Expense management: Honing the double-edged sword
Kevin Phillips, CEO of Idu Software, examines some of the issues growing businesses encounter around expense management.
“Expense management is not always about minimising costs”
Ironically, growth and success can be a double-edged sword for small and medium-sized businesses. On the one hand, you're growing and hitting the milestones, which is a massive achievement, especially in today’s tough economy. On the other, quite quickly things that used to be simple and straightforward acquire added levels of complexity. All of a sudden, as the business owner or FD, you simply can’t be as hands-on and omniscient as you used to be.
It’s pretty daunting giving up some of this control, especially when it comes to something such as expenditure. Expense management, especially in the SME world, is really about procurement and “signing off” on expenditure before the money is spent. As your company grows, this becomes impractical. You as the business owner or manager need to focus on new business and growth strategies, rather than being tied to paperwork.
The only way to proceed is to start empowering the rest of the organisation to take ownership of some of these tasks. And to do this, you need to put the tools and processes in place — such as reporting, which, while reactive, will allow you to spot issues in a timely manner. And most importantly, you need to ensure everyone understands and buys into the big picture, and is able to align their goals with this overall strategy.
For instance, you need to make clear the difference between cutting expenses and managing expenses and tie this to overall company strategy.
A mid-level manager tasked with controlling spending might be wildly successful at that specific metric, when taken in isolation. And this might be wildly unsuccessful for your company as a whole when you consider things holistically.
For instance, collectively your mobile phone bill might be right down, which is great. But it’s not that great that customers are disgruntled because they are not being contacted in a timely manner, and so have taken their business elsewhere. On balance, that mobile phone bill saving suddenly doesn't look so rosy anymore, not when compared to the business you have lost.
And your middle manager? Well, they did what you asked them to do, especially if you didn’t provide them with any context.
I’ll admit, this is a pretty simplistic example — although unfortunately still a common enough occurrence. How often, as a customer, have you been inconvenienced to the point of defection through an obvious cost-cutting exercise? But now consider this in the context of the digital disruption the world is going through. Where doing more of the same is no longer going to cut it, and very soon you’ll find you are running to stand still.
It’s a world where, in order to save money and make money in the future, you need to spend money today. Moving to the cloud is the perennial example: without an investment in cloud infrastructure and capabilities today, you won't be able to offer the services and functionality demanded by your customers tomorrow.
In this scenario, being over budget is not necessarily a negative, provided you can explain it in terms of a bigger picture. So expenditure management is not always about minimising costs.
Today, more than ever, it is critical to communicate your company strategy, tie it closely to individual goals and targets, and then give your people the tools to enable them to achieve their, and your collective, goals.
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Kevin is the founder and CEO of idu Software. He has degrees in Commerce and Accounting, and started idu with partners James Smith and Wayne Claassen in 1998. Kevin is fast becoming a thought leader in his field, and makes regular comment in the media about current affairs affecting business, as well as accounting, finance, budgeting and...