Most finance leaders understand how crucial it is to be financially aware in a growing organization. Research shows that only 55 percent of businesses survive until the 5-year mark – and often, this is due to a lack of financial planning and management.
A big part of good financial planning is understanding where your money is going. This is what spend visibility is all about; it’s having a clear view of all company spending so that you can make informed decisions about where to allocate your resources.
There are various benefits to having proper spend visibility. Perhaps most importantly, it can help you to identify and eliminate wasteful spending. This can free up funds that can be reinvested in the company, or used to improve your bottom line.
Additionally, good spend analysis can help you to make better strategic decisions about where to expand and invest. By understanding your company’s spending patterns, you can identify opportunities and areas where you may be able to make significant cost savings.
Are you confident that you have a clear view of all your company’s spending? If not, it may be time to re-evaluate your spend visibility strategy. Read on for everything you need to know about this important business concept.
What is Spend Visibility?
Spend visibility is the degree to which you have an overview of company funds and where they go. When your finance team has a real-time understanding of where company funds stand (where they’re being allocated, spent, and what the current budget is), you have high spend visibility. This can be accomplished in a variety of ways, from detailed financial reports to software that tracks spending in real-time.
The benefits of high spend visibility are numerous. A lack of visibility can lead to wasted time and money, as well as decreased efficiency and organizational chaos. By contrast, a company with high spend visibility can make better, more informed decisions about where to allocate its resources.
Different companies go about achieving spend visibility in different ways. For small businesses, a simple spreadsheet that tracks income and expenses may be all that’s needed. Larger organizations, on the other hand, may require more sophisticated tools, such as enterprise resource planning (ERP) software or big data analytics.
What Is Spend Optimization? High vs Low Spend Visibility
As mentioned, a company with high spend visibility is one that can easily track where money is being allocated and spent. This level of transparency allows for better decision-making, as well as spend optimization – the ability to make the most of every dollar and drastically reduce waste.
Low spend visibility, on the other hand, is the polar opposite of this. In a company with low visibility, it’s difficult (if not impossible) to track spending in any meaningful way. This can lead to all sorts of problems, including wasted time and money, decreased efficiency, and organizational chaos.
Of course, there are also the in-between camps, where visibility is not perfect but is still better than having none at all. In these companies, it’s still possible to track some aspects of spending, although it may be more difficult to get a complete picture.
Elements of Spend Visibility
Though spend analysis does ultimately come down to finances, it’s not all numbers and figures. It also encompasses the ability to see all aspects of spending, from individual transactions to overarching organizational budgets. In order to achieve this comprehensive view, three core elements are needed:
1. Data capture: The ability to track and record spending as it occurs
2. Spend Analysis: The ability to make sense of the spend data, e.g. identify savings opportunities
3. Reporting: The ability to share the findings with relevant stakeholders
Together, these three elements create a “closed-loop” system that provides an accurate and complete view of the entire purchase cycle. This visibility is essential for organizations of all sizes, as it allows them to identify inefficiencies, make better decisions about where to allocate resources, and ultimately optimize their spending.
Why Does Spend Visibility Matter?
Did you know that only 25 percent of CMOs are confident in quantifying ROI? Even more alarmingly, research shows that 10 percent of every spent company dollar is wasted. That’s one million business dollars wasted every second globally.
This is why visibility matters. The transparency of where money is being spent (and on what) provides the necessary insights for making data-driven decisions about where to allocate resources — and how to measure their effectiveness.
In other words, poor spend analysis leads to wasted resources and missed opportunities, while high spend visibility enables CMOs to make more informed and accurate decisions about where to invest marketing dollars for optimal results.
The Benefits of Spend Visibility
Let’s get into the specifics of what increased visibility can do for your business.
Pinpoint Opportunities and Inefficiencies
The first benefit of improved spend management is that it allows you to identify opportunities and inefficiencies in your spending. For example, if you see that a particular marketing campaign is not generating the desired results, you can reallocate those resources to a campaign that is more likely to be successful.
Reduce Wasted Resources
With a better understanding of where your money is being spent, you can also reduce the number of wasted resources. This could mean anything from optimizing spending on marketing campaigns that are not generating the desired results to renegotiating supplier contracts that are no longer providing good value for money.
Optimize Your Marketing Strategy
Visible spending can also help you optimize your marketing strategy as a whole. By understanding which marketing channels are most effective, you can focus your efforts on the channels that provide the best return on investment.
Streamline Your Business Processes
Finally, tracking spending can help you streamline your business processes. Would you benefit from automation? Or are you small-scale enough that a simple program is all you need to track spending? Improved spend visibility will help you answer these questions and more.
