The leader of a fast-growing business must focus on several key activities: operational efficiency, marketing and advertising, client retention, and so forth. And amid all the chaos that often comes with growth, one area that sometimes gets lost in the shuffle is spend management.
Granted, poor spend management may not result in immediate catastrophe, and the benefits of it may not be as readily apparent as those associated with other investments. Nevertheless, it plays a crucial role in how rapidly a business grows. Sub-par spend management will hinder a company from reaching full maturity; exceptional spend management solutions will supercharge the development process.
Let's discuss what spend management is, why it's essential, and how it can benefit growing organizations.
What is Spend Management? A Quick Overview
Simply put, it’s set practices about maximizing value from company spend while decreasing costs. It’s managing supplier relationships and purchasing to track every spent dollar.
It's important to note that spend management is not a one-and-done activity. Instead, it is a continuous process that involves collecting, controlling, managing, classifying, and analyzing data to increase procurement efficiency and cut costs. It could also be a strategy to strengthen and optimize a company's cash flow, especially in terms of procurement and sourcing.
Why is Spend Management Important?
Spend management is essential because it transforms a transactional necessity—procurement—into an active opportunity for cash flow optimization. Moreover, the spend management process strikes a balance between lowering costs while maintaining consistent product quality and sales.
Many companies underestimate the impact of effective spend management on their bottom line. This thinking is especially prevalent among middle-market companies, which tend to downplay the need to manage their supply base and flow of materials carefully.
However, such company leaders fail to realize that proactive cost management provides a strategic advantage, especially in generating higher profit margins from finished goods.
More organizations are seeing the need to invest proactively (rather than reactively) in spend management solutions. It's no wonder that a recent survey from Deloitte found that 71% of companies plan to invest in and implement cost management strategies within a two-year time frame. Another study found that driving operational efficiency is the number one priority for 78% of Chief Procurement Officers (CPOs).
How Spend Management Supports Fast-Growing Companies
Fast-growing companies are scaling upward at a rate that may be difficult to keep pace with. As a result, they often need to invest in new processes, workflows, bookkeeping systems, and customer relationship management (CRM) platforms while working through legacy systems and old accounting tools.
The result is a lack of centralized oversight regarding how to spend money and employees simultaneously using multiple platforms (ones that usually don't integrate well with one another).
Proactive spend management harnesses the data collected from these disparate sources and channels them into a centralized, repeatable process to maximize procurement efficiency. In some cases, a spend management solution may also involve consolidating an unwieldy array of accounting tools into one or two primary platforms and deploying them throughout the organization.
Besides merely saving money (a huge plus), spend management solutions also involve detailed reporting and resource allocation analysis. Such analysis often leads to helpful insights on which procurement and sourcing activities are most productive and therefore call for increased spending. And comprehensive reporting is a significant advantage during tax season when accountants are scouring different types of financial statements to find every last tax deduction or credit or to prepare for an IRS audit.
Another factor to remember is the company's relationship with vendors and suppliers. Growing businesses often have excellent bargaining leverage with suppliers since they typically buy in volume.
A spend management solution can help keep those partnerships smooth (e.g., by ensuring to pay vendors on time and in full). It can also help the company increase its bargaining power by analyzing cost-effective alternatives to existing contracts.
The key takeaway is that an effective spend management solution can help a growing company do more with less, enjoy higher profit margins, and increase operational efficiency.
7 Benefits of Spend Management
Let's explore 7 specific areas in which spend management solutions can be a big win for a growing company.
1. Real-Time Transparency Into Where the Money Is Going
Tracking where every dollar goes can become increasingly difficult as a business grows. A robust spend management platform can track and report exactly where payments are made on an organization-wide level in real time. Moreover, managers can compare how costs align with previously approved budgets.
In addition, it allows admins to filter data and generate financial reports for key stakeholders in the company (including investors). Such reporting makes it easy to see how each department and team member contributes to responsible company expenditures.
2. Securely Housed and Accurate Financial Data
Instead of housing your financial data within different platforms and departments throughout the company, a spend management solution enables you to consolidate that data within one centralized repository. Funneling your data through a single source of truth contributes to security and promotes a higher degree of accuracy in compiling and reporting financial information.
3. Clear Policies Around Approved Expenses
A robust spend management solution often includes or facilitates developing a clear expense process and spend policy. Employees tasked with procuring inventory and supplies for the business will have greater visibility into how much they can spend and what workflow to follow for each vendor.
Cloud-based software makes it even easier for both employees and their managers. For example, after receiving a real-time alert from the platform, employees can easily submit a purchase request via the Cloud, and their manager can quickly approve the request.
4. Increased Operational Efficiency
Instead of complicated workflows and confusing (even conflicting) spend policies, employees can follow clear, understandable guidance on making purchases, avoiding late fees, and eliminating duplicate payments. The entire procure-to-pay cycle becomes a consistent, streamlined process.
Moreover, remote employees can submit and receive approval for purchase requests on their mobile devices—and they'll often get a response within minutes instead of days. This can greatly reduce operational bottlenecks that used to reside in the space between managers and their team members.
5. Enhanced Risk Management and Internal Control Policies
A spend management solution can help drastically reduce (or even eliminate) unapproved purchases or miscommunication with vendors and suppliers.
A robust platform can help your finance team to spot fraudulent invoices before they're paid, crack down on any rogue spending from your employees, and make sure that purchase approvals always happen before an expense occurs. In addition, spend management tools can help you keep track of vendor performance, identify potential risks with a supplier, and maintain compliance with internal control policies.
6. Increased Profit Margins
It's no surprise that spend management can impact a company's bottom line by helping the organization eliminate unnecessary purchases, stop duplicate payments, and optimize working capital. It can also help your business avoid penalties for late payments, negotiate better prices for bulk purchases, and cancel unwanted subscription renewals in time.
7. Actionable Insights for Key Business Decisions
Spend management platforms with detailed reporting features can help company leaders to forecast upcoming spend scenarios, accurately measure internal performance, and discover cost-saving measures. In these and other ways, spend management dovetails nicely with the financial reporting and forecasting activities that are often crucial to sustainable organizational growth.
How to Make Spend Management Easier for Your Small Business
In summary, spend management is the continuous process of collecting, managing, and analyzing spend data—and then using that information to make sound business decisions. An effective spend management solution can help your company to optimize its cash flow, eliminate wasteful and unnecessary purchases, streamline your purchase request process, and ultimately generate higher profit margins.
Partnering with Hiline can make spend management even easier for your organization. Our approach to cash management encourages rapid business growth and has helped scores of clients to maximize their revenue stream and minimize their expenses.
We understand that spend management is only one piece of the accounting puzzle, so we continuously develop our solutions in the greater context of each client's goals and circumstances. We also provide related solutions, including expert cash flow analysis and bookkeeping for startups.
Reach out to our team of financial and accounting experts today to learn more about our cash management services. We'd be happy to answer any questions you may have!
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