CFOs are always looking for new ways to boost their company’s bottom line but the reality often means that there are a number of operating costs that will always eat into potential profit. Expense management is one of these.
Essentially, most CFOs have a tough job on their hands managing their workforce’s expenses, something that continues to swell over time as the organisation grows. But they may be overlooking expense management as a tactical necessity rather than a strategic opportunity for business growth by not viewing it as a source of cost savings.
Understanding spend in relation to revenue growth alongside your employee expenses strategy seems an obvious way to keep costs down but research reveals this is still a struggle for most organisations. Over half of senior finance professionals don’t have the visibility required.
So what should every CFO consider for their expenses management strategy and how can they transform spend from an unpredictable cost into a lever for growth?
1. Assess your static expense policy – take a more dynamic approach
There’s certainly nothing wrong with static expenses management policies, but there can be instances in which their rigidness and inflexibility can unintentionally hurt an organisation.
Countless businesses employ meticulously detailed expenses management policies that span dozens of pages detailing what is and isn’t allowable, simply because that’s the way it’s always been done. Yet this rigid structure can be counter-productive when it comes to real-world business scenarios.
Dynamic expenses management policies, which assess to the need for spend in the first instance, allow for greater flexibility based on the circumstances of the trip. For example, a dinner at an expensive restaurant may look excessive, but the expense may be warranted if the meeting is with a high-revenue client and generates a positive ROI for your business in return.
So consider moving to more dynamic expenses management and empower your people to make real-time decisions, that ultimately benefit the organisation in terms of revenue and long-term profit. You can ensure this is effective by tracking, reporting and analysing all expenses management data in real-time, ensuring you don’t over or underspend based on projected ROI.
2. Address “why?” rather than “how much?”
Expenses management strategies often decline in effectiveness because of a focus on relentless cost reduction without consideration of the impact on revenue opportunities. The question most commonly asked: “How much do we want to save?”
Where things tend to go wrong is when this cost-saving directive shifts to line managers. The prevailing belief is that managers will make the correct decisions to control costs because they have a more in-depth understanding of their employees’ spending reasons. While true to an extent, shifting decision-making responsibilities down the chain of command can often lead to less than desirable results, such as flawed decision making, or the delay of critical investments.
A more effective way to go about the process is to provide a real-time view of the impact of spending on revenue – to both the employee concerned and management. With all spending visible at the business purpose level such as a sales opportunity or marketing campaign, employees will spend money as if it were their own for fear of eating into potential commission or pipeline targets. They’ll start to model the desired behaviours and help save the business money in the long run. Managers will have all the data required, including customer, revenue and proposed spend, rather than having to make decisions on gut instinct alone.
3. Integrate travel and expenses management
Of a company’s expense costs, one of the most expensive is business travel. It especially adds to the challenge faced by CFOs without clear visibility into their employees’ travel plans. The associated processing of endless expense claims is time-consuming for finance teams, and for those using paper-based methods leaves plenty of room for error and oversight.
Leveraging an integrated travel and expenses management system is, therefore, another highly effective way to tackle cost reduction. The newer breed of automated and AI-driven technologies are quick to implement and easy to use, allowing you to streamline travel requests, authorisations and payments.
It also makes it possible to seamlessly link travel and expense data to accounting, HR and revenue data that would otherwise be sitting in silos. CFOs already leveraging these modern systems benefit from real-time data on travel spend vs. revenue to enhance decision making across the board.
4. Ensure high-quality data inputs and improve visibility
A lack of accurate data collection and thereby visibility of spend will always make it difficult to make strategic expenses management decisions promptly. There’s no alternative – data is critical to managing spend across your business.
But of course, it’s not just about having access to data, it’s about the quality of data and what you can do with it. Many finance professionals feel like they’re drowning in data; it’s not telling them anything that helps them operate more effectively.
Essentially, CFOs must be equipped to predict and influence future actions and trends rather than just reconciling what happened in the past. And access to the right data, in real-time, will enable them to extract this actionable insight that can help their business perform better.
Adjusting to a real-time approach allows CFOs to forecast expense management costs – avoiding the scenario of getting lumped with big amounts of expense claims at the end of the financial year – which in turn enables better budgeting upfront.
5. Adopt continuous learning with data on-demand
Expenses management isn’t one-and-done. It should be refreshed and examined continuously. To do this, you need real-time spend insights. If you can’t see what spending has occurred, will occur or is projected to be incurred, how can you take corrective action if necessary?
Establishing a framework driven by data on-demand makes accurate budgeting and expenses forecasting easier than ever before. Actionable insights will enable you to adopt a continuous learning approach, meaning your expenses strategy and how your people respond to it, can operate effectively and help address the unnecessary data consolidation and reporting that cause untold frustration for finance teams.
To find out why CFOs and their teams rely on SalesTrip to transform expense management from an unpredictable cost into a lever for growth, find out more here.