Spend Management for Small Businesses
Spend management ensures your business uses financial resources effectively. Here's how to improve your strategy and even automate part of the process.
How much does your business spend a month? Are you leveraging your assets effectively? Or, are you wasting money you don't have on expenses you don't need?
If you don't know the answer to those questions, it's time to take a hard look at spend management.
Most of us are familiar with budgeting in personal finance, but business spending gets a lot more complicated. Here's the secret—managing your business spending doesn't have to be a headache. In fact, we created ClearSpend specifically because we think spend control and spend management should be easier.
Below, we'll cover what spend management is, how it's different from expense management—and how to create a spend management strategy that helps your business grow.
What is spend management?
Spend management refers to the strategies and processes businesses use to track and control spending. Any kind of spending—your software subscriptions, marketing costs, employee expenses, even building rental or mortgage—all fall under spend management.
In larger companies, the spend management process is often managed by procurement, but in small businesses, it may be managed by a bookkeeper, CFO, or even the CEO.
Doesn't seem like a lot of fun, does it? Sounds like you'll be dealing with a bunch of spreadsheets and pivot tables. You might be wondering if it's worth the effort, especially if you're a small business.
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Why does spend management matter?
Here's the thing—spend management is crucial to driving growth, and you can't grow your business when you're wasting money on vendors who overcharge for software you never use.
A good spend management strategy helps you make better sourcing decisions, decrease costs, reduce financial risks, and even improve your relationship with suppliers.
Spend management vs expense management—are they the same thing?
You might be more familiar with the term "expense management." Is it the same as spend management?
Not quite, though they are related.
Spend management refers to the larger picture—not just managing expenses like employee travel, but also business credit card payments, vendor selection, and software payments.
Expense management, on the other hand, refers specifically to processing and paying employee expense reports. Expense management is part of your spend management strategy, but the terms are not interchangeable.
5 steps to creating an effective spend management strategy
A good spend management strategy can be the difference between a fast growing business—and a flop. So how do you create one? It's not an easy process, unfortunately.
Below, we'll cover how to gather and analyze the data you need to develop your spend management strategy. The next section will cover how spend management software can make the process a breeze.
ClearSpend is a spend management solution designed for and by small business owners like you, and your bookkeeper (who will love you for using it).
1. Gather all your business expense documents
Before creating your spend management strategy, you need to know where your money goes. This is a big task, so consider assembling a team if your company has a lot of invoices and purchase orders.
Check business bank accounts, credit cards, and supplier portals to make a list of every payment your business makes. Include both monthly and annual expenses, like property taxes.
Here's a list to consider when gathering your data:
- Purchase orders
- Credit card statements
- Employee expense reports
Once you have all the data collected, you'll need to sanitize the data by removing duplicates, investigating outliers, and verifying expenses.
2. Create a single source of truth for expense data
Once you have all that data, what do you do with it?
The first step in analyzing your data is to create a single source of truth for all your data. This is the one place where all the data is stored after verifying accuracy. Any reports, presentations, dashboards, etc. should all pull from this one single source of data.
Depending on your current spend management processes, the source of truth might be your bookkeeping application, spend management software, a dashboard in Google Data Studio or a similar application like Qlikview, Tableau, PowerBI, etc.
3. Categorize business spending so you can analyze it
Where do you spend most of your money? The only way to know is to categorize each and every expense.
The categories can vary by business and even industry, but there are general categories that apply to most businesses.
- Marketing and advertising costs
- Office supplies
- Rental/mortgage payments
- Suppliers (depending on your business, this might be broken down into smaller categories)
- Postage and shipping costs
- Communication costs, like internet, phone, VOIP, etc.
- Software (some may fall under marketing — make sure to only record each expense once.)
- Banking fees, including interest
- Employee costs (with subcategories for salaries, benefits, etc.)
- Employee expenses for travel, etc.
4. Perform a spend analysis
Here's the fun part—well, it's fun if you like data the way we do. :)
Take a deep look at your data within each category. Where do you spend the most money? Where do you spend the least money?
Once you've organized your spending categories by the amount you spend, take a deep look at every expense. This is going to take time, so put on some 90's hip-hop, plug in your headphones, and get to work.
Here's what to look for:
- Invoice overpayments: Did you pay more than required for invoices?
- Fraudulent spending: Are all of the expenses relevant? Did you (or someone) approve them? Do they match with other, similar costs? For example, did a vendor charge you for two cases and only deliver one?
- Unnecessary spending: Are you paying for subscription services, like software, you don't need? Make a note to eliminate those costs.
- Overdue payments: Are you behind on payments? Have you fallen behind in the past? On the other side, are customers behind on payments?
These insights are what you'll use to design a spend management process. As you go through this process, look for systems or processes that can be improved by eliminating red tape. We'll take a deeper look at those in the next step.
5. Record areas of improvement
Now that you know where all the money is going, it's time to look for ways to reduce spending. Use the spend analysis you performed in the previous step to look for areas to improve.
There are two major areas you want to pay close attention to—reducing spend and improving your processes.
- Reducing spend. Are there more affordable vendors available? Are all the software systems you pay for being leveraged? Can you pay invoices earlier for a discount?
- Improving processes. Time is money, so make sure you're not wasting time on overly complex processes. Can your expense tracking be automated? Are there redundancies that can be eliminated?
Improving processes and reducing overspend isn't just good for your bottom line—it can also reduce business risks by helping you accurately assess the market and spot risk factors before they become challenges.
How spend management software can automate the hard parts
You might have noticed this is a time-consuming, data-heavy process. If only there was a better way.
Spoiler alert: there is.
Spend management tools make this whole process a lot easier. Look for tools that automate spend management, pull all your spending data into one place, reduce fraud risk, and improve visibility.
Spend management software tools like ClearSpend provide more visibility and better control over your spend management processes.
- Automate expense tracking: No more gathering receipts and reconciling employee purchases. With business debit cards, you can issue cards to employees as needed, limit their spending categories, and track expenses right in your dashboard.
- Stress-free expense reports: Running expenses reports is fun, right? If you dread running reports as much as we do, you'll be happy to know your spend management software can take over that process. You just click a button.
- Reduce overspending: Spend management software increases visibility so you can easily review costs and eliminate overspending fast.
- Reduce fraud and risk: Automated expense tracking reduces errors and makes spotting fraud easier. Some platforms can even alert you to issues you might not notice.
- Improve compliance: Staying on top of ever-changing regulations is a hassle. Automated spend management software keeps your data organized and accessible so audits are a breeze.
The business world moves fast. Spend management software can help your business stay on top of expenses and build a streamlined spending process that is ready to grow when you are.
Small business spend management can be easier than you think
Spend management can be complicated—but it doesn't have to be. Using ClearSpend, your business can manage spending, manage receipts, track expenses, and even control spending with the click of a button.
No more expense reports. No more headaches. Just easy access and automated services so you can focus on what you do best—whether that's selling software or making custom baskets out of cat hair, if that's your thing.