It’s happened countless times – and it’s the reason why many companies go under. Companies don’t get a realistic look at their spending or don’t even care to do it. And after this happens for a while, the company either has to restructure itself with new staff or close its doors completely.
The pattern usually goes like this:
- The CEO takes risks and funds large, ambitious projects.
- The company delivers a modest performance. Board members start to ask major questions.
- The CEO must answer to the board and defends their choices. The board asserts their control and fires the CEO. Instead, they hire a CFO to take over the CEO’s job.
- The CFO, who was hired to bring costs down, stops working on passion projects and obsesses over the bottom line. To get the company back above water, the CFO initiates massive layoffs and keeps the CEO position as long as there is profit.
The issue is a bit more complicated, of course, but that’s the gist of it. Companies and investors have worked under the impression that their choices are limited when it comes to the kind of leader they can hire. Most of them think they only have two options:
- Hire a visionary leader to foster an innovative company that pushes the envelope.
- Hire a CFO because they can get a tighter grip on the financial situation with better fiscal controls by cutting jobs and costs without giving it a second thought.
There doesn’t seem to be any consideration to the possibility of hiring someone that allows the company to remain innovative while keeping themselves fiscally disciplined.
That’s why spend visibility matters so much to your business.
Fab, once the most funded startup in New York City, raised $336 million in capital, only to find that they had spent $200 million of it in less than two years. It’s not the amount of the spend that really matters here, but the fact that the company failed to realise they’d spent so much of their capital investment. They realised it later when it was too late. A year later, the company ran out of money and went under.
Though it may seem like Fab went under because they weren’t tracking their spend, that’s not the case. The issue is the lack of spend visibility, which is much more than tracking spending itself.
What is Spend Visibility?
Spend visibility is more than tracking spend because it provides a holistic and detailed picture of how money is moving through the organisation.
Imagine you are the CEO of a mid-market company overseeing 300 employees. Some of the situations where spend visibility will matter to you:
You’ve just received worked that your office’s printing capacity isn’t high enough, and you must order additional printers to keep up with demand. Will you still place an order for additional printers upon discovering your office supply budget has nearly reached its maximum? You have to determine what portion of your office supplies budget has already been spent, and if you can afford to spend more without going over budget.
That would be the best way to make a decision, but for most companies like this one, without spend visibility (the real-time report of spending and budget) they would have ordered the new printers anyway, only to discover they exceeded the office supply budget after the fact, when the next quarterly report is released.
The Real Reasons Behind the Spend
With spend visibility you get to see the entire purchase cycle. You’ll be able to see which employee made purchases and which employees agreed to the prices, whether it was an expense for items or a contractor that was hired. You’ll get a detailed and organised system of records that tracks the history of every order from the time it starts until the money in the bank. It allows you to see the full story behind every dollar you spend which is helpful in detecting fraud or other bad behaviours within your company.
As important as it is to obtain the story behind this Bend or the history of decisions that came ahead of the spend, it is also important to see the step-by-step account of the transaction history. Starting from the purchase order and moving all the way through the receipt of the goods ordered to the invoice sent by the vendor, each document plays an important role in the company’s records. These documents are vitally important when you’re filing taxes.
if your financial controller isn’t sure about some numbers, or if a third-party auditor needs to trace the audit trail behind a transaction, they must be able to obtain the documents instantly. Spend visibility requires that they are able to do so without needing to deploy a large number of resources and waste time and energy. When you have perfect spend visibility all documents can be obtained and cross-referenced with just a click of a button.
Finding Cost Savings
Your company consists of multiple departments and each department has its own needs. If your product development department uses a recruiting agency to hire software developers and your marketing agency used another, there could be some room for your company to save money. Having both departments use the same recruitment agency funnels more business toward one recruiting agency allowing you to obtain a better deal from the agency and save money. So during the next fiscal year when your company is hiring, you could choose to go with a single agency.
The possibility of finding savings opportunities wouldn’t happen if you were not aware of spending decisions that were made across the company. You wouldn’t be able to make any insights are observations without being able to see your company spending at both a granular level and from a larger perspective.
“Working to achieve invisibility throughout your entire company can make a major difference to your bottom line. It allows you to spot fraudulent behaviour, find cost savings, and ultimately end wasted spend across the entire supply chain.”
How Can You Achieve Spend Visibility?
Step One: Establish Your Baseline
To get started, build your baseline. Identify purchasing trends, and product and service commonalities. This allows you to identify a baseline spend within each of your spend categories and therefore track future spend against the baseline. It helps you identify maverick spend as well. Having a baseline allows an organisation to monitor if their current sourcing processes are driving cost optimization results.
Step Two: Implement an Automated Purchase-to-Pay Solution
Implementing an automated purchase-to-pay solution such as purchase control can help streamline your processes while keeping everything in line. By providing you with a system to create and store purchase requisitions, purchase orders, goods receipts, and invoices, you’ll be able to track everything from start to finish as required for Ben visibility.
The built-in audit trail allows you to keep track of who is doing what for each transaction. You can place budget limits on the departmental level and control spending on a user level. User permissions determine which vendors they have access to as well as the actions they can take within the system.
Automation rules allow you to handle the approval workflow smoothly reducing the likelihood that purchase orders and invoices get lost or ignored. In the event that someone has to take an extended leave of absence, proxy permissions can be assigned to another user so that the system can continue to run smoothly in their absence.
Step Three: Monitor for Compliance and Address Issues as They Arise
After you have implemented your purchase to pay solution, monitor it for compliance and address any issues as they arise. With the system in place, procurement professionals can spend less time chasing down documents and more time focusing on the parts of the procurement function that bring real value to the company – the sourcing strategy, monitoring supplier performance and ensuring contract compliance.
Once you have a decent amount of data to work with, you can use it to gain insights about your category management and spend. This allows the procurement department to develop supplier strategies and potential savings.
From there you can use the information to negotiate better terms with your suppliers. Access to accurate historic spend data for each supplier put your procurement team in a much better position when it comes to negotiating contract renewals and developing new supplier contracts.
With the data in place, you can use spend analysis software to get a better look at what you’re spending and where. This makes it easier to make informed decisions about what you should do next. You’ll have a solid answer about whether or not you can afford to buy new printers you need – which can make a difference to the company long after the purchase is made.
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