Is your business leaking cash flow from overspending?  If you don’t know the answer, then ask yourself whether your finance team has visibility into spending transactions.  According to a CFO study conducted by the Economist Intelligence Unit in 2018, over 60% of the surveyed finance executives didn’t have complete visibility over the transactions within their organizations.  Without visibility, finance can’t know whether enough budget is available to cover spending.  And if controls aren’t in place to check spending against budget, the business unnecessarily incurs the risk of losing money.

At Sage Intacct, we’ve spoken with finance leaders who’ve expressed spend management challenges while trying to grow the business quickly.  These companies are spending more and apportioning the budget to multiple budget owners (e.g. department heads, project leaders, fund managers, etc.).  And ideally, finance leaders would like to ensure that company spending stays within budget to meet growth objectives (e.g. profitability goals).  But budget compliance starts to break down when companies exhibit these two traits:

  1. the company structure is decentralized: there are multiple budget owners choosing which vendors to work with; and
  2. the finance department is centralized: the team relies on spreadsheets and manual processes to determine whether budget is available to cover spending.

Based on our conversations with finance professionals, we’ve identified three things that finance leaders should do to stop overspending and be more data-driven.

  1. Ensure budget compliance by automating spend management

“Does it fit within budget?” 

When I recently spoke with the finance director of a multi-entity organization, this was a difficult question for him to answer using spreadsheet-based processes.  Firstly, budget owners didn’t know exactly how much of their budget had already been spent and how much remaining funds were available.   

Secondly, while spreadsheets are easy to use, they are equally easy to make simple mistakes that can have big impact – entering an incorrect number, applying the wrong formula, or using outdated information carried forward from an earlier spreadsheet version.  With spreadsheets, finance couldn’t have confidence that information was accurate. 

At Sage Intacct, we introduced a spend management solution that minimizes manual mistakes and enforces controls to prevent overspending.  With our solution, anyone can see the budget impact for approving a spend request and the remaining funds available with the click of a button.  And, our solution enables companies to set spending limits so that anytime a request would potentially create a budget shortfall, an approver can receive advance notice before funds are disbursed. 

  1. Use dashboards to ensure that spending is aligned with business goals

“Where is the company headed?” 

When I spoke with the controller of a fast-growing software company, this was a question he and his CFO addressed for board reporting.  The company increased its workforce and was spending more money to fulfill departmental needs.  In order to understand impact on profitability, finance not only had to do deeper spend analysis across multiple departments and multiple line items but also had to report results more frequently to executives.  

Prior to using Sage Intacct, the finance team didn’t have a good understanding of profitability.  Departmental financial rollups were done manually using spreadsheets and would take days to complete.  And, budget-to-actual variance analysis would take hours for finance to identify issues and understand the results.        

With Sage Intacct, one set of shared dashboards makes it easy for anyone to look at the P&L, for any department or for any budget owner.  With dashboards, meetings will always be data-driven, based on real-time comparisons between actuals and budget.  And, if an unusual or large variance appears on a dashboard, anyone can drill down into the details to understand what’s happening.  Finally, a finance leader can decide whether to stay the course or course-correct, and then repeat this process every cycle to ensure that spending is aligned with business goals.

For example, if the business missed revenue goals for the quarter but had maintained the same level of spending, profitability will be lower than expected.  A dashboard will tell you immediately which department spent the most and which line item incurred the biggest spend.  After you’ve identified the issue, a dashboard will then tell you where you can conserve cash and where you can potentially cut spending in order to meet profitability goals for the rest of the year.

  1. Benchmark your performance to identify areas to improve    

“We’re always looking for ways to improve.”

The CFO of an international nonprofit shared this phrase with me recently.  Previously, she joined the nonprofit in 2014, which was around time the company decided to switch to using Sage Intacct.  Since then, productivity improved more than 25%, the CFO cultivated a workplace that looks for processes to improve and the finance team has been committed to obsessively analyzing the data regularly. 

You need the right technology, the right people, the right process to be data-driven.  And if you’re not sure how effective your finance function is, then benchmark your performance.  At Sage Intacct, we recently did a survey of finance executives to discover the drivers behind major process and technology changes.  Click here to get a quick take from your peers and benchmark best practices.  Also, does your financial close make the grade?  In a separate survey, we asked small to mid-size businesses to give an assessment of their close process.  Click here to find out how your close process compares to your peers so you can see how you might improve your processes.