What is business spend? 5 spend management strategies to stimulate business growth
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Corporate finance may not be the most exciting aspect of managing a business, and spend management in particular is decidedly less so.
However, managing and controlling spend is one of the best ways to create new value and opportunities for your company without decreasing revenue in the process. By simply examining your organization’s current spend patterns and cutting out the fluff, spend management frees up existing resources so they can be redirected into more lucrative growth opportunities.
With this in mind, let’s look at some of the most common problems businesses face when creating or improving their spend management systems. We’ll also offer 5 ways to streamline your processes with best-in-class finance software solutions like Ramp.
What is spend management?
Spend management (also known as business spend management) is a collection of business practices that tracks, manages, and analyzes the non-payroll expenses a company incurs.
Not only does this provide greater visibility into the health of your business, it also eliminates waste and inefficiencies in procurement, reduces financial risk, maintains strong supplier relationships and supply chains, and of course, saves your organization time, money, and resources.
And with a recent McKinsey report revealing that 40-80% of business costs come from external spend, it’s clear that spend management must be a priority for companies looking to stimulate growth and profitability.
After all, it’s relatively easy to track larger company transactions, since they make up the bulk of spend and likely require greater oversight from business leaders. In comparison, it’s much more difficult to assess and control all the lower-ticket purchases employees make on a daily basis—which means it’s also easier for these expenses to fall through the cracks.
The small expenses that aren’t captured by finance teams can add up over time and account for a deceptively large portion of your total spend. This then results in inaccurate financial reports that hurt your financial forecasting and business decision-making abilities.
Is spend management the same as expense management?
To the average person, spend management and expense management may simply seem like different ways to describe the same thing. However, there’s one crucial distinction between the two.
Spend management is concerned with the bigger picture—the comprehensive view of how businesses manage and spend funds. It uses technology like automation and AI to take the headaches out of cost and expense monitoring.
Expense management, on the other hand, is specific to how organizations monitor, reimburse, and audit employee expenses. Expense management practices—such as expense reporting and tracking—are often ones that spend management systems aim to improve and automate over time.
4 common spend management problems companies encounter
Anything important takes time and effort to cultivate, and effective spend management is no exception.
As you build your spend management system, look out for these 4 problems often encountered by growing organizations. In the following section, we’ll then look at some strategies you can use to resolve these issues.
No clear and accessible expense policy
Every company, no matter its size, should have an expense policy in place. This important document serves as a set of rules employees must follow if they pay for company expenses out-of-pocket and expect reimbursement for them.
On the business side, an expense policy helps your company track business expenses and avoid footing the bill for unauthorized or excessive employee purchases.
Still, the amount of time and resources spent putting these guidelines together won’t matter if your employees can’t access or understand your expense reimbursement policy—or worse, if they’re unaware of its existence entirely.
No spend limits
Your expense policy shouldn’t serve as your only line of defense against out-of-policy spend, however. Defining your spend limits, and then activating relevant controls on the company resources employees have access to, deter them from deviating from your expense policy in real time.
Without these controls, your finance team will have a much harder time safeguarding the company from cash flow issues caused by maverick spend, out-of-policy spend, duplicate spend, and overspending.
Not keeping track of invoices or receipts
Before you can analyze and improve your spend management practices, you must first gain a full understanding of what your company spend looks like right now.
But the reality is, it’s time-consuming to track down financial information when it’s scattered across email chains, subscription or credit card billing statements, paper receipts, and purchase order forms—and it’s almost impossible to gain a complete picture of your business spend without them. With no process to aggregate and store financial data, it’s even difficult to know what information you’re missing.
Without complete visibility into your financials, your finance team may actually harm your business by cutting costs indiscriminately instead of identifying what spend to limit and what to preserve.
Not tailoring spending policies for distributed teams
Many of the problems in-house workforces face are magnified in remote and distributed settings. In-house employees are no strangers to communication issues with colleagues, for instance, but the issue worsens when team members aren’t working from the same location.
A Hubstaff remote work survey found that, for 45.8% of respondents, miscommunication or a lack of communication was their biggest challenge in managing remote work—followed by staying motivated without teammate interaction and knowing what other teammates are working on.
Forcing remote and distributed teams to adhere to the same practices that allow in-house teams to succeed, then, can wreak havoc on your company’s financial culture.
Without dynamic expense policy solutions, such as timely pre-approvals and personalized expense policies, finance teams often feel like they only have two choices: allowing overspending or completely shutting down purchasing power. This struggle results in the creation of reactive spend management processes rather than preventative ones.
