management. It also creates a sense of resistance to change, which can deter efforts in implementing changes to your spending management policies.
A lack of support from management often comes as a by-product of a general resistance to change and inadequate resources (personnel, technology, and training). Highlight the potential benefits and provide reassurance during the transition to better facilitate the adoption of new policies and procedures.
Automation in Business Spend Management
Automation in business spend management swaps out repetitive, manual, and consequently error-prone activities in expense capture and reporting, invoicing, reimbursement, and more. Perhaps one of the most important functions of automation in business spend management lies in the uninterrupted and proactive oversight of real-time financial data.
Above reducing the reliance on paper-based processes, some automated business spend management applications have been retrofitted with more advanced features to enforce spend controls and boost policy compliance with predefined rules and workflows. This unified effort ensures that all company purchases fall in line with company policies and that no investment – no matter how small – goes unseen.
The ROI of Automation in Business Spend Management
The return on investment of automation in business spend management is not only reflected in the financial gains that companies stand to gain by incorporating technology into their day-to-day activities.
Automation can significantly improve the efficiency and effectiveness of business spend management processes, bringing to reality several savings opportunities for organizations.
Here are three key ways in which automation can deliver a positive ROI in business spend management:
- Streamlined processes – The elimination of redundant data and manual tasks creates room for more efficient processes, leaving time to focus on pursuing the company’s strategic goals.
- Financial efficiency – Companies that invest in automated business spend management are entitled to greater financial returns by closing down existing loops within the company’s financial structure.
- Compliance – Company-wide compliance with the cited business spend policies protects both employees and stakeholders by ensuring that purchases are made in the best interests of the company.
Automation facilitates seamless communication and collaboration with suppliers, leading to improved supplier relationships and negotiation power. This can result in better pricing, discounts, and improved terms, ultimately reducing costs.
Connecting Diverse Business Expenses with Business Spend Management
With the advent of diverse and endless business needs, business managers need to rethink spend management as a window to clearer business operations. Automated expense management software like TravelBank offers a clear view of how various expenses impact your business, so you can make more informed decisions and allocate resources more efficiently.
Unifying diverse business expenses with your operations involves categorizing and organizing expenses into different criteria pertinent to specific departments, projects, or suppliers.
For example, by connecting your marketing expenses to your sales performance, you can determine the return on investment for your marketing campaigns. Similarly, by connecting your operational expenses to your production output, you can identify areas where cost efficiencies can be achieved.
The ability to identify cost-savings is yet another benefit of connecting diverse business expenses under one roof. This paves way for a more holistic expense analysis of different suppliers, negotiates better contracts, and eliminate unnecessary expenditures. This can result in significant cost reductions and increased profitability for your business.
In summary, business spend management is crucial for organizations to optimize their financial resources, streamline processes, and drive higher profitability. And while spend management processes are not set in stone, adopting comprehensive business spend management practices will lead to improved financial performance and competitive advantage in today’s rapidly changing business landscape.
FAQs About Spend Management
How do you analyze spending?
You can analyze spending by gathering business spend data, sorting out the expenses into different categories, and cleaning the data to identify duplicate records and errors. Clean records provide a detailed picture of your company’s spending. To further bolster your data analysis efforts, consider automated spend management software.
What are the goals of spend management?
Spend management seeks to identify financial resources available to the company, and their allocation and usage in support of company objectives. Spend management further provides greater transparency into company spending, holding staff and departmental heads to account for their purchase decisions.
What are the stages in spend management?
The most common stages in spend management include data collection, cleaning, sorting, and analyzing business data. Extracting information from diverse sources (ERP systems, departmental reports, supply chain partners, and so on) and cleaning data are necessary for accurate analysis, and should be given the highest priority.
How can I increase my spending under management?
Cutting down on expenses may not be the only approach to driving higher profitability. You can increase your spending under management by first assessing the current spend and communicating future changes to management. Next, focus on building solid supplier relationships and select your tools with advanced metrics to compare your success.