Benjamin Franklin once said,
“Beware of little expenses. A small leak will sink a great ship.”
The world has changed a lot in the past two years and businesses in the U.S. have not been left unscathed. In fact, in the past few years almost 2 percent of small businesses in America have shut down permanently, according to a survey by researchers from leading universities.
Change is inevitable, so if you want to stay afloat, you need to be prepared. Change must not be viewed as a threat, but rather as an opportunity. CFOs who succeed in the coming months will be those who are able to adapt and continue innovating. Extending runway, aggressively monitoring costs, and locking down spend are the easiest and quickest ways for organizations to adjust to unexpected downturns. These actions fall into an emerging framework known as spend management.
Here are five reasons an economic downturn, along with the new business environment, is a good time for organizations to start looking into and implementing spend management.
1. Monitoring and controlling spend extends runway
It’s time for CFOs to start working closely with departments and functions outside the finance team. Understand what people are requesting, where spend is going and how spend is being approved. Every dollar saved will maximize in value because these dollars can be reinvested in programs to grow revenue.
Downturn or not, effective spend management gives businesses greater control and oversight over the use of company resources. You can’t manage what you don’t measure, right? But before you can start improving the way your company spends, you need to understand it.
Here are questions CFOs can ask themselves to start auditing their own spend management processes:
- What is our discretionary spend?
- Who is ultimately responsible for this spend?
- Who is approving what?
- What is our spend policy? Do we need to revisit this?
- Are there any trends by role, department, function, and/or project?
- Are there any blockers to how teams are acquiring the goods and services to properly do their jobs?
- How can we streamline procure-to-pay during a recession?
The goal of this spend management audit is to identify all the potential leaks in the business and areas that take up the most resources, energy, and capital.
2. Slower growth is your chance to address operational inefficiencies
As growth slows down, spend and spend analysis becomes even more critical. Accounting and operations teams rarely get a chance to fix underlying problems and address process issues that cause inefficiencies at work. This is your opportunity to improve efficiency, particularly in the areas of cost control and spend. Investing in an organizational spend and operations analysis is a great way to get some quick wins for your team.
Operational areas of improvement around spend include:
- Communication: From tools used to facilitate communication to workshops on communication policies, assess the process by which spend is approved.
- Centralization and documentation of processes: Companies can use this time to document their workflows and processes, from hiring and onboarding to their spend policies and vendor relations.
- Tech stacks: Consider the fintech tools and fintech stack that can solve new challenges and help digitally streamline workflows. For example, many accounting teams now do month-end closes, run payroll, reconcile expenses and approve spend, all from home.
- Vendor relations: Recently, some suppliers have agreed to provide discounts or expanded payment terms. Use this time to negotiate new terms or select new vendors. Learn more in our Remote Procurement guide.
3. The current recession emphasizes the need to prepare for future economic uncertainty
The way business is done has been changed forever. As a result, businesses are encouraged to seek innovative ways to carry on despite the new and continually changing circumstances.
To best prepare for future uncertainties, businesses should start exploring how to manage spending in a recession and operate beyond budget freezes. Tactics include:
- Budgeting and forecasting for best- and worst-case scenarios.
- Calculating different runway models.
- Increasing internal controls to monitor spend approvals, such as lowering limits of purchase order approval authority or using the CFO or board of directors as the final gatekeeper on all material spend.
- Conducting regular reviews of spend reports to analyze variances.
- Searching for alternative options with vendors.
- Reviewing recurring spend and assessing what can be deferred.
Looking for more tips on how to control spend during a lockdown? Check out our popular Control in a Crisis guide.
4. Workflows need to be more visible and efficient
Many organizations continue to operate on a remote or hybrid model, some on a permanent basis. But that doesn’t mean that operations and spend need to be substandard. With remote or hybrid teams, efficient and visible workflows are extremely important. Fortunately, business leaders can invest in tools that make it easy to operate and improve productivity as well as digitally streamline processes, including spend management processes. The way we work has fundamentally changed. For example, paper forms and verbal approvals for spend will no longer work in the era of distributed teams.
5. The recession emphasizes the need for a business continuity plan
Many small and medium-sized enterprises lack the preparation to tackle major economic challenges. A report from Mercer found that 51 percent of companies worldwide had no business continuity plan (BCP) in place to combat a global emergency.
If you’re a CFO who has been postponing getting a BCP, now is a good time to draft one. A well-structured and carefully thought-out BCP can help you weather the current storm and set you up for a strong comeback. And one of the areas you need to have a continuity plan for is your spending.
When all is said and done
Use this period to your advantage. Train end users on new systems. Review spend insights, and correct workflow challenges. By reviewing and improving their spend management in a recession, leaders can position their organizations to be ready for any future challenge as the economy improves.
Interested in trying a modern spend management platform? Book a free, customized demo and see how Procurify can help drive company growth.
A version of this article originally appeared on Forbes.