Finance Industry

How to Manage Costs During Tough Economic Times

Economic shifts happen more than we’d like and often when we least expect them. These events test not only our ability to develop and implement a new strategy, but also our capacity to quickly adapt and change course in the moment. 

Effectively navigating the ups and downs of the market is critical to a company’s long term success—and finance plays an active role in this. When the budget is tight, getting a handle on the money that flows in and out of your organization is more important than ever.

By enabling finance processes that allow your team to be agile, you can make better, faster decisions when times are tough. There are three capabilities you need to make this happen.

1. Real-time visibility

More than 60% of CFO’s say they don’t have total visibility into company spend, according to a recent survey. And they can’t act on what they can’t see.

Having real-time visibility into purchase requests and transactions allows finance to stop duplicate purchases and renegotiate prices in the moment. They no longer have to wait until corporate credit card statements and expense reports come in at the end of the month to become aware of transactions that have already taken place.

When finance teams know how much has been spent at any given time, they can reforecast, reprioritize investments, and reallocate capital quickly and strategically when the market dips—and base these decisions on current data, not last month’s numbers. 

This could mean consolidating software licenses or canceling zombie subscriptions, as well as identifying expenditures that move the company forward. As Bain & Company put it, “A smart cost program focuses on sustained changes, instead of cutting muscle or trimming across the board.”

2. Upfront control

Finance is the gatekeeper of all company spend, but for many companies, employees walk through that gate only after they make a purchase. That is, they seek approval from finance via an expense report, at which point the money has already gone out the door. 

In order to establish real control, finance needs to move their gatepost to the front of the process. Requiring pre-approvals on all care and invoiced spend ensures that requests are reviewed upfront, before money has been spent.

By coding the company purchasing policy into software, modern finance teams can prevent employees from spending out of bounds, which is especially critical when the company budget is tighter than usual.

Furthermore, establishing upfront controls increases the speed of your workforce. Employees are empowered to make the purchases they need to do their job, without fear of accidentally spending outside policy and being reprimanded or denied reimbursement.

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3. Workflow automation

The entire purchasing process, from request to reconciliation, involves a lot of manual work, data entry, and back-and-forth with employees. The workflow is often fragmented, tedious, and time-consuming. 

By having a single automated workflow that encompasses every step, finance can streamline the purchasing process and ensure that accurate data is passed through at every stage. This eliminates the need to process expense reports and manually reconcile transactions.

In addition to relieving the finance team, technology helps employees easily navigate an otherwise complex process. Reduce friction for your workforce by “unifying the entire workflow into a single automated system that guides and alerts users when actions are required,” says Peter Nesbitt, VP of finance at Teampay. 

Because they no longer need to spend hours on manual purchasing-related tasks, employees both in and out of finance teams can focus on more strategic, high-value projects.

Set yourself up for success

Certain capabilities are necessary to manage spend in times of hardship, but what makes them successful is having these measures in place even when the economy is on the upswing. 

McKinsey found that companies that exited a recession in the top-quartile companies exhibited greater preparedness and flexibility prior to the economic downturn. “The healthier your business is today, tomorrow, and the next quarter, the more resilient you will be in a downturn,” says Sven Smit,  senior partner at the firm.

Putting agile finance systems in place will help your finance team navigate today’s economy and establish a strong foundation to face future challenges.