Spend management can be a daunting task for any small business owner. As you know, the tighter your budget is, the more important it becomes that every dollar counts.
With so many things to do and think about when managing expenses - from how much an item costs to what kind of vendor (online or in-person) you use and who has access to make purchases - it's easy for this part of running a business to become overwhelming.
The following 7-step guide will help you get started and put you on the path to a smarter, more efficient spend management process for your company.
This is the first step, and probably the most important one. Here are some questions you may need to ask yourself: :
Once you've established what your objectives are, break them down into measurable metrics. This will help you define success and allow you to execute against it better.
For example, if one of your objectives is to reduce project spend by 10% year-over-year, this is a great goal to have.
But for you to know whether or not it has been successful, you should establish a baseline from which to measure against. For example: "Project Spend (May 1st - Dec 31st) = $1,000,000" and "Project Spend (Jan 1st - April 30th) = $925,000"
At this point, you can determine whether or not your objective has been successful by comparing the results for May through October to last year's results.
A great place to start is with a simple, powerful spend management platform that will help you identify the highest value items as early as possible in the procurement cycle, increase visibility into what's being bought, who's buying it, and make sure you're getting the best possible price on every purchase.
The ideal platform will allow your team to collaborate with suppliers, track new items before they are purchased, define new rules for existing items, manage contracts & renewals and analyze spend data that helps you create reports that provide a clear ROI on your spend management efforts.
Penny Inc, for instance, is an easy-to-use platform that helps you manage your spend better. With the software, you have visibility over your employee’s spending habits, and you can use it to reduce fraud and streamline your accounting processes.
Using a virtual card can help increase the efficiency of your spend management, as it allows you to attach spending limits to cards. These limits restrict employee spending to approved vendors and/or amount thresholds, allowing you to have better control over your budget.
By issuing virtual cards to your employees, you’ll be able to know exactly where every dollar has been spent within your organization. And the best part is that you don’t have to pay an arm and a leg to start using virtual cards. For example, by signing up for Penny Inc, you can get access to virtual cards for free.
Contracts are legally binding agreements between you and your suppliers that outline the terms & conditions of their partnership. Managing these contracts is an integral part of your spend management strategy.
A good idea would be to implement a negotiation system where team members can submit new quotes (and/or change existing ones) on existing contracts, while allowing other team members to review & negotiate them before approving them.
This will speed up the time it takes to get new prices in place, which in turn will improve spend visibility so you can make better decisions faster.
Every company has certain scenarios where making exceptions to established purchasing guidelines are necessary or simply unavoidable. Before these exceptions are made, the appropriate approvals should be requested.
An effective way to manage exceptions is by incorporating a workflow system that will allow you to create requests for change orders, cost adjustments, or deviations from existing contracts. Team members can then review and approve them before they go into effect.
An important step to becoming a more efficient spender is by tracking every purchase. By scanning or otherwise collecting physical receipts into an online cloud storage service, you can collect all of your transactions in one place, eliminating the need for paper receipts.
Once you have all of your transactions collected in one place, set up alerts that will notify you when certain thresholds are met (i.e. when an employee spends over $500 in a month, when the same vendor is used twice in a week, etc.). The alerts can be as specific or as general as you want them to be and will help you spend less time looking back through your receipts and more time doing things that matter.
Having a spend management strategy is essential for any small business owner. Without one, you run the risk of misusing resources and not achieving your goals.
Spend management platforms can help with this process by providing tools to identify objectives, simplify billing processes, avoid paper receipts and invoices, and streamline invoice processing. The most important thing to remember about an effective spend management strategy for your small business.
With these seven steps, we've highlighted how easy it can be to implement an effective spend management process. While this list does not cover every aspect of the entire process, it will get you started in making your business run more efficiently and effectively.
As your company grows, you may find yourself struggling to keep up with the volume of expenses on your own, which can lead to oversights and mistakes that affect your financial reports. Don't let this happen to you. In this blog post, we'll be discussing six tell-tale signs that indicate it's time for a new expense management system for your business.