According to PreferredCFO.com, poor cash flow management is one of the leading causes of small business failure. It isn’t surprising.

Financial management of different departments, each with its own spending needs and policies, is a challenge. This is especially true for businesses that use outdated expense report systems. Companies that rely solely on accounting software may also struggle.

Savvy business owners continually look to improve ways of managing company finances. This includes updating spend management practices. Here is a look at what this entails and why it is vital to the success of today’s businesses.

What Is Spend Management?

Spend management practices are unique to each business. It involves the policies a business uses to make procurement and sourcing decisions. These decisions should support both company profits and efficiency.

In straightforward terms, spend management is how a company controls its spending.

Spend management entails decreasing costs while maximizing the value of every dollar spent. The costs that fall under spend management include any cost required for an employee to do their job.

Standard operating expenses and payroll are not included in spend management. Examples of expenses that do might include travel expenses, office supplies, and software.

An effective spend management strategy should include a comprehensive spend analysis. It should help a company maintain control of its purchases and maximize the return of every dollar spent.

Every business owner must create their own spend management policies for employees. This may be an official expense policy for employees to follow for purchases. Or it can just be preferences laid out by the department or other managers.

Why Is Spend Management Important?

A company with little control over its business finances has little chance of making it. An effective spend management solution can turn a barely-surviving company into a thriving one.

A reason many businesses suffer from cash flow challenges? They rely on accounting software to manage spending.

First purchase orders and other expenses must be approved. Then they are put into the accounting system. By this time, the money is already spent, making it challenging to optimize the spending. Most businesses cannot track spending in real-time with such systems.

That’s where spend management software systems can help. These systems allow for real-time tracking of all business spending. This software can help businesses automate spend management. They can better determine where losses occur and ways spending can be optimized.

Is Spend Management Software a Worthwhile Expense for Your Business?

Spend management is not that different from analyzing a personal budget. You take a look at all spending to find and close money leaks and better manage finances. But it is on a much larger scale. Companies that invest in software to better manage spending will likely find it a worthwhile business expense.

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