With revenues in the doldrums across many businesses at the moment, hopefully not for too much longer, spend management is a key topic for obvious reasons.
There are various descriptions of spend management doing the rounds, including my particular favourite, the Spend Control Tower. This might conjure up visions of a Bond-esque character – not necessarily a baddie – controlling activities atop a glass box penthouse. The reality is of course much more practical and is a concept which harnesses the efforts of a core team within a business to manage and control external supplier spend with the purpose of creating a focused approach to scrutinise all spend to determine just how necessary it is at any given moment.
To kick-start the process, give consideration to the spend culture within your organisation. Create an environment which simultaneously remains true to the overall company culture and cultivates a mindset of ‘thinking like an owner’ when it comes to spending the company’s money. This mindset is a key component in the short term and can evolve to become the baseline for all team members.
For those stakeholders with authority to commit expenditure the continual question in their minds should be ‘if I owned the business what decision would I make?’. I am sure that all responsibly minded team members will have those thoughts front and centre of their decision making at present. However, when the good times roll once again, (they will, right?), just because you have a budget amount in your section of the P&L should not mean spending up to the limit every time.
Having robust processes and procedures contained within a procurement framework endorsed by the owners and senior management team will build a more commercially assertive company in the longer term.
Some ideas to consider right now in terms of conserving or realising cash are:
- Cease all discretionary spend and review any requests on a case by case basis
- Consolidate spend only on preferred suppliers and close down long tail supplier accounts
- Create an inventory of obsolete stock/FF&E and either sell it on or where possible return to the supplier for a credit
- Secure restructured pricing and payment terms from existing suppliers and/or introduce new suppliers to deliver increased value to your company’s bottom line
- Review and reduce maintenance expenditure commitments while ensuring safety is maintained
- Challenge all purchase orders with a focus on reducing the value or eliminating
Another suggestion is to deal with recurring payments – this possibly seems self-evident as most businesses will already have taken care of minimising those costs during the first lockdown. However, if a decision has been taken to temporarily close the business again due to the current tiered restrictions in place, make sure you speak with your suppliers and agree a temporary pause or payment deferral to avoid unnecessary recurring expenses during the closedown period and thereby avoid being strafed by payment demands or worse.
So many business leaders and team members are weary of events beyond their control. The apparently endless loop of lockdown and release seems unrelenting, although everyone can probably agree that this time will pass and green shoots will emerge…eventually. Everyone will have such a personal perspective on events of 2020 and looking at the positives, businesses will be so much more agile coming through the other side.
In summary, spend management is not a one-off activity but an evolving, integral business process. Transforming the approach to how company funds are spent externally will ultimately help contribute to optimal bottom line performance.
For more information on how to radically address your external spend, contact