Why is spend control important?
Spending money is the easy part. However, most businesses spend more than they need to because they don't have a system in place to manage their spending. With proper spend control, you'll increase efficiency by determining what can be spent and on what activities, who can approve it, and so on.
Understanding business spend is important for an organization's budgeting and forecasting process. Without knowing how much you're spending on certain categories of goods and services; it's impossible to predict what your expenses will be in future periods. This lack of spend visibility makes it difficult to plan for capital expenditures and other investments that require planning. If you don't know how much you're spending now, how can you predict what your needs will be in the future?
The impact of uncontrolled spending
The impact of uncontrolled and unmanaged spending on a business can have dire consequences, and even lead to collapse. Here are five of the major issues caused by unmanaged business spend.
Redundant and time-consuming admin tasks
A major issue with managing spend across multiple platforms and spreadsheets is the amount of time it takes to fix. You may have spent hours updating a spreadsheet or creating new invoices but then forgotten to add them to your system. Or you may have spent hours rewriting an invoice template but then forgotten where you saved it.
You also won't have payments connected to spend management software, meaning no real-time spend visibility. If you don't know what's going on behind the scenes, it can be difficult for you to spot areas where your business could save money or improve efficiency. It pays to make sure you know what's going on in there.
Inadequate financial planning
If you don't stay in control of spend, you could end up with improper budgeting and financial losses. Lots of money will likely get spent without adequate spend visibility, making it difficult to estimate costs and profits. In cases when you exceed a budget, you will have to cut down on expenses. This may result in lower-quality services or products. And, since there's a lack of adequate funds for investment, it will affect the overall performance of the business.
Errors in spend control can lead to costly mistakes. For example, a business may pay for a service that was never delivered. This can happen when the vendor's invoice has been paid, but there is no record of the service being delivered.
Lack of trust from investors and shareholders
You want your investors to trust that their money is being used wisely, which can only happen with controls on spending. Shareholders will lose faith in the company and stop believing in your ability to run a profitable business. In addition, a lack of trust from investors and shareholders will likely result in an inability to raise capital, leading to a loss of business opportunities, market share, and profits.
Higher risks of fraud
If you inadvertently create a system that makes it easy for people to commit financial crimes, it will probably happen. A lack of transparency can lead to trust issues, negatively affecting the reputation of organizations and individuals. In some cases, with so much personal information available online and with the uptick of cyber crimes, criminals can steal your identity and use it to commit fraud or other crimes without ever coming into contact with you — and without leaving a trace behind.
Key strategies for controlling business spend
If you're managing a business, you'll be faced with many challenges. One of the most important is controlling how much you spend on everyday expenses. If you're constantly deciding between maximizing activities or cutting costs, you'll know it's not easy. But there are some simple steps you can take to ensure your business spends its money wisely.
Create a well-developed spend process
A well-managed process is critical to controlling your business spend. It will help you manage risks and ensure that you comply with regulations.
Recognise high-cost spending areas
Identifying where your business spends money is crucial to achieving cost savings. It's essential to determine which areas of your business are costing you the most so that you can focus your efforts on those areas first.
Start now if you're not already using corporate cards for your company's expenses and purchases. Cards allow employees to make purchases without worrying about cash or cheques. Cards also provide instant spend visibility into how much is being spent and where that money is going. Plus, they make reconciling transactions easier because receipts stay with the cardholder — rather than getting lost in the mail or thrown away, in worst cases.
Extract and analyze data
This can be done through a variety of methods, including expense management software that tracks purchases, accounting software that tracks revenue streams, and reports forecasting future expenditures. The key is extracting and analyzing data from multiple sources into a single location where you can make more informed decisions about how to spend money.
Automate spend control
Automation helps eliminate manual tasks and reduce errors when managing employee expense reports. It also allows you to manage your expenses more effectively over time.
Effortless control: All your business spend under one roof
From managing travel expenses to keeping tabs on marketing budgets, companies need increased visibility to stay on top of business spend.
If you use a spend management solution like Payhawk, you'll get company cards and expense management software all in one place. You can track all your expenses in one place and spot trends to see where money is spent most often.
Your cardholders will be responsible for uploading their receipts and invoices, and our automated receipt-chasing will remind them when they forget. Plus, our first-class integrations will mean your spend data syncs perfectly with your
accounting software or ERP of choice, with no manual entry or errors.
Book a demo today to learn more about how to make the best decisions for your company with the right spend controls.