Preview: Cutting unnecessary costs with strong financial controls
The first white paper in our ‘The Modern CFO’ content series examines how businesses can manage unnecessary costs with stronger financial controls.
Given the current economic climate, saving money on unnecessary costs is an easy win for businesses and finance leaders looking to cut budgets. But to do so requires preparation and certain process changes, particularly with regard to financial data.
In this article we’ll give an outline of our new white paper "Cutting Unnecessary Costs With Strong Financial Controls".
Cutting unnecessary costs with strong financial controls
Prioritising cost management in 2023
This year, CFOs have faced increased pressure to justify every aspect of their business spend. For most this has meant reducing budgets throughout the organisation wherever possible.
Many businesses, especially within the tech sector, have turned to layoffs to reduce costs. While many tech companies were left bloated from overhiring in recent years, layoffs usually have a significant negative effect on long term employee motivation and business performance.
According to Deloitte’s 2023 CFO Survey, 52% of CFOs claim that ‘cost management’ is their top priority this year.
There’s no doubt that preparing a business to weather economic uncertainty, while also maintaining investment in critical departments areas that will aid their long term strategic goals.
But, there are many, less drastic ways businesses can target in first line cost cutting. One of these is tackling inherent inefficiencies in the way they actually spend their money.
Putting the spotlight on indirect costs
Out of all the costs businesses face, indirect costs tend to be the hardest to manage. In most cases, this largely comes down to a combination of the following factors:
- Poor spend visibility
- Lack of centralised control over purchase decisions
- Lack of financial discipline in company culture
Tackling these challenges requires a coordinated approach across multiple different departments, with investment in tools, processes and financial responsibility as a core part of organisational culture.
Implementing the right changes
As an important first step, businesses need to focus on getting the right spend data to make structural and process changes possible.
Accurate, real-time spend data provides the foundation for smarter spend insights, which in turn allow businesses to cut unnecessary costs much more effectively.
This means having a pool of data which tells all relevant teams within your company everything they may need to know about specific spend items.
With this foundation in place, you can start to build processes that make use of this spend data.
It’s true that many spend control processes can be carried out manually, like spend approvals and receipt collection. But this is an enormous drain on time and team resources which cannot be afforded in the current economic climate.
Instead, businesses should make use of technology and automation wherever possible to provide:
- Rules and tools to control spend
- Real-time custom budget controls
- Receipt and spend data
Exactly how to do this depends largely on the company in question. Some businesses spend far more on specific types of expenses than others, and are therefore more likely to suffer from specific types of negative spend.
One example is using a software system or tool to streamline accounts payable and supplier invoices.
This would allow a business that deals with a large, varied portfolio of suppliers to save money in a variety of ways:
- Streamlining the invoice approvals process by automatically routing each invoice to the correct decision maker depending on variables like cost centre, invoice date, department, payment method, etc.
- Connecting purchase requests directly to approvals to speed up payment.
- Speeding up invoice processing with optical character recognition (OCR) and automatically routing data to relevant systems.
Actively identifying and cutting unnecessary costs
While time savings translate into money saved, upgraded spend systems and processes also allow businesses to actively identify unnecessary costs themselves.
For example, more accurate data about which departments are spending money on what makes it a lot easier to uncover duplicate spend. This is particularly common when it comes to software and subscription payments.
Precisely how businesses can cut spending or make their spending more efficient comes down to which tools and processes they are equipped with.