Benefits of spend management and why it’s important for businesses

A huge part of running a business is spending. What you pay your suppliers, the expenses you incur, and the money you invest in marketing campaigns to spread awareness. Incurring costs is part of running and growing your business, because you have to invest money to see results.

Key to spending for your business is good spend management. So what is spend management? That’s what we’re going to discuss in this blog post. We’ll go over definitions, importance, and offer some tips to help you manage your spending in a way that benefits your business.

Spend management refers to how you as a business owner manage your spendings. It’s about better understanding every cent you spend and how you can spend it better, while having a comprehensive view of all your spendings at one time.

Spend management includes methods of organization like:

• Spending categorization
• Identifying demands
• Sourcing needs
• Analysis

Good spend management ensures end-to-end organization. The average business has so much to keep track of, including:

• Daily expenses
• Monthly expenses
• Quarterly expenses
• Improvement costs
• Staff training costs
• Infrastructure spending
  
  

And much more. Spend management is designed to address all of these typical company pain points so you can focus on building your business the way you want.

The intent behind spend management is to organize your finances better, so it has a good deal of advantages and benefits for any business owner or freelancer. Let’s go over a few of the benefits in detail so you can best understand how spend management will benefit you.

Spend management is going to be a continuous discipline for you as a business owner or self-employed worker. What this consistent monitoring of your spending does however is optimize your daily and long-term costs when running a business.

The results of cost optimization are cost reduction and business value maximization. Doing this requires researching pricing structures to charge accordingly, as well as purchasing within your means and accounting for growth. Ideally, you should seek out a simple, standardized cost structure and stick to it whenever possible.

Create a clear, strict expense policy for you and your employees. This way, all expenses will ensure best practices end-to-end.

Expense fraud can be a massive blow to your spend management and cause huge problems for your business. Proper spend management, especially with the right software, is going to reduce the possibility of expense fraud by carefully accounting for and monitoring your spendings. It will help you detect duplicate receipts, sudden spending deviations, and other anomalies.

Ultimately, proper spend management will help you save time. A good spend management system and software can automate most of your spending with your desired preferences and limits. This frees up valuable time to focus on growing your business.

Read our blog on 5 time-saving spend management tips you can use right away.

Good spend management obviously comes with its share of challenges. When taking an overview of your business spending, it requires a thorough examination of many different financial aspects of your business.

Some of the most prominent challenges you’ll face doing this include:

• Spend source awareness: identifying all the sources of spending in your business can be difficult, especially if your business houses a number of different departments. To overcome this, try to involve every department head and have them perform individual spending analyses which they can then bring to you for an overall calculation.

• Accuracy in data sets: data sets can unfortunately be riddled with errors and mistakes which throw off the accuracy of your spend analysis. Following set templates across all departments can help with this, as can the right spend management software.

• Having accurate resources: executing proper spend management requires not only the right software and tools, but staff to assist as well. Automate processes where possible and form teams dedicated to spend management in each department.

Tackle the challenges of expense management with Qonto's integrated solution for smart spend management.

Now that we’ve discussed the benefits and challenges ahead of you, let’s discuss some tips. Spend management is individually specific to each company and situation, however there are some general rules which help the process overall:

1. Identify direct and indirect income channels
2. Set up your single source of truth
3. Analyze your spending regularly
4. Use appropriate software

Separating your income channels into ‘direct’ and ‘indirect’ ones will help clarify your spending better. First, it’s important to understand exactly what these two types of channels mean:

Direct income channels refer to money earned actively and with intention, by selling products or providing services. If you run a coffee shop, your direct income is the coffee sales you make in a given day, while your direct expenses are the beans, milks, and packaging you buy to make the coffee.

Indirect income channels refer to income that isn’t essential, but can be utilized to make extra for your business. They are not linked directly to your business’s products or services. If you run a computer repair shop for example, reselling your old equipment after you upgrade would be an example of indirect income.

A single source of truth (SSOT) is designed to clean up your income streams and data sets. The term can be used for either data or income, because it refers ultimately to information, rather than anything specific.

When organizing your spending, instead of gathering competing income streams, designate one as the definitive income stream to make the decision. This can be done according to departments, if separate decisions need to be made.

Having an SSOT for your marketing expenses will mean you make decisions based on that income stream above all, without letting others compete and clutter your decisions.

Regular spending analysis simply means scheduled reviews of your company spending, to check for patterns, fluctuations, changes, and areas of improvement.

When performing your regular spending analyses, keep these definitions in mind for a holistic approach:

• Spend data is the information you procure on your company’s expenditures
• Spend data management is collecting, sorting, and dealing with that data
• Spend analytics are another level of spend management, in which you categorize your spending data
• Spend analysis is the last stage, in which you look for areas in which you can decrease costs and maximize efficiency in spending

One of the best ways you can utilize spend management is by using spend management software. These programs and services automate, organize, and analyze your data, offering solutions based on their findings. They are powerful programs which can sort through large, complex data sets in a matter of minutes.

But how do you know which spend management software is right for you? It’s all about reviewing your situation and selecting appropriate software. Whether you’re a solo freelancer, growing business, or enterprise with employees, the kind of spend management software best suited to you—and most cost effective, let’s remind ourselves what we’re focused on here—will be the one that has all the right features—and not too many more.

Below, we’ll list some of the features commonly included in spend management softwares, so you can consider which ones you might need and find the programs that include them:

• Real-time expense tracking
• Customizable employee payments
• Receipt/invoice capture
• Virtual credit cards
• Push notifications
• Bookkeeping simplification
• Recurring payment automation
• Software integration
  
  

With Qonto, you have the right solution for proper spend management in the palm of your hand. Keeping track of all team expenses while having a direct connection to your business account allows you a 360 degree view on all your finances and spendings.