Why Spend Management is the Next Buzzword in Accounting
The pandemic brought about many changes to the field of accounting, including a shift in professionals' focus. Buzzwords like "spend management" reflect what accountants and their clients are prioritizing right now. Expert Alice Ko explains why spend management is crucial right now.
At any given time, there are countless buzzwords floating around the accounting industry. Reflective of the current environment, these trendy terms offer valuable insight into strategic areas of focus for businesses. In the face of the economic uncertainty brought on by COVID-19, the buzzwords are shifting and bringing with them new areas of focus with businesses looking to accounting and finance for leadership. Words like risk management, automated accounting processes, workflow processes, and cloud-first are just a few examples of shifting priorities. Touching all of these areas is another important trend: spend management.
But what is spend management? More importantly, why should it be a key area of focus during a recession?
Spend management is a comprehensive framework for managing all variable company spend, including employee expenses, and discretionary costs. By looking at the whole picture, a business can make strategic decisions that position it not only to survive a downturn, but to thrive. Here are five reasons accounting professionals should be well versed in spend management during this time:
1. Spend Control is Top of Mind
Clients look to accounting professionals not only for guidance in closing the books, but for expertise in improving business operations to meet strategic goals and weather uncertainty. During an economic downturn, it’s natural for businesses to tighten their belts and look for ways to control spending. This is where spend management comes in and why it’s crucial to be well versed in this emerging framework. Providing clients with guidance in implementing a comprehensive spend management system, developing an appropriate spend policy, and assessing spend culture will help them control costs and position them to thrive through uncertainty.
It’s important to note that implementing a successful spend management system requires a shift in focus from the more traditional approach of expense management. It’s important to recognize that expense management is strategic only as a component of the broader framework of spend management. That is, while expense management is designed to process, pay and audit employee expenses, spend management encompasses everything an organization spends to stay in business and earn a profit.
2. Analyzing Spending Leads to Better Business Decisions
Perhaps the biggest challenge the pandemic has brought with it is uncertainty, which in turn has compromised our ability to confidently make decisions. It’s unclear how long this will last but it’s safe to say that it’s time to build a stronger foundation for making sound decisions by building spend analysis into the core of the decision-making process.
Translating the raw data of what is being spent and where, into actionable intelligence drives better business decisions. Analyzing spend generates valuable insights that help a business budget for best and worst case scenarios, streamline its procurement strategy for challenging times, and identify spend that can be deferred. These are just a few of the ways spend analysis can benefit decision making, but with visibility into spend, data can be sliced and diced based on a wide range of KPIs. Continuously improving data and widening the scope of spend analysis will continue to shine the light on opportunities for improvement.
3. Discretionary Spending is Often Overlooked
When it comes to discretionary spending, it’s easy for a business to get caught up in reducing expenses related to travel or meals and entertainment and consider its job done. The reality at the moment is that these expenses are naturally being reduced. For most businesses, there are other aspects of discretionary spend that are easy to miss simply because they don’t know where to look. Items like recurring subscriptions that are no longer valuable or high-quality printed marketing materials that can be replaced with digital versions are just a couple of examples of items that can be overlooked. With a complete picture of spend, it’s much easier to identify costs that aren’t essential for the operation of the business. You can then analyze how much of this spend is making you more efficient, helping you close new business, or allowing you to reach new customers.
Ultimately, a company’s individual spend culture will dictate how it values different areas of discretionary spend, so there isn’t a one-size-fits-all solution to reducing this. However, a holistic spend management approach helps identify where savings can be realized, and these savings can be reinvested in initiatives to grow revenue.
4. Spend Management is Crucial for Distributed Teams and Remote Work
At the best of times, different parts of an organization work in silos with each department that spends money to achieve its strategic goals. These silos make it difficult to have a clear understanding of where money is being spent and when, introducing the risk of running out of cash. With teams working remotely, this situation has only been exacerbated. This is especially true for teams that relied on manual or paper processes for approving purchasing and expenses. Not only do these businesses face the risk of hitting a cash crunch but these manual processes create frustrating bottlenecks that compromise efficiency. In a world where remote work has become necessary, paper forms and verbal approval processes just won’t cut it!
5. Spend Management Improves Risk Management and Internal Controls
Are your internal controls working as expected? Is every member of the organization complying with your spend policy? These are important questions for finance leaders and accountants to ask, and the answers can be found by analyzing all aspects of company spend. This type of analysis not only allows for the improvement of internal controls and spend policy, but it also enables effective risk management by highlighting areas where trouble could arise. For example, identifying unapproved purchases can alert you of a potential cash crunch before it happens, helping you avoid unnecessary late fees.
To the Point
As we work through the fallout from the global pandemic, it will become clear that spend management is more than just an industry buzzword but a valuable framework for analyzing spend, managing risk, and making sound business decisions. With the help of a robust spend management solution finance leaders and accountants can gain valuable insight into spending across the organization. Perhaps more importantly, this type of software enables them to automatically track and manage spend and make sound decisions based on that data.
With the help of a spend management framework and software, companies can use this time to their advantage by reviewing internal controls, improving purchasing workflows, and identifying potential cost savings. With strong leadership from accounting and finance, these activities can prepare an organization to push through these unusual times and position it to succeed as the economy improves.
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Alice Ko, CPA, CA, is the Head of Content at Procurify, a spend management software platform that helps organizations proactively manage spend to drive operational efficiencies and long-term business growth. She launched her career in audit at KPMG...