If you want to maximize profits, there are two approaches you can take.
You could focus on growing revenue. Maybe you launch a new marketing campaign or run a promo to increase your sales and bolster your bottom line. The catch here is that your customer base doesn’t always take the action you expect them to.
Or you could focus on better managing your expenses. These are the factors that are most within your control.
But business spend management is more than cutting unnecessary costs or minimizing expenses. And if you understand it, you’ll have new ideas on how to better spend your money to maximize the return for your business.
What is business spend management?
Business spend management (BSM) is a term that refers to the technology and strategies a business uses to stay on top of its spending.
The purpose of BSM is to get critical about both what you’re spending and the process through which things are being purchased. Just as cutting costs helps bolster your bottom line, so too does finding new ways to automate and expedite the purchasing process.
Over time, you start to maximize the return on investment (ROI) of your expenses because you’ve:
- Cut spending down to necessary expenses
- Minimized the time and cost of procuring the expenses
- Aligned spending with business and financial goals
- Increased spend visibility helps you make data-backed decisions
What’s included in business spend management?
Business spend management is an overarching term that touches on multiple parts of the purchasing process. Everything from an expense or reimbursement request being submitted to the point of it being purchased, logged, and analyzed is included in the term.
Generally speaking, business spend management covers the following key components:
- Procurement: How you source goods, select suppliers, negotiate contracts, and manage purchase orders
- Expense management: Managing employee expenses and reimbursements to ensure compliance with company policies
- Invoice management: Automating and managing the process of receiving invoices and processing payments to keep suppliers happy
- Spend analysis: Analyzing spending trends and patterns for opportunities to find new efficiencies and savings
- Vendor management: Assessing supplier relationships, investing in suppliers that are reliable, cost-effective, and meet your needs
- Contract management: Referring back to contracts and reviewing terms potential improvements or adjustments that better serve your finances and cash flow
- Budgeting and forecasting: Projecting future financial outcomes and creating a budget to best manage those projections
Understanding business spend management isn’t looking at each of these components individually, but also understanding how they’re connected.
For example, your budgeting and forecasting play into your spend analysis—better forecasting practices facilitate predicting trends that are a part of your spend analysis and, in turn, helps you budget better.
Similarly, improving your invoice management helps you pay suppliers in a way that bolsters your relationships with them, a key component of vendor management.
Business spend management benefits
Working to improve your business spend management impacts multiple aspects of your financial responsibilities. These changes improve your overall practices and have an impact on your time and money spent.
Cost savings
Your business spend management creates cost-saving opportunities across the board.
The main drivers of savings are your expenses themselves. You’ll cut out unnecessary spending on expenses that aren’t servicing your business goals.
You’ll also find potential savings with your suppliers. Understanding your procurement relationship with them helps you negotiate better terms and take advantage of potential discounts.
But don’t forget about the implicit costs of your processes. Leveraging automation and streamlining workflows saves time, letting different stakeholders focus their time on tasks that generate value for the company.
Improved budget accuracy
The first step to understanding the future is to understand the past. The more detail you have about your spending helps you predict how it will look in the future, or know how to alter that trajectory.
Clean data going into your business forecasts helps produce a high-quality output. And as you’re looking at the forecast, you’ll have a clearer context about why the expected spend levels are the way they are.
From there, you start budgeting based on expectations of whether the spend levels will increase or decrease.
Gone will be the days of basing a budget on some gut instincts and predictions. Now you’re making the kind of data-informed projections that give your budgeting the highest amount of accuracy.
Financial control
A key way to improve your spending habits is to reduce the time between logging data and taking the time to understand the story within it.
If you’re coming to understand your spending trends days, weeks, or even months after that activity has occurred, you’re missing out on all the benefits that could have come with adapting to the trend as it’s happening.
Centralizing your spend management systems creates greater visibility into your financial activity. And if you move closer to real-time reporting, you’re gaining insights as activity happens as opposed to after the fact.
These changes help you make quicker, strategic adjustments that maximize the value of every dollar spent.
Common business spend management problems
Wondering what you can do to improve your business spend management? Look for the following problems that are commonly encountered by finance teams.
