December 1, 2020

How to Turn Your Expenses into Assets

As the saying goes, it takes money to make money. But spend opens the potential for loss and risk. In a year marked by layoffs, budget cuts, and perpetual uncertainty, many businesses are fighting just to stay alive—so it’s hard for finance leaders to feel good about even the most basic expenses.

This thinking can be both prudent and foolish, depending on how you strike the balance. Spending can unlock a company’s potential for growth. The key is to look at every purchase as an investment, so you can spend smart.

Your spending can be an asset if you treat it as such. This means taking a strategic approach to create controls that maximize returns on each transaction, however small.

Proactively guard against wasteful spending

Businesses develop expense policies for a reason: to prevent waste. But two-thirds of employees have never read their company’s policy, which makes them susceptible to noncompliance. Even the most well-intentioned employees may still misplace receipts, forget to submit for reimbursement on time, or spend out-of-bounds without knowing it.

The best way to avoid noncompliance is to enforce your policy before it’s ever broken. With proactive policy controls, you can prevent employees from spending out-of-bounds or over budget in the first place—instead of admonishing them after that fact, once money has already gone out the door.

But how? You start by reordering your purchasing workflow. Rather than first making a purchase and then submitting an expense report or reimbursement request, employees start by obtaining the appropriate pre-approval(s) according to policy. The transaction data is collected upfront and reconciled in real-time, so Finance already has all the information they need to close the books.

Prioritize spend that guarantees returns

You’ve put guardrails in place to prevent out-of-bounds spending. Now it’s time to optimize the spend that is taking place. The first step is to take stock of your current spending, specifically how much is being spent with each vendor.

Taking a holistic view of your expenses (including funds that have been allocated to a specific vendor, even if they haven’t been spent yet), eliminate duplicate and unnecessary spending, and renegotiate rates. Consider the business goal behind each purchase and reevaluate against your current strategy, as things might have changed since investments were originally made

From there, monitor your spend in real-time. Instead of waiting until the end of each month to do a deep dive, aim for a more continuous accounting cycle that will allow you to react to changes as they occur. Only with real-time spend data can you have productive conversations with your leadership team about reallocating capital.

Diversify spend across the business

Eliminating unnecessary spending is an important step, but don’t stop there. Review your spend by vendor once again, this time identifying areas with high levels of spend, as well as those where you may not be currently investing.

Just as a portfolio manager diversifies investments, make sure you are investing across your business. Take a look at your entire spend portfolio. Perhaps engineering is deploying a lot of capital, but marketing is taking a more tepid approach with their spend. Does this reflect your business strategy? Are these the expenses you’d expect for a business of this type and scale?

By framing your expenses as assets, you may discover some opportunities to rebalance your investments, so to speak, as well as new avenues for capital allocation. This exercise may also  shine a light on disparities in your purchasing policy, which may favor certain types of expenses over others. Updating your policy can help facilitate the kind of spending that aligns with your company goals in order to maximize ROI.

No risk, no reward

It might feel scary, but businesses will have to open their wallets in order to grow. Taking an asset-based approach to spending will enable you to focus on your bottom line, so you can spend smart.

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