Finance is a significant aspect of running a startup that every business owner must pay attention to in order to properly conduct their affairs. Finances doesn’t just mean how much money the business spends but also what comes into the business.
Spend management is a broad concept that you must understand, as it is a fundamental component of any business.
Spend Management Defined
Spend management refers to all the steps that are involved in collating and maintaining spend data. It also includes categorizing and evaluating spend data on improving financial efficiency in the work environment.
Spend management covers every activity around the procurement cycle like business budgeting, planning, inventory analysis, supplier management, and product development.
How to Optimize Spend Management at Your Startup
It is one thing to understand the different elements of spend management and another thing to know how to optimize it for your startup. The mode of optimizing spend management for startups differs based on the size of the business and the type of products and services available.
However, by paying attention to the steps discussed here, you can effectively optimize spend management for your startup.
1. Define your expenditures
The first step to optimizing spend management for your startup is defining your expenditure channels clearly. This includes salaries, bills, and utilities, among others.
While it may appear easy to identify what these expenditure channels are, it is challenging to define the extent to which they place a financial demand on the business.
Until you can define the expenditure channels of your business, optimizing spend management might be complicated.
2. Create a system that collates all expenditure data
Expenditure management thrives on the availability of data relating to procurement costs. It is not enough to define your business expenditure channels; you also have to create a system that collates the expenditure data.
Everything that will be done to optimize spend management in a startup, like reviewing and categorizing data, depends on the quality of the collation system created for expenditure data.
While you can manually collate this data, different accounting software can be used to collect this data. With accounting software, you can get the collation done in minutes and more accurately.
3. Review data available to be sure they are correct
Whether you are collecting expenditure data manually or using any of the accounting software that exists, reviewing data is very vital. One error with data collection can affect every other step in the process.
You have to carefully review data at your disposal to be sure they are correct and reflect the realities of your startup’s expenditure.
At this stage, you should hire the services of an accounting expert. An expert will review the data from an experienced lens, making it possible to identify errors you may not if you do it yourself.
4. Group your startup’s spend data
After creating a system that effectively collates spend data, and you are sure that the details have been correctly reviewed, the next step is to group the data. Spend data, especially when it is from a large business, can be difficult to analyze.
To simplify the analysis process, you will need to group procurement data. There are several systems of grouping startup data that you can leverage.
However, before settling for a grouping method, you must review all the methods at your disposal. In reviewing, consider the feasibility of the grouping system to your business type.
Once again, to ensure you are on the right path regarding grouping spend data, working with a spend management expert might be the best option.
5. Make a comprehensive analysis of the spend data
With a grouping method selected and implemented for your startup, analyzing spend data becomes a lot easier. You can look into all the groups that have been created and carefully examine the data there. When you’re done analyzing every group, you can then analyze the whole data.
Remember that the keyword here is “comprehensive.” It is not enough to analyze data; efforts must be made. Your startup has to consider every factor within and outside the business when analyzing this data.
Without a comprehensive analysis of spend data, developing a viable spend management strategy will be challenging.
6. Create a viable spend management strategy
Once you get the previous step right and have provided a detailed analysis of spend data, the next step is to create a viable spend management strategy; that you have a strategy doesn’t always guarantee that it is the best for your business.
You have to carry out in-depth research to ensure the spend management strategy works perfectly for your startup. Then, don’t stop at creating the strategy alone; take the required steps needed to have the strategy executed.
You will not know whether you’re optimizing spend management at your startup if you don’t execute the created strategy. The results of executing this strategy may not happen immediately, as such, you need to exercise patience when following through on the strategy.
7. Review the executed strategy
Spend management is not a once and for all event for startups but something you will have to do every time. This is why you shouldn’t just stop at executing the strategy that you have created but also have a system of reviewing it.
In reviewing the executed plan, the areas you should pay attention to include:
- The strength of the strategy
- The weakness of the strategy
- The results produced from the strategy
With constant and honest reviews of your spend management strategy, you can improve it to optimize it better for your startup. To avoid any form of sentiments while reviewing your spend management, you can source external reviews.
While spend management software is essential for every startup, many business owners do not know how to go about it. If you’re one of those, your doubts about optimizing spend management for your startup must have been cleared with this article.
Now, you can follow through on the steps discussed above to develop and execute a spend management strategy that guarantees increased productivity for your business.
If you’re an early stage CEO, we handle and automate your HR, finance, and legal ops — so that you don’t have to. We help you Be Scrappy, Not Sloppy.
We understand that ops can be painful. If you have any questions or need assistance with your ops, drop us a note at firstname.lastname@example.org. We’ll do our best to help.
You may also like: Unfolding 4 Vital Steps of Wealth Management For You!
Image source: Unsplash.com