Automating expense control delivers huge returns
by Bill Vergantino
If you are like most small-to-midsized business executives, your primary focus is on growing revenue and controlling company spending. To that end, you leverage technology to eliminate inefficient processes in your company, such as a CRM system to manage revenue and an accounting or ERP solution as your back-end financial system of record. However, chances are you still use manual, paper-based processes to deal with company expenses.
Excel-based travel expense reports and piles of paper purchase requisitions are the norm and your finance department gets barraged every month-end with questions from concerned budget owners. Why? Because without an automated system to control operating expenses, you have little or no ability to actively manage company spending and often are left hoping that decisions to spend money remain within budget and in compliance with company policies.
So, what does controlling expenses mean? Many business and finance executives seek to implement a travel expense management system as a means to control spending and resolve a specific area of pain. While travel and entertainment can account for up to ten percent of a company's total operating expenses, controlling expenses doesn't stop at T&E. A more holistic approach manages all expenses, including T&E, payroll, purchasing, and the piles of invoices that flood the accounts payable team.
Automated expense controls have been used by Fortune 1,000 companies for some time. However, small and midsized businesses lagged behind for many reasons, including the large upfront costs of traditional software deployments. According to PayStream Advisors, an expense management research and consulting firm, by the end of 2006, only 10 percent of small and 25 percent of medium sized businesses had implemented an automated expense control solution compared to 40 percent of companies with $2 billion or more in revenue.
Now, with the advent of Software as a Service (SaaS), small and midsized businesses can afford to automate expense controls and are beginning to adopt this technology at a rapid pace. Aberdeen Group, a technology research firm, reports that 61 percent of the small and midsized companies it surveyed plan to use or consider SaaS financial applications in the next 18 months.
The issues that compel companies to automate expense controls vary greatly. Manual processes are error-prone, time-consuming and costly. Critical information regarding spending is difficult to compile and expense policies are hard to implement and enforce. Finally, manual processes offer little protection from fraud and are fraught with compliance risks.
The financial rewards for this all-encompassing approach to operating expense controls are significant. A recent report from TripleTree, a research-based investment banking firm, shows that a 1 percent decrease in operating expenses has the same impact on earnings per share as a 10 percent increase in revenue. Yet, the report states, less than 20 percent of organizations fully embrace comprehensive spend management, resulting in losses of more than $500 billion in profits annually.
Other benefits of a comprehensive automated expense management system are notable as well. Company expense data is aggregated in a central location to facilitate better analysis and decision-making. Corporate spending policies are administered to all employees and enforced when expenses occur. With a clear, configurable hierarchy of authority, policy enforcement is auditable, increasing accountability and assuring compliance to regulatory mandates at every level in the approval chain. When budget data is incorporated, real-time budget vs. actual data is accessible by managers, enabling true accountability.
With data as current as the last transaction, budget owners see accurate budget information and analyze how a request to spend company money will impact their departments and businesses. The aggregate data enables finance and business executives to analyze company spending from a macro perspective to transactional detail. With this detailed spending data, you gain bargaining leverage with preferred vendors and eliminate duplication, overspending, paying for products and services not rendered, and more.
Small and midsized businesses are embracing on-demand, SaaS technology over on-premise, installed solutions. This is especially true for those companies looking to rein in company spending and improve expense visibility. In fact, Aberdeen Group reports that 70 percent of the small and midsized companies surveyed said they have a strong preference for SaaS financial applications.
The primary reasons for considering a SaaS financial management system are the same reasons on-demand technology is taking the SMB market by storm. According to Aberdeen Group, the top drivers for implementing a SaaS financial solution include limited internal IT resources and restricted technology budgets. Companies of this size are steering clear of the large initial costs associated with licensed solutions and looking for faster payback on smaller upfront investments.
Small and midsized businesses are citing other benefits to on-demand technology as well. SaaS applications remain easily configurable and take less time to implement. They are also easier to use and flexible to changing business needs. With a browser to access the Internet, on-demand applications are available no matter where users are, or what time it is.
When the right controls are in place, tedious manual processes are eliminated, spending policies are automatically enforced, fraud is prevented, managers have real-time reporting, and compliance is ensured.
About the author
Bill Vergantino is president and CEO of ExpenseWatch.com, developer of a web-based subscription service that gives small and midsized companies comprehensive tools to control and reduce company spending.