The global business landscape has seen multiple changes and reforms since the onset of the pandemic. As a result, today’s decision-makers need to subtly predict what the future might hold in terms of opportunities or risks with context to their business.
A recent Deloitte survey stated that companies had modified their cost management strategies from a “Save-to-Transform” before the pandemic to a “Save-to-Thrive” in the current scenario. Additionally, the likelihood of cost-saving initiatives to be accepted company-wide has globally risen by 74%.
With an unstable economy, every penny saved could impact a company’s profitability. So there’s no better time to create efficient business processes than now. This blog covers multiple ways businesses can do so while also creating a financial balance that sustains them in years to come.
Why should businesses pay heed to operational costs:
- Identify and eliminate unnecessary expenses across the org
- Negotiate better discounts and deals with frequent vendors
- Improve cash flow management and financial sustainability
- Reallocate budgets and costs to optimize business spend
- Eliminate hidden operational costs that can add up easily
How can businesses cut or save on business expenses?
1. Relook processes that could benefit from automation
Baker Hostetler reported that human errors cause 50% of data security incidents. Thus, the danger of manually managing processes is that it leaves room for human error and bias. Further, in a remote scenario where employers cannot monitor employee actions, it leads to lost time and money to human errors.
Steps to check if existing financial processes need tinkering:
- Identify processes that are time-consuming and require employee effort but offer little to no business impact.
- Listen to your employees’ concerns on tasks that feel redundant and more difficult with the onset of remote work.
- Look for areas where finance teams and managers lack control and insight.
- Evaluate the impact of broken processes on your business operationally and non-operationally.
Possible ways to address broken financial processes:
- Consider outsourcing tasks or even hiring interns if employees are overburdened with work.
- Adopt cloud software to do all the heavy lifting and provide a layer of accuracy and security.
- For instance, let’s take the case of manual and automated expense reporting:
- If you have around 100 expense reports a month, using a spreadsheet-based system for expense tracking will cost you approximately $68 per expense report.
- But with an expense report software, the time taken to process a report is cut by a third, and the cost of processing the same 100 expense reports in a month will come down to $11 per expense report.
The ROI on expense management automation would be $68 (Cost of spreadsheet-based expense tracking) – $11 (Cost of automated expense reporting)/ 11 (Total cost per expense report), which comes upto 500% on your original investment. This builds a data-driven business case for businesses to consider expense automation.
Similarly, calculate the ROI for automating other financial processes to identify and optimize processes to cut operational costs and save on hidden costs.
2. Use technology (wherever possible)
Automation-driven technology is your go-to solution for seamless and efficient financial processes. These software take over the heavy lifting, eliminate manual work and human error, and help Finance teams focus on other tasks.
Automating accounting processes from accounts payable/receivable to payroll to expense management gives real-time visibility and complete control over organization-wide expenditure. This helps Finance teams make intelligent and informed decisions on cutting and saving costs.
Additionally, these centralized software also help with collaborations across teams and departments, making it ideal for the remote work setup. For instance, Google Docs or Trello are free tools that help organize your company’s documentation and provide seamless ways to collaborate. In addition, Time-tracking automation helps employees save over two hours a week by eliminating manual logging of time.
There are multiple software out there in the market today, but businesses must know their specific needs before starting the selection process. Then, once done, Finance teams and other key stakeholders must test the products from multiple vendors before making an informed decision on what would fit the bill.
3. Effectively track and monitor all business expenses
Staying on par with one’s expenses is the first step of sound financial management. The Federal Reserve Bank of Chicago had found a direct correlation between financial management and the financial health of an organization. When correctly done, it can ensure that businesses stay well within the range of their operational budgets and that they don’t fall into the trap of over-spending.
Expense tracking and monitoring help businesses in the following ways:
- Creating budgets: To draft clear and concise allocations that rarely waver, Finance teams need to know precisely how much cash the company has and the likely spend while also tracking projected expenditures with actual ones.
