What seems like a simple question isn’t so simple, is it? If you’re a business owner, you know what I mean. As soon as you introduced a second individual into your business, this became an issue. Today, depending on your organization’s size this could be a huge issue.
I’ve seen organizations with no expense control, which result in constant unexpected spending surprises. On the other hand, I’ve seen organizations where the owner authorizes every single purchase, which can suffocate the business. Finding a happy medium comes through process and accountability.
For purposes of this discussion, we will focus on the importance of building a process that works for your business.
The old adage goes: “If you fail to plan, you’re planning to fail.” In the case of spending, this is definitely true. In a prior post titled, “The Dreaded Budget”, I discussed the importance of the budgetary process as a tool. Extending this to expense control, it is critical that a process is in place to connect budgetary goals to actual spending activity.
What this means practically, is that individuals involved in spending money must be informed of their budgets and be provided authority to control their spending. This can be handled by department, accounting codes, or any number of ways. It can be done through a purchase requisition and purchase order system, or something else. It just needs to be done.
If the individuals spending the money don’t know what the budget is and have no mechanism for managing to their budget, 9 times out of 10 they’ll overspend.
Setting up a process is just the first step. As many of you know, some businesses are littered with well-intended, failed processes that have been cast aside. Some companies churn through processes at record speed jumping from fad to fad (so-called “flavors of the month”). Everyone follows the new process for a little while and then everyone moves on. The necessary changes don’t take hold. In other organizations, the processes are adhered to, but merely as a formality. One example of this would be a purchase requisition process, where the approving party automatically approves every request, completely missing the point of the approval gate.
So how do you avoid creating a “flavor-of-the-month” scenario, or a “rubber stamp” process? The answer is simple: accountability. The trick is how to create it. One way involves using social pressure by measuring and discussing results regularly together with key managers. This can take many forms, but it’s critical to have consistent focus around clear objectives.
Does your Company have a spending problem? Reach out to Doescher Group for help.