Benjamin Franklin once said, “Beware of little expenses. A small leak will sink a great ship.” As the Covid-19 pandemic wreaks havoc across the world, businesses in the U.S. have not been left unscathed. In fact, almost 2% of small businesses in America have shut down permanently, according to an April survey by researchers from leading universities.
Change is inevitable if you want to stay afloat. 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 the economic downturn, along with the new business environment caused by the Covid-19 pandemic, 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, 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 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.
CFOs who succeed in the coming months will be those who are able to adapt and continue innovating.
2. The New Work Environment Highlights Operational Inefficiencies
Accounting and operations teams rarely get a chance to fix underlying problems and address process issues that cause inefficiencies at work. For some teams, the shift to remote work is a forcing function for addressing challenges that were tolerated before. This is your opportunity to improve efficiency, particularly in the area of cost control and spend.
Operational areas of improvement around spend include:
• Communication: From tools used to facilitate communication to workshops on new virtual communication policies, assess the process by which spend is approved.
• Centralization and documentation of processes: While preparing for remote growth, 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 that can solve new challenges that surfaced with the transition to remote work. For example, many accounting teams are now forced to do month-end closes, run payroll, reconcile expenses and approve spend, all from home.
• Vendor relations: Some suppliers have agreed to provide discounts or expanded payment terms during the pandemic. Use this time to negotiate new terms or select new vendors.
3. The Current Crisis Emphasizes The Need To Prepare For Future Crises
The extent to which the pandemic will continue to disrupt daily operations is unclear, but what can be said with certainty is that it will be a while before business resumes as normal. Businesses are encouraged to seek innovative ways to carry on despite the unusual circumstances.
To best prepare for future emergencies, businesses should start exploring how to manage spend 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.
4. Workflows Need To Be Transitioned Remotely
Nobody knows when we’ll all fully be back in the office. Does this mean that operations and spend need to be substandard while awaiting the grand return to work? No. Fortunately, business leaders can invest in tools that make it easy to operate and improve remote productivity, including spend management. The pandemic caused a significant shift in how we work. Paper forms and verbal approvals for spend will no longer work in the era of distributed teams.
5. The Crisis Emphasizes The Need For A Business Continuity Plan
Despite the gargantuan role of small and medium-sized enterprises in the economy, many of them are poorly prepared to tackle major challenges. One 2011 report found that 59% of small shops and salons had no business continuity plan (BCP) in place. What is even more revealing is the fact that 21% of professional services firms said they didn’t think they needed one.
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 now, leaders can position their organizations to be ready for any future challenge as the economy improves.
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