How to Improve Expense Control: Tying Spending to Budgets
Though restrictive controls may seem like the right solution for business expense control, they actually create new problems for companies and get in the way of growth.
In order to manage employee spending in real time, many companies turn to complicated and restrictive controls. Though rule sets and per-person spending limits may seem like the right solution for business spend control, they actually create more problems for companies than the total cost savings might be worth and get in the way of the whole company's growth.
The bottom line is that types of expense restrictions like these are not the right way to leverage spend management! Let’s look at why complicated controls are problematic, and what your company should do instead to keep spending in check.
- The ways that your company may be currently managing spend
- How these controls are doing more bad than good
- The spend control secret that supports agility
- How to implement this revolutionary cost savings solution
The problem: Complicated spend control rules prevent agility
If you’re reading this article, you’ve probably encountered restrictive company spending policies at some point in your career. While rules like “only the CMO can make Marketing purchases above $500 using corporate credit cards and it cannot be on anything other than ads,” or worse, “every purchase needs pre-approval from the finance department" are meant to control spending, they end up creating new problems that impede agile growth.
First, complex business spend control and cost cutting rules prevent employees from being productive. Let’s take another example. If your company mandates that only engineers can make software or SaaS purchases, and a marketer needs to purchase software, this rule prevents the marketer from making this warranted purchase. To complete the purchase, the marketer has to wait for approval from the finance team or bug an engineer to make the purchase on their behalf – which then also risks becoming a miscategorized expense. A task that should’ve taken one person five minutes to complete, now involves multiple people and could take days to finish which is unnecessarily time-consuming.
Second, restrictive employee expense controls create more work for the finance team and CFO. If your company requires the finance team to approve every purchase, or nearly every purchase, it has two options. The first is to hire someone in house just to approve purchases, which is a waste of resources. The second is to give the task to an existing team member, who will be constantly bombarded by approval requests, which will distract them from more important financial analysis projects.
Strict controls are barriers that end up creating more work for your finance team and employees who are trying to make warranted purchases. To achieve agile operations, you must have visibility into and control over spending, without letting it be a barrier to productivity.
The solution: Swap restrictive controls with business spend management software that focuses on budgets
So what’s the alternative to unrealistic, restrictive controls? Moving all business spending to corporate cards that are tied to budgets!
Spend management software with virtual corporate cards are the key to making this work. You can set these tools up to allow employees to make purchases through certain merchants within these budgets. This approach, which is known as spend management, allows a sufficient level of control without abandoning agile operations.
A spend management tool that revolves around budgets maximizes visibility, allows for instant monthly to actual budget review, and enables individual departments to quickly make decisions and purchases while still being prevented from overspending.
So how can you implement business expense management at your company?
- Find spend management software, like Lola.com's industry-leading solution, that lets you issue corporate cards and tie budgets to these cards based on different expense categories. A traditional corporate card credit limit isn’t the same thing, as it doesn’t assign spending to a specific purpose.
- If you don’t have one already, create your operational budget. Use our startup budget template for guidance. Divide your first business budget into smaller budgets, such as per department and even per project within departments.
- Set up these sub-budgets in your spend management software. For example, you could create a $150,000 budget for your annual staff retreat.
- Use your business spend management software to assign who at your company is authorized to make purchases under that budget. For example, you could allow your company’s COO, events coordinator, and head of marketing to make purchases for the annual staff retreat.
- Issue corporate cards to those team members. You can issue physical cards to employees who make purchases often, and issue single-use virtual cards to those who need them only for this project.
- As purchases are made, you’ll be able to see them in real time via your spend management software.
Agile spend control.
With a spend management process that ties spending to budgets and corporate cards, you can take control of business spending without slowing down employees and impeding agility.
Removing the need to constantly approve purchase requests and automating other repetitive tasks can truly have a huge impact for finance leaders. You get time back to focus on helping your business grow, achieve its financial goals, and improve cash flow, while being able to rest assured that the team won’t be overspending.
This is why we built Lola.com. It’s time to make the switch to agile operations.