Staying on top of your short-term and long-term spending is critical to running a tight ship in business.
That’s why prioritising business spend management is a non-negotiable. Not only does it help you make smarter decisions about how you spend money, but it protects your bottom line and allows you to spot opportunities to scale effectively.
With automated processes and the right tools, your business can implement your spending policies (and ensure every team member is across them). Ready to learn what it takes to build an effective business spend management strategy? Let's dive in.
What is business spend management?
In simple terms, business spend management is the process of controlling spend and protecting your bottom line.
As an umbrella term, spend management covers everything from expense category to inventory management, product development and even supplier management.
Think about office supplies, monthly software subscriptions, and company cards - it’s the big-picture view of your business.
Let’s run you through some of the core business spend categories you need to know about and consider:
- Operating costs: ongoing expenses from day-to-day operations including your marketing budget or maintenance fees on any equipment you use.
- Non-operating costs: costs that aren’t directly related to day-to-day operations, including interest payments and big one-off expenses.
- Fixed costs: expenses that don't change depending on the number of goods and services provided - they have to be paid regardless of your business activity. This can include things like office rent and salaries of employees.
- Variable costs: expenses that do change depending on the number of goods and services provided. This includes things like product packaging and raw materials.
Spend management vs expense management
It can be easy to think that spend management and expense management are synonymous. But while they are similar, they have some important differences.
Expense management relates to tracking and processing employee spending. It determines how your business will navigate these costs (such as providing company cards or designing a reimbursement process for your team).
Business spend management, on the other hand, offers a broader view of your business spending, including all company purchases and expenses, plus supplier relationships. It involves all the costs associated with your business - not just the expenses your employees incur to do their job.
Why is business spend management important?
Now that you know what business spend management is, let’s run through why business spend management is essential for your business’s success.
1. It creates a centralised expense policy
If your business doesn't have a clear spend management policy, it can make it hard for your team to follow the rules or understand what in-scope spending looks like.
By taking a step back and assessing how your company is managing your cash at a big picture level, you can develop tailored rules and frameworks for how your team should be operating.
Plus, you can track how well you stick to this policy in real-time using a spend management tool like Cape for total transparency.
2. It helps you gather spend data
As your business grows, the amount you spend is likely to increase.
Generally, this happens across various departments, so it can be difficult to keep track of who is spending and what people are spending on.
Spend management may be your answer to having a clear, centralised expense policy where you can see spending data in real-time. This allows the business to understand what part of the business isn’t spending efficiently and gives you greater control over how and what you spend.
3. It empowers employees to spend within scope
You want to empower your employees to spend on necessary expenses (especially in the era of hybrid working). But you also want everyone to be on the same page about what is and isn't an allowable expense.
Using spend management tools and corporate card software like Cape can empower your employees to spend while still minimising risk because you have clear visibility of what your employees are actually spending on.
4. It puts spend controls in place
With a spend management strategy and the right tools in place, you can customise spend controls and approval thresholds for each team member. By mapping out budgets for each area of your business, you can proactively plan your upcoming expenses and forecast your cash flow, too.
Here at Cape, we’ve been building our very own tool (Cape Spend) that allows teams to set spending limits and team approval workflows for their company cards. This means budget owners are in control of every transaction before it happens.
5. It enables you to make data-driven decisions
Aside from helping you save money, business spend management gives you insights that can help allocate resources to more productive activities that scale your business.
Tracking, analysing and managing business activities helps you focus on the long-term and prioritise projects that will move the needle and deliver ROI to help you grow and reach profitability.
Building an effective spend management strategy
That's the 'why' behind business spend management; now, let's arm you with the steps to build an effective spend management strategy.
Step 1. Define your business needs
To build an effective spend management strategy, you'll need a clear picture of your business needs and where you stand.
Start by looking at how you’re currently managing your business spending: is your team spending too long on manual tasks that could be automated? Is your tech stack pulling its weight and giving you a real-time snapshot of your spending? What business goals are you working towards in the months and years ahead?
Once you've answered those questions, you can understand where your business is effectively performing and where you need to improve.
Step 2. Identify your current business spending
Every business needs to identify the sources of spending, including rent, utilities, subscriptions and more.
This can be a tedious task, so automating this process will save you time and limit the chance of human errors. If you haven't already, consider putting a spend management tool in place that gives you a clear picture of the money coming in and going out of your business.
Step 3. Centralise and categorise spending data
Once you’ve identified the sources of spending, you can gather data into a central database with the help of automation to keep track of your spending data.
You can also classify your data into spend categories by supplier or business units - whatever makes it easier for you to keep track of spending. This will help you identify opportunities for saving and give you valuable insights into expenses associated with a particular category, supplier or business unit.
Step 4. Analyse your data
Analysing data gives you insights into spending patterns and any inconsistencies in business spending.
Are you spending too much on software subscriptions you’re no longer using? Could you find more efficient ways to purchase stock? Are you picking the most competitive suppliers on the market to work with?
By diving into your spending data, you can create a game plan to set you up for success.
Step 5. Build your strategy
Now that you have a clear picture and understanding of your spending, you can start to identify opportunities for cutting costs and focus on activities that will bring you a strong return on investment.
Your business spend management strategy needs to be tailored to your business and how you work. If you get clear on the goals you want to achieve, your current spending habits and areas for improvement, you can build an approach that works for your business.
Taking action
By building an effective spend management system, you can centralise your data and create clear policies for your team to follow, along with the help of automated software tools.
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