When families decide how to spend their money, there’s usually a universally shared agreement that you must live within your means. Only spend what you can afford, look after your savings, and, in general, be very careful with your money.
You also typically have someone – such as the head of the family – to take control over financial matters. They’ll look after the bank balance, curb unnecessary spending, validate the bills you receive, and make sure the family finances are in order.
But when it comes to an organisation, no matter the type or size (commercial, non-profit, or even government) people’s behaviours and attitudes towards money suddenly change.
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The curse of being successful
Even the largest of organisations had to start small. And in the beginning, with one or more founders, it’s relatively straightforward. You know what your company is all about, you have a feel for how it should spend its money, and you’re able to constantly communicate with one another.
In these early stages, you and your fellow founders are the ultimate decision makers on all matters, and you don’t need to consult with anyone else to ensure your organisation’s money is spent appropriately.
Typically, you’ll work with an in-house or external accountant, who’ll help you pull everything together for tax and – for regulated companies – audit purposes. This is simple too, what with everyone working in the same space. Everything can be done in person; inbound invoices and bills can be printed and signed; and you can seek quick clarifications on any questions that might arise.
In short, everyone is aware of their responsibilities, and they can be confident of making the right decisions over how the company’s money should be spent.
However, this all changes as the organisation scales and evolves. Be it through growth, increased turnover, or in some cases personnel changes, the decision making process can become more convoluted. With more people involved (in-house and remote), opinions over how to manage spending can begin to vary. Different departments will have differing points of view, and not all of this information will make its way back to the ultimate decision makers.
And if the organisation has not established proactive spending control measures, such as Spending/Purchase Orders (POs), it could easily find itself dealing with lots of invoices and bills from suppliers for goods and services it might not require.
The organisation’s accounting department – in-house or outsourced – could also find itself in a complex situation. In such a scenario, they would have to dig through emails to find out if the invoice or bill was actually approved by someone with the correct level of authority within the organisation, as well as carry out time consuming data gathering activities to ensure that the spending was properly coded and accounted for in their system.
Where it all starts to fall apart
Chances are, the old paper/email approach to doing business would start creaking under the pressure at this stage, either because it takes too much time to get a bill processed, or because you’re frequently forced to dispute a bill with a supplier.
However, unless the organisation has the people at the top with experience of overcoming this kind of challenge, most can be slow to recognise and deal with it. Usually it comes down to a dramatic organisation-level indicator to prompt action, such as a fast receding amount of available cash, rising late-payment fees from suppliers, or missing critical customer deliverables due to billing errors.
Frequently, such organisations do not understand that the problem is systemic, and that to solve it, drastic and quick changes are required. And these changes must begin with the internal processes, and extend to the systems used to support them.
Signs that you need to change your approach – and fast
So, how do you know when it’s time to make a change to your spend management? Here are a few telltale signs:
- You process all of your invoices via email, before printing them, and asking your executives to sign them. They’re then manually entered into your accounting/ERP system.
- You have multiple locations with people with the authority to order goods and services for which you are then invoiced and billed as the central organisation.
- You don’t have a proactive approach to the management of your spending, for example using a Spend/Purchase Order.
- As an accountant, you spend a lot of time chasing people trying to understand how to code their bills correctly.
- You spend too much money with a few suppliers, or spend money with different suppliers for the same goods and services.
- You spend a lot of your time dealing with suppliers that complain about your organisation not paying them on time.
- Most of your purchases/invoices end up in the “Other” category in your accounting system.
If you found yourself nodding along to two or more of the points above, chances are you need to take a closer look at your spend management, and make the necessary changes to how your organisation looks after – and spends – its money.
To discover the very best practices for dealing with company spending issues, join the upcoming ApprovalMax webinar, aptly named ‘Best Practices for Spend Management’ on Tuesday August 28th, 2018.