7 Steps for Effective Spend Control in Business Operations

Spend Control January 21, 2021

Chloe Henderson

Writer

Spending is necessary for growth but can limit expansion if overdone. Businesses must find a balance between overspending and underspending to project future needs and ensure financial stability.

With adequate spend management measures in place, companies can monitor expenses in real-time to optimize budgets, procurement, and data collection.

What is Spend Control?

Spend control, also referred to as spend management, involves monitoring a business's supplier relationships and purchases to maximize every dollar spent. It also ensures that companies follow budget plans by integrating financial information from each operation through management systems.

The better the financial department can manage company spending, the better they can preserve the bottom line and generate accurate forecasts.

Many organizations misperceive spend control as cost reduction. However, spending is a critical part of expansion and, therefore, essential for any business. Spend management is rather a way to ensure that expenses are needed and fit within the budget.

Poor spend control can have negative effects on other business elements, including-

Financial Planning - It is challenging to create and enforce budgets when companies do not have visibility into their spending.

Time Management - Administration work can be extremely time-consuming when financial data isn't made readily available.

Human Error - Without automated processes, businesses can experience frequent human errors due to manual documentation.

Fraud Protection - Manual processes make it easier for employees to falsify financial documents, such as expense reports.

Long-Term Stability - Without proper spend control, businesses cannot ensure their long-term stability.

7 Steps to Controlled Spending

7 steps to control spending 1611007885 5201

Spend management involves simultaneous collecting, aggregating, categorizing, and evaluating financial data, which can become overwhelming without an adequate system.

However, by practicing the correct techniques, businesses can improve efficiency, enhance workflow, regulate compliance, and minimize procurement costs.

1. Define Expense Sources

First, companies must identify all spending areas, which often include-

Payroll

Rent

Utilities

Inventory

Licensing

Marketing

Advertising

Insurance

Training

However, this list can be smaller or longer depending on the business and its model, making it a time-consuming task for companies without automated tools.

With management software, such as inventory and ordering systems, organizations can automate data collection, integration, and reporting. This makes it easy to identify and monitor expense areas in real-time rather than having a reactive approach.

2. Centralize Expense Data

Typically, the accounts department is responsible for sharing expenditure data to applicable departments. This often includes extensive email chains and even physical documentation.

By establishing and integrating management software, the accounts sector can centralize expense data so departments throughout the company can access the information via one universal interface. This makes it easy to audit data, as employees no longer have to sort through endless paperwork manually.

However, expense data is sensitive and should not be available to all departments. Managers can program the software to only allow authorized employees to access financial information. This requires the accountants to categorize financial data to determine what reports can be viewed by each department.

3. Clean Expense Data

Before data is analyzed, it must be cleaned to ensure the information is accurate and up to date. Cleaning data includes verifying information to ensure it is correct and eliminating duplicates that can lag the systems.

In order to validate data entries, they must cross-examine reports with receipts, invoices, inventory, and department correspondence. Once the information is cleaned, all duplicates, mistypes, and spelling errors should be eliminated.

Businesses with management systems can standardize specific data fields to reduce the risk of human error. For example, currency, date, and department domains can be automated to minimize mistypes.

4. Organize Expense Data

Spend data is a broad term as there are various types of expense categories. Each group plays an essential role in different business initiatives and operations.

Therefore, spend information should be organized based on their classification. Some pieces of data may fall into multiple categories, tempting companies to duplicate the data. However, the information should fall under the group with the highest priority.

5. Analyze Spending

Once the data is categorized, managers must evaluate the expense reports to define patterns and anomalies. This is also the step where departments can calculate averages, percentages, and other statistics for their reference.

There are several ways businesses can analyze data, from designating in-house employees to the task to hiring professional analysts. However, advanced management software uses artificial intelligence (AI) and machine learning technology to run in-depth analyses.

Companies can even program what they want reports on, such as return on investment (ROI), cost-benefit analyses, and payroll costs.

6. Develop a Strategy

Based on the data evaluation, companies can begin developing spend strategies to either correct procedures or optimize current spending patterns.

All stakeholders should participate in this stage so they can approve new strategies before implementation.

7. Forecast Needs

Data analysis can help businesses forecast their future spending needs, allowing them to improve their budget development.

Forecasting software uses predictive analysis to generate best- and worst-case scenarios based on historical and real-time data. This enables companies to optimize their spending habits and anticipate future events.