Fragmented processes
The different components of business spend management can exist in separate vacuums. Typically, businesses are using different platforms for each component, like an accounts payable platform for invoice management or an employee reimbursement platform for expense management.
When this fragmentation occurs, you miss out on the interconnectivity of the data. You’ll find yourself checking different platforms for different answers.
The alternative is centralizing your process into a single, user-friendly platform. Using a dedicated spend management platform (like BILL) keeps all need-to-know information in a single spot for ease of reference and understanding.
Limited resources
Many small to medium businesses (SMBs) don’t have the resources to dedicate to improving spend management. The time required to do the analytical work or reshape processes isn’t a small ask.
A common way to combat this is to find ways to automate the work that’s already being done.
In some cases, you may have access to features in a platform you’re already using that will save you time. Otherwise, you may need to turn to new tech or other solutions to try and get that time back.
Even in traditional platforms like Excel, there are tips and tricks to minimize the amount of input required to get the reports needed for insight and analysis.
Your finance team is the first group of people you should talk to about any changes. They’ll let you know what your pain points are so you can collaborate on a solution that allows them to dedicate their time to strategic initiatives that drive value.
Compliance issues
Rules and requirements do amazing work at keeping spending focused on approved expenses, but they also create bloated administrative tasks.
Compliance is a double-edged sword: too little oversight and your spending goes unchecked while too much oversight means reviewing every single transaction request for approval. Simply put, it’s not scalable as the business grows and transaction counts increase.
But spend management has solutions. Using payment options like virtual cards or procurement cards (P-cards), you can set controls for different aspects of a transaction, like the amount, vendor, expense type, or overall credit limit.
As a result, switching payment methods provides similar value to an approval process without all the extra administrative work.
When you’re reviewing your spend management practices, remember that it’s not necessarily that a challenge is too big, but rather the approach. Maximizing the returns of your spend management means branching out and trying new ideas that challenge your norms.
Ways to improve business spend management
There are many ways to improve your spend management—in fact, many changes you make impact your business spend management without you knowing. But doing the following consciously is the perfect way to start making improvements today.
Reassess your processes
We often fall into habits of doing things a certain way because that’s the way it’s always been done. Your spend management process might be serviceable now, but will it be for the long haul?
It’s worth dedicating time to document your processes and the time it takes to complete each step. As you do some back-of-the-napkin math, you might be surprised by just how much time is required to get your spending data to its current state.
After detailing the processes from start to finish, you can start to diagnose where the blockers are that are keeping you from peak efficiency.
Foster collaboration between teams
While the financial team is the “keeper” of financial activity and record keeping, everyone should have a vested interest in maximizing the value of that reporting to inform better decision-making.
This is why all teams must have the information and tools available to them that make collaboration smooth and effortless.
The more friction that exists in the process of passing on information, the more likely it is to be skipped or put on the back burner.
Consider using a centralized communication tool like Slack or Microsoft Teams where people can ask questions or provide feedback on the existing processes. This is a great way to learn about where the process is breaking and for what teams.
If there’s consistently one team that’s falling behind on its responsibilities, it may be time for a training session to ensure they’re using their tools consistently and effectively.
Invest in technology
So many of our processes are informed by the technology we use. Whether you’re radically reshaping your processes or making minor tweaks, the best solution to your desired change could be technology.
Additionally, spend management platforms help achieve many of the optimization goals businesses have in one fell swoop. It’s worth exploring these options, especially if you’re feeling overwhelmed or unsure of where to start improving your spend management.
Don’t forget to give changes time to have their benefit. Some platforms have higher learning curves and not everyone has the same ability to seamlessly integrate technology into their practices.
Revamping your business spend management with one simple change
When you make a change to your business spend management practices, you want the biggest impact that lasts for the longest time. Making the switch to a platform that improves multiple parts of BSM and is scalable as you grow guarantees this.
BILL is a spend management platform specialized for businesses trying to master their financials. With a full suite of tools and reports that improve everything from your accounts payable process to the payment methods you use, you can save time and money while getting valuable insights.
Automate your business spend management by requesting a demo with BILL.
