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Every small business can benefit from having a little more money in the bank. That’s why implementing a solid spend management strategy is one of the best ways to improve your business’s financial health. By taking the time to understand your business spending, you can ensure that you’re making the best use of your money.
In this article, you’ll learn the basics of spend management, as well as actionable steps you can take to implement these principles in your own business.
What is spend management?
Spend management is a system of processes that give you a clear picture of your business spending so that you can identify trends, reduce waste, and improve the overall efficiency and impact of your money. This involves categorizing your purchases, quantifying them, and then taking a holistic view of your spending to see where money is going and its impact on the company’s growth.
It may seem tedious, but conducting a complete overhaul of your books is one of the best ways to improve your bottom line and the trajectory of your business. By determining where you are overspending and identifying new ways you can streamline processes to improve efficiency, you’ll likely find that there’s more money to work with than you initially anticipated. From there, you’ll be able to budget more intentionally, ensuring your money is serving your business as well as it possibly can.
Why is spend management so useful for small businesses?
Even when you make a budget and try to stick to only the most basic and essential purchases, incidental and one-off purchases are a regular part of doing business, and you still need to be accounting for them so you know where all your money is going. By identifying these purchases, you can work to either find more cost-effective alternatives or cut them from your budget altogether.
This careful cutting and redirecting is a key principle of spend management because it helps you understand your spending habits as clearly as possible. In turn, this makes it easier to make purchases efficiently and with purpose, and know you’re getting the most out of your money.
Strategies for managing spending in your business
There are 5 leading strategies to consider for your spend management plan. You don’t need to do them all at once—start with the one that feels most pressing and incorporate others when you’re ready:
- Sourcing overhaul: One of the best ways to improve your financial standing is to refine your supply chain. Gather information on the suppliers you currently work with and see if there are any discrepancies you can eliminate—double ordering, redundant contacts with a supplier, and auto-renewed subscriptions you no longer need are all opportunities to reduce unnecessary spending.
- Expense policy: Ensure your team is spending effectively by creating a clear and comprehensive expense policy for your business. Establish guidelines, limits, and parameters you want all spending to adhere to. Make it simple but comprehensive, and adjust as needed to ensure it remains accurate and effective.
- Invest in spend management software: Eliminate the time-consuming need for managerial approval of purchases by implementing software that oversees procurement and payment processes on your behalf. This not only centralizes and streamlines processes, but it also ensures everyone is abiding by the same rules and offloads responsibility from your managerial team.
- Analyze cash flow: Another benefit of having a spend management tool is the ability to track and analyze your cash flow. Choose a tool that allows you to automatically see all spending in one place, categorize purchases, and analyze your spending. With real-time information, you always know where you are—and you can more easily plan for the future.
- Simplify and standardize: Once you know how you want spending to occur, create workflows that standardize and simplify the purchasing process. Intake forms, approval processes, departmental approval regulations, and communication plans are all examples of ways to streamline purchasing processes to ensure things happened as efficiently as possible.
No matter which of these strategies seems most pressing for your business, the most important thing is to just get started. There is no singular route to spend management—just get on the path if you want to see improvements in your financial management systems.
Get started with spend management
The overarching theme of spend management is to be aware and intentional in your business spending, and what that means or looks like in practice will change over time. Maybe you identify one purchase as essential, then later find that it’s not serving you in the way you imagined. You never know what things will look like in the next fiscal year.
This brings us to the second essential reminder: spend management is not a one-and-done system. You’ll need to make time to check in with your systems, ensure things are still working for your business how you need them to, and that your priorities and budget are still aligned. It’s okay for things to shift—you just need to be aware enough to know it’s time to refresh your data.