It’s much sexier to talk about increasing revenue than to discuss managing expenses. Both play an equally important role in optimizing profitability, though.
And if you study the practices of the leading companies, you’ll find they give just as much weight to both elements of the equation.
Four Tips for Smarter Spending
A dollar saved is just as valuable as a dollar earned. So spending with smart intentions is just as worthwhile to your bottom line as optimizing your firm’s various streams of revenue.
The bottom line doesn’t have any opinion about where the money comes from, because a dollar is a dollar. So while we all like to cheer for boosting revenues, sometimes the strategies that will have the most impact entail improving your spending management.
Here are a few ways you can do this.
1. Go Simple and Lean
It’s easy to get caught up in trying to do everything at once. Another way to look at it is you’re into trying to be everything to everyone, but that’s a nightmarish approach that can cause spending to balloon far out of control.
It’s far better to home in on a specific value proposition for a particular audience, and use a simple and lean approach to give that market what it needs. For example, don’t ever make a purchase — whether a physical piece of equipment or a software subscription — without first asking yourself: “Do we really need this?”
It’s also helpful to ask: “What’s the best-case scenario after I make this purchase?” Your team’s answers to these two questions may give you a clearer answer about the apparent necessity of the purchase.
Staying lean requires intentionality and strategic decision-making at every level of the organization. Don’t splurge for more when less might do. The more you save on the little things, the greater flexibility you’ll have when it comes to core expenses.
2. Outsource Non-Core Tasks
As the freelance economy has expanded, it’s become a lot less necessary to hire and maintain a full-time staff member for every task and function within your firm. In some cases, it may be a lot more cost-effective to outsource than to onboard.
When you outsource, you don’t have to pay a salary, offer benefits, cover payroll taxes, or use up physical workspace. Instead, you pay only for the labor and outcome you need.
The key is to know what to outsource. Core tasks — such as product development and sales — are best kept in-house. Non-core tasks — like accounting, certain facets of customer service, design work, etc. — can often be handed off to a strategic partner.
3. Use Procure-to-Pay Processes
Are you familiar with the procure-to-pay process? It’s a method of integrating purchasing and accounts payable systems to arrive at greater efficiencies.
When digitized with procure-to-pay software, this approach strengthens compliance and control among vendors, buyers, contracts, regulations, and accounts payable. It offers a number of key benefits, such as:
- The ability to actively control and improve global spending
- Consolidation of manual processes with the aim of reducing costly errors
- Streamlining catalog maintenance (which can free up resources)
- Speeding up the process of approving new suppliers
In sum, procure-to-pay drives value to the bottom line by reducing your costs and promoting greater flexibility.
4. Hire Strategically
Although you ultimately control the big picture, your employees will actually execute your plan day in and day out, of course. Thus, you have to hire people who are cost-conscious and share a similar business ideology.
It’s also helpful to be more conscientious about the type of talent you hire. Hiring employees is expensive, but firing them can be more costly.
“While it can be painful and expensive for your company to delay hiring until you’ve found the perfect candidate, it will pay off in the long run to have a team that is truly qualified,” entrepreneur Maria Bashi writes.
“Similarly, don’t balk at matching fair salaries for employees with offers elsewhere. It’s important to think of your workforce as your business’ single most important asset. And, as with any other asset or system within your company, you’ll need to invest money in order to create and preserve quality.”
How Can You Improve Your Spend Management?
As you continue to develop your business, don’t lose sight of the supreme importance of proper spending management. By focusing on how and where you allocated resources, you can have a direct impact on the bottom line for the better.
Look for two or three specific changes you can implement this quarter. A lot of progress can be made in small, incremental steps.