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- January 15, 2019
- Suhas Sreedhar
- Business Strategy
During a recession, revenue is anything but guaranteed. So, in order to stay profitable, companies usually focus inward on reducing costs.
However, many businesses do this quite bluntly— they scale back, change their growth plans, downsize, and lay off workers.
While these drastic measures are sometimes necessary, there are other ways to control costs more selectively and strategically that you should try first.
These methods stem from having a good business spend management (BSM) strategy in place. BSM’s fundamental purpose is to make sure you have visibility and control over what everyone is spending, where, and why, regardless of department or function.
This oversight allows you to perform some pretty clever maneuvers when the financial pressure gets tough. Let’s take a look at some of them.
1. Reduce budgets on-the-fly
Often, when you allocate budgets, there’s no easy way to take them back. A department could spend all its allocated funds on the first day of the new quarter.
By having a BSM system in place, you can dynamically control spend through pre-approvals—you’d know everything that has been spent so far, and you’d be able to reduce budgets and control spend any time.
2. Strategically control spend
It’s a common practice for companies to issue blanket freezes during a recession, because it’s an easy way of curbing spend.
But the sectors that get blanket freezes aren’t always the most important ones to reduce spend significantly, they’re just the easiest for most companies to control.
For instance, most companies freeze business travel because they can control it quickly. Freezing travel wholesale might not be the most helpful to the company, though.
Instead, there might be other areas which could save a lot more money, if their spend is visible and subject to pre-approval.
Additionally, there might be certain expenditures within a certain sector that you want to permit— freezing all travel in a blanket way might not be helpful if certain travel can add important business value.
With BSM, you have more of a knife to carve things out strategically versus a baseball bat that can only knock out the entire areas.
3. Respond with agility
What happens when your suppliers are also affected by the recession? If a certain supplier can’t deliver an order on time, or deliver it at the price point you wanted, or at all, you need to be able to deftly find alternatives.
An important role of BSM is to provide visibility into procurement, thus making procurement of strategic financial importance.
During a downturn, everyone is trying to maximize profitability, and making sure that your procurement costs don’t leave you hamstrung is an important part of strategically managing your finances.
Procurement experts, in conjunction with Finance, can work together during recessions to strategically reduce costs while maintaining essential processes.
4. Monitor Fraud
Fraud spikes in a recession. Heavier financial pressure tends to create rationalizations for fraudsters.
Fraud, especially in a business context, can be incredibly costly, and with so much pressure and attention spent on ensuring profitability, fraudsters can exploit gaps in process.
Fraud can come from inside and outside an organization, and being vigilant to both requires having systems that can proactively assess risk.
Because BSM provides visibility across different business areas, it can help track fraud across departments, functions, and people. And fundamentally, with a proper BSM approach, all your spend is going through a controlled platform, leaving little room for fraudsters to steal from the proverbial cookie jar.
5. Increase savings
A major benefit of a BSM strategy, even during the good times, is that it will allow you to save by giving you control over the long-tail of your spend.
Long-tail spend is a major burden to most companies; it’s the low value 20% of business spend that doesn’t go through procurement, and often is unseen until the invoices come.
Getting control over the long tail means getting all spend under management. By doing this, companies can save money by denying unnecessary expenditures and finding cheaper alternatives when something is required.
During a downturn, having as much spend under management will enable all the techniques mentioned above, all of which will save money, strategically.
For CFOs, a lurking recession is always a worry
Here, halfway through January in 2019, there’s a lot of news about the economy that’s causing no small amount of concern:
No one knows for sure if we’re in for a recession this year, but we might be entering a bear market right now, and plenty are worried about it.
We’ll stay tuned for what happens, but I’d advise taking this opportunity to arm yourself against a recession; whether this year or sometime in the future, there will be another, and it’s best to be prepared.
Think of BSM as your bear spray against a bear market.
Suhas Sreedhar is Sr. Content Manager at Coupa. He’s previously worked as a technology journalist and content editor, writing and speaking about topics like the cloud, digital transformation, and the supply chain.