- Optimizing cash flow: Proper tracking and monitoring of expenses ensures a healthy check on business expenses even during emergencies. Businesses can also plan and enforce how employees can responsibly use credit cards to maintain good credit scores.
- Identifying risks and mitigating: Regular expense reviews help Finance teams spot unplanned spending or any such anomalies. This enables them to spot and minimize out-of-policy expenses immediately. This helps cut out multiple unnecessary costs in the long run.
- Stay in line with other industries: The survey published by the S Census Bureau shows region-wise data on just how much businesses are spending. Regular tracking of expenses will ensure that your business is well within the range of others in the industry. On the other hand, if your costs cross set benchmarks, it might be time to look for new opportunities to cut costs.
4. Redefine and effectively enforce expense policies
Expense policies are vital to compliance. A well-crafted expense policy can not only enforce better compliance but can also reduce back and forths, expense policy violations, and even expense fraud. Hence, businesses must pay close heed to what their policies entail and how they enforce these policies throughout the organization.
Additionally, with the indefinite shift to remote work, employee needs and situations have changed. As a result, all previously set policies are now liable to adapt to remote working trends.
Ways to redefine and enforce expense policies:
- Go through every existing policy in the company and see which ones have been affected.
- Make necessary changes to the policies to make expense management easier for everyone.
- Over-communicate the revised policies across departments.
- Get feedback from employees on the new policies and check if further changes are needed.
Remember, expense policies are not rules bestowed upon employees. Instead, they are a set of instructions to make reimbursements easier. Helping employees understand the logic behind policies will improve compliance. Additionally, when employees feel accountable for the expenses they submit, it reduces fraud and reimbursement turnaround time.
Ways to improve expense policy compliance:
- While you may not reward employees who comply with company policies, ensure you take action on those who don’t. This will ensure other employees stay compliant and encourage these practices to even newcomers.
- Adopt a cloud expense management software that comes with a robust policy engine that ensures automated compliance. The software helps Finance teams set custom policies and enables employees submit compliant expenses by informing them of violations instantly.
5. Use data analytics to make data-driven optimization
Modern expense reporting systems have advanced data analytics capabilities that provide meaningful insights after analyzing expenditure across departments, projects, cost centers, budgets, and more. This enables Finance teams to draw informed decisions from the expense data without any extra manual effort. These insights also provide Finance teams enough ammo to look for new cost-saving opportunities.
For example, if sales associates frequently travel with the same airline company, your Travel Manager can negotiate the best offers, deals, or discounts when purchasing tickets. The same applies to hotel chains that your teams stay at while on business travel.
Backed by actionable insights from data, budgets and expense policies can be evaluated or reevaluated when needed. Finance teams can also understand which departments are overspending and which employees have been violating policies frequently. This enables Finance teams to take timely action to stop fraud and ensure financial stability for the company.
6. Regular check-ins with your Finance team
Regular audits ensure illegal activity is detected and prevented. Additionally, fraudsters can be caught and subjected to strict action to ensure that other employees are aware of the consequences. This can drastically reduce expense fraud and help save costs. Audits also help Finance teams understand employee spending patterns and trends. This can help them find areas to optimize or reduce costs.
Benefits of regular audits for your business:
- If done regularly, Finance teams can find cost-saving and cutting opportunities and save thousands of dollars every year.
- Regular audits ensure that the company stays compliant and does not get into trouble with the IRS.
- Leadership teams can get a clear picture of the financial health of the business.
- Audits ensure that companies do not fall into the trap of overspending when planning to scale.
Conclusion
Regardless of the initiatives taken to cut down on business costs, ensure it doesn’t affect your product or service quality. A satisfied customer can, in their power, increase sales through word of mouth or repeat purchases.
Efficient methods to manage expenses lie at the core of every business. Fixing broken systems and constantly improving is essential in staying ahead during uncertain times.
An expense software is an easy and intelligent solution to streamline expense management and find cost optimization opportunities with zero manual effort. It helps your business have a healthy financial bottom-line and save on costs whenever and wherever possible.