5 effective spend management strategies for businesses
Implementing new spend management strategies takes patience and consistency, but the process can be made easier with tools that remove some of the guesswork for employees.
Following these 5 tips can help increase your chances of success—and using tools from spend management providers like Ramp can take your efforts even further. Keep reading to find out how.
1. Create a digital expense policy (and make sure employees know about it)
Reduce uncertainty and confusion about your company’s employee reimbursement guidelines by creating an expense policy that clearly and precisely lays out the rules. Then, confirm that everyone in your organization understands them by hosting training events or webinars so finance and leadership teams can address concerns and employees can ask questions.
For greater accessibility, consider creating a digital version of the policy and keeping it in a central location where anyone can review it as needed.
Ramp ensures yours is available to everyone in your organization by storing a copy of your policy on the platform itself. Create your very own policy in minutes with our expense policy builder, then upload it to the platform so employees can read and sign it on their own time.
2. Establish an approval process for different expenses
Building repeatable approval workflows that move without you gives your employees the freedom they need to do their jobs well, while also providing oversight to prevent out-of-policy spend. If you have employees that work remotely, approval processes that run on their own are even more vital for smooth business operations.
Consider including approval requirements for each department in your expense policy so employees understand from the get go what they’ll need to keep the process moving along.
And with the financial technology available today, manual expense approval doesn’t have to be the norm anymore. Take advantage of spend management solutions that do the heavy lifting for you. With spend management software, you can set personalized card controls (as we’ll see later) and establish approval chains for a better benchmark.
Ramp supports custom approval workflows for different types of business expenses. In addition, the software prompts cardholders to request pre-approval for expenses that fall outside of the limits you set. Approvals can happen in real-time with a single click, further streamlining the process.
3. Digitize all receipts and invoices
Let’s face it: Your employees aren’t perfect. It’s easy to imagine that one of them might lose a receipt or otherwise forget important transaction details that would prevent them from getting reimbursed for their expenses.
It also becomes much more difficult to get away with expense fraud if all your transaction records are digitized and stored in one location. So, it’s easy to see why digital receipt and invoice processing (and data management in general) are important for modern businesses.
If your company hasn’t done so already, take this opportunity to transition to a digital-first storage system for invoices, bills, employee receipts, and other transaction-related documents. This becomes even more crucial for distributed and remote teams that would otherwise be held up by workflows requiring physical forms and documentation.
Ramp can help support your team during this process with its own digital-first footprint.
The software prompts employees via email or SMS to submit receipts and transaction information for expenses at the point of purchase. From there, they can simply take a picture of their receipts with their smartphone and submit it for collection—our AI-powered receipt-matching technology takes care of the rest.
4. Automatically categorize all spending
As your business grows, so does the amount of work needed to keep your organization up and running. But not all of this work requires employee labor.
Leveraging automation software and other tools where possible allows you to get more done without expanding your team in the process. Hand off repetitive tasks to your spend management software so your team can fully optimize spend with minimal time and effort.
It may feel daunting to figure out where to begin with your automation efforts, though, so you may want to start by listing all of your company’s finance-related tasks with automation potential. Then, go down that list to find easy opportunities you can implement right away.
An accounting automation software solution like Ramp helps finance teams save time by automatically categorizing company expenses as soon as they’re captured by the platform. But the possibilities don’t end there—our tool offers a multitude of opportunities to automate low-value or tedious tasks so employees can focus on creating value for your business instead.
5. Set category spending limits
Don’t rely on just your expense policy to keep employee spending in line. Take out some of the guesswork for them by baking spend controls into your spend management platform itself.
This helps ensure that managers and finance teams don’t have to rectify out-of-policy spend after the fact, while also simplifying the process for employees who need to make purchases on behalf of the company.
Ramp keeps companies in control by offering spend limits that can be as broad or as granular (right down to the day, time, vendor, and transaction amount) as you like. Create as many or as few guidelines as you need for each expense category to keep employee transactions within the rules of your policy.
Why spend management is easier with Ramp
Spend management is an ongoing process, and certainly one you don’t want to go alone. That’s why a spend management solution like Ramp is uniquely positioned to help you manage spend, identify new cost savings opportunities, and then take action on those opportunities.
That’s because we don’t just simplify spend management—our tools also provide unmatched real-time visibility to businesses of all structures and sizes. The bottom line: Ramp enables organizations like yours to splash cash on the initiatives and expenditures that matter most to you.
Find out how by creating your free Ramp account and exploring the platform today.