Strategy

One Lever of Business Survival: Tighter Expense Control


by FEI Daily Staff

Financial executives are seeking as many levers of cost control as possible in this economy, and employee expenses loom large as a target for cuts.

While big companies have been applying extensive procedures to manage expenses for quite a long time — from expense control staffs to sophisticated expense oversight automation — most smaller enterprises have not.

But these small and midsized enterprises (SMEs) are just as eager to implement stronger controls over how employees spend the company’s dime.

“Spend management” is becoming the preferred term for those seeking to optimize their operating expenditures. To understand the importance of spend management to business owners, RBS Citizens conducted a formal research study in conjunction with MasterCard, focusing specifically on the ways owners control expenses. The study questioned more than 400 owners of businesses with 100 employees or less.

One revealing finding is that 58 percent of respondents said the potential for misuse of company funds by employees is a point of concern. For those employing 21 to 100 workers — where there presumably would be a greater distance between an owner and most employees than in companies with fewer than 20 workers — the level of concern is 66 percent.

At the same time, 55 percent of respondents say that “realizing cost savings” through better management of employee expenses would be most beneficial to their business. But many express displeasure with how employee expenses are currently being monitored. Among the responses:

▪ 35 percent want an easier way to track and control expenses.

▪ 31 percent have concern they would unable to quickly identify employee fraud or misuse of funds, if it happened.

▪ 28 percent say monitoring and managing employee expenses is one of their least favorites things about the job.

▪ 27 percent express concern the business is without adequate processes to prevent misuse of company funds.

▪ 35 percent say they would prefer to spend less time controlling employee expenses.

These reflect a widespread frustration among the owners about their ability to monitor and control a factor that concerns them. Digging deeper into how these expenses are actually managed reveals a strong basis for their concerns.

Small business owners have many inefficiencies in their expense processes: 65 percent use either a cash reimbursement or petty cash system to reimburse employees for company expenses; 31 percent handle all expenses themselves; and 21 percent use their personal credit card for business charges.

Such inefficiencies cost time and money, and these processes aren’t scalable. As a business grows, a greater portion of the chief executive’s time will be dominated by expense details.

Balancing Growth and Spend Priorities

In large corporations, teams of people focus on expense management, using complex tracking technology and tools to push down costs in every corner. Small business owners also have a business to build, often having to choose allocating time to tracking spending or seeing prospects and customers. The large company executive decides: should each purchase be closely and manually monitored, or should more time be committed to strategic planning and forecasting?

Given the all-inclusive range of responsibilities of the C-suite, research indicates that small business CEOs are seeking easy-to-implement spend management systems that balance the pressures of identifying wasteful or possibly fraudulent spending on the one hand, and focusing on the primary business of the enterprise on the other.

In an uncertain environment, owners are trying to manage the things they can control, expenses being one of them. Spend management can thus mean limiting employee use of a company credit card, setting spending caps or having real-time information about purchases made or attempted. Spend management systems serve as a kind of “automated comptroller,” minimizing the need for a more intensive hands-on approach.

As a competitive concern, small business owners must rethink their expense strategy. For most, the first step may be to start implementing a strategy at all, as many companies treat expenses ad hoc rather than deliberately. While business owners recognize expenses as a pain point, they continue to manage them inefficiently.

By more effectively integrating expense control with their entire cash management systems, they can aggressively grow their businesses.