Ultimately, spend management is essential for making data-driven decisions about where to allocate resources. If you want to be successful and last through to five, ten, or fifteen years of business, it’s not an option to overlook your spend visibility – so how do you go about it?
Why Companies Get It Wrong
Although spend visibility isn’t a new concept, many businesses still get their spending practices wrong. In tech spending, for instance, research shows that companies spend an average of $13,000 each on SaaS for their company – but $4000 is spent unnecessarily. That’s a 30 percent loss in potential savings.
The reason many businesses struggle with tracking spending is that they don’t have the right spend analysis tools in place. Without the necessary technology, it’s difficult to track and manage spending across different departments and geographies. This can lead to duplicate purchases, overspending on certain products or services, and a lack of understanding of where money is being allocated.
It’s also because they are set in their old systems and ways of doing things. Change is hard; businesses get stuck using the same recruitment agency, same technology, same marketing agency, and same old tricks. Many or most companies are reluctant to implement new SaaS spend management tools or procedures that could save them money.
But making the switch to better spend analysis can have a huge impact on a company’s bottom line. If you don’t have the right tools in place, a few issues can befall the company:
- Data is misinterpreted or falls through the cracks.
New and automated systems are designed to meticulously track spend data and identify irregularities. Without a detailed and organized system in place, your finance team is likely doing this manually, which is prone to error. With the wrong data, you may be making decisions about where to allocate your money based on inaccurate information.
- Spending is not centralized.
When different teams are buying their own products and services, it’s difficult to track where the money is going. Often, this leads to duplicate purchases and a lack of standardization across the company.
- There is a lack of transparency.
Management must understand where the money is being spent in order to make informed decisions about where to allocate resources. If you’ve got different teams spending money in different ways, tracking spending within your company becomes difficult.
- Overspending occurs.
It’s obviously not ideal for a company to be spending more than it needs to on certain products or services, and when no one has a clear view of spending, this is more likely to happen.
In other words, a lack of clear spend visibility can lead to a lot of wasted money and miscommunication within a company. Implementing the right tools and procedures can help avoid these issues and improve your bottom line.
How You Can Get It Right
We’ve established that spend analysis and visibility isn’t something businesses can afford to sleep on – so how can you make sure you’re getting it right?
1. Assess your needs.
Before making any changes to the way things are currently run, take a step back and assess your needs. Ask the following questions of your team:
- How much money are we wasting, on average?
- Do we tend to hit or miss our ROI goals?
- What could we do with more accurate data?
- How much time is currently spent gathering and analyzing spending data?
It’s also a great idea to talk to the other teams in your company who may be impacted by changes to your spending data, such as accounting and marketing. How do they feel about the current state of things? What challenges do they face in their own work? What, if anything, could they use more help with?
2. Automate and centralize what you can.
One of the best ways to improve spend visibility is to automate as much of the data gathering and analysis process as possible. This will minimize the amount of time spent manually gathering and sorting information, allowing you to focus on more important tasks.
The best method here is to implement some new tools, such as:
- An analytics and spend management tool, which will automatically collect and organize your spend data into a detailed and holistic picture
- A procurement software, which can help streamline the ordering process
- An invoicing system that archives all invoices and bills for easy retrieval
- A centralized payment system that makes spending, tracking, and saving money easier across the entire company
Of course, some spend management software tools will cover more than one of these categories, and that’s optimal. If not, look for tools that can integrate seamlessly with one another to make the transition as smooth as possible.
If you are a low or mid-market company, you might not have the bandwidth to hire software developers, but that’s okay – there are plenty of tools readily available.
3. Establish protocols and procedures.
No matter how tech-savvy your team may be, new tools will always throw a spanner into the works if there aren’t any protocols or procedures in place. Spend some time outlining how the new tools should be used, who is responsible for what, and what happens when things go wrong.
This document should be circulated to all members of your team, as well as those outside of it who will be impacted by changes to your spending data. It’s also a good idea to set up some training sessions – both for those who will be using the new tools and for those who need to understand the data they’re working with.
4. Be prepared for change.
Implementing new spend control tools is a big change, and it’s natural for there to be some resistance from team members who are used to the way things have always been done. It’s important to be prepared for this and to have a plan in place for how you’ll address any issues that may arise.
The best way to overcome resistance is by showing team members how the new tools will make their lives easier. Explain how the data will be gathered and sorted, and how it will help them do their jobs better. Offer training sessions, and be available to answer any questions they may have.
Remember that when it comes to spend management, a forward-thinking, innovative company will always come out on top. With these steps in place, you’ll be on your way to better spend visibility – and all the benefits that come with it.