Mastering spend control for optimal expense management

Financial stability for your SaaS company starts with mastering spending control through three key strategies: budgeting, tracking expenses, and reducing unnecessary spending. 

Budgeting helps you create a plan by distinguishing between fixed costs, allowing you to prioritize essential expenses and save for future goals.

Tracking every purchase, no matter how small, is important for understanding your spending patterns and identifying areas of overspending. This insight enables you to adjust your habits accordingly. 

Reducing unnecessary spending means cutting back on important purchases that don't align with your financial goals.

By consistently implementing these strategies, you can refine your spending habits within your organization and enhance your SaaS procurement tactics. In this blog, we'll discuss practical spend control best practices and six steps for effective spend control.

What is spend control?

"Spend control" is another term often used to refer to "spend management." It primarily involves financial departments tracking, examining, and regulating company expenses. The goal is to ensure that funds are used solely for necessary expenses and not wasted on unnecessary purchases or services, thereby ensuring the financial health and growth of the company.

But how does it work?

1. Setting clear guidelines

Spend control begins by establishing clear rules that dictate what spending is acceptable and what is not, which translate into spending guidelines for the organization.

2. Implementing approval workflows

To comply with these guidelines, spend control employs an approval system. Every expense must undergo multiple checks before it is approved, ensuring that it aligns with the company's financial objectives.

3. Embracing technology for tracking

Financial technology plays a critical role in spend control today. Through the use of modern tools and software, companies can monitor their spending in real-time. This technology provides a clear understanding of spending patterns, helps identify areas of excessive spending, and enables prompt adjustments.

4. Optimizing budget allocation

The big aim of spend control is to use your budget best. This means cutting costs and putting money into areas that will help the business grow and earn more.

5. Making informed financial decisions

With an effective spend control system, companies can make informed decisions regarding their financial allocations. It involves prudent spending to optimize returns.

These tools include:

• Procurement systems monitor your company's expenses across different categories, such as office supplies and travel costs. These systems aid in identifying areas where spending is excessive and requires reduction
• ERP systems that automate various business operations, including accounting transactions and inventory management.

Why is spend control important?  

Companies typically assess the potential value (of a certain expense) to customers before approving expenditures. Expenses that enhance customer satisfaction are likely to get the nod. Conversely, if an expense doesn't directly impact customers, the tendency is to opt for the most cost-effective solution.

For instance, consider the decision to switch suppliers. If a company finds its product quality compromised by unreliable components, it may justify the extra expense of moving to a supplier who offers higher-quality components. This switch reduces the incidence of defective products, boosts customer satisfaction, and encourages repeat business. However, if the quality of components from various suppliers is comparable, the company will likely choose the supplier with the lowest cost.

While spending money is simple, controlling it is not. Many businesses overspend because they lack a structured system to oversee their expenditures. Implementing proper spend control can significantly enhance efficiency by defining what can be spent, on which activities, and who has the authority to approve these expenses.

Understanding how much is being spent across different categories is essential for an organization's budgeting and forecasting processes. With a clear view of current spending, predicting future expenses becomes easier, complicating plans for capital expenditures and other strategic investments. Knowing your present spending is fundamental to accurately forecasting future needs.

4 best spend control best practices

Companies might only be able to stop some non-compliant spending, but they can significantly lessen the issue by setting up proper processes, policies, and technologies.

Creating and sharing clear guidelines is essential to managing spending effectively. Then, technology can be used to enforce these guidelines and streamline spending activities throughout the organization.

1. Set spending limits in buying systems

A company can better manage its spending by routing all purchases through a few technology-based methods, like a corporate procurement system. For smaller expenses, the company might give out credit cards with set spending limits or restrictions on buying certain items, like alcohol. These limits can also extend to mobile payment services.

2. Make clear rules and policies

Using technology can help control spending, but it's also important to have straightforward rules that everyone understands. For example, make sure everyone knows that purchases made with cash or unapproved payment methods will not be paid back unless the CFO specifically approves them.

3. Use a central tracking dashboard

Requiring employees to use pre approved spending methods is a good first step. It's even better if the finance team can monitor spending through a central dashboard.

4. Simplify receipt recording

Automating the collection of receipts at the point of purchase can lessen paperwork and speed up financial reporting. Some expense management systems allow employees to use their smartphone cameras to take pictures of receipts. This makes the data available immediately and is quicker and easier for employees, mainly if the system can automatically sort the spending into categories.

5 steps for effective spend control

Many organizations struggle with runaway costs. Here, we will talk about five important steps for effective spend control.

1. Streamline intake

Challenges often arise from decentralized purchasing that lead to inefficiencies and unauthorized expenditures. By centralizing intake to procure, organizations can address these issues effectively. 

The portal, functioning as part of an integrated intake-to-procure-to-pay software, ensures a seamless data flow between the purchasing and accounts payable departments. This streamlines the ordering process and leverages algorithm-based suggestions and predictive demand analytics to optimize order quantities and timings. 

Such an integration minimizes waste, ensures resource availability aligned with operational requirements, and enhances the overall financial governance by maintaining a transparent purchasing pipeline.

2. Forecast expenses

Traditional forecasting methods may fail to account for sudden market shifts or internal demand changes. By integrating machine learning models into your financial systems, you can enhance the accuracy of your forecasts. 

These models analyze historical data and identify patterns that human analysts might overlook, providing a dynamic forecasting tool that adjusts predictions based on real-time data inputs.

3. Make contract renewal data-driven

The challenge in contract renewals lies in making data-driven decisions that reflect current company needs and market conditions. Implementing an automated system that evaluates contract performance against KPIs ensures renewal decisions are made based on empirical evidence. 

This system can flag underperforming contracts, triggering a review process that might lead to renegotiation or termination to align with strategic goals.

4. Create an approval matrix

With increasing complexity in organizational structures and spending authority, creating a robust approval matrix tailored to different spending thresholds can prevent financial bottlenecks and enhance operational agility. 

This matrix should be dynamically linked to the procurement and financial systems, automatically adjusting the approval workflows based on real-time financial data and evolving organizational priorities.

5. Understand expenses

Organizations need to gain more visibility into the full spectrum of expenses which is often plagued by fragmented data. Organizations can get this by integrating all expense data into a unified analytics platform. 

Advanced categorization algorithms and AI-enhanced analytics can disclose hidden spending patterns and potential savings. 

Predictive analytics tools offer foresight into potential budget variances and forecast potential overruns, allowing for timely corrective actions. This forward-looking approach shifts financial management from reactive to proactive, optimizing financial health and aligning spending with strategic objectives.

How Spendflo helps with effective strategies

Carrying out a thorough spend analysis is key to managing expenses well. You can spot where you're overspending and save money by following specific steps. With the right tools and methods, you'll get important insights into managing your expenses better. At Spendflo, we provide an excellent solution for companies looking to improve their SaaS spend management. 

Our spend management tool is packed with features and perfect for creating a single place to keep and monitor expenses across your company. This lets you easily control your team's spending with just a click.

Contact our expert team if you're ready to manage your spending better and boost your business. Spendflo's instant assisted buying can make procurement smoother. Stay informed through Slack with our real-time concierge services, speeding up renewals and purchases to save time and money. 

Book a free demo today!