Ever found yourself wondering how your staff managed to rack up a £20,000 travel bill or spend £500 on pens without you noticing?
Your company could be suffering from an insidious phenomenon called spending sprawl.
Spending sprawl is unchecked variable spending. Spending — such as travel, software subscriptions, online purchasing , or office supplies — that’s too small or infrequent for procurement to handle, so it’s left in employees’ hands. Over time, this spending keeps adding up until it starts eating into your profits.
So what are the top three areas that can become spending sprawl nightmares? And how do you stop them?
At Uber, they used to celebrate work anniversaries — dubbed ‘uberversaries’ — by showering the employee with helium-filled balloons. Except the CFO stepped in and put a stop to it after the company racked up a £165,000 balloon bill.
This is a classic case of silent drain: a low cost item that becomes a gigantic expense.
You don’t have to be the type of business that splurges on balloons to suffer from silent drain. Silent drain can affect a whole host of spending and expenses that are so mundane you may not even have thought about them.
Case in point, an OKI Systems survey found 52% of finance managers, CIOs, and IT managers couldn’t say how much money their business spent on printing. And, according to Statista, UK businesses collectively spent £722 million on stationery just between April and June 2019.
Two things cause silent drain, according to Soldo’s Finance Director Paul Murphy:
Firstly, it’s silos. Teams don’t communicate with each other, so they end up duplicating purchases. Secondly, it’s lack of accountability, especially if several people are sharing a corporate credit card. It’s difficult to police spending this way.
Paul Murphy – Finance Director – Soldo
With this in mind, the key to stopping silent drain is visibility. If you know how much your staff is spending (in real time) and on what, you can keep track and intervene before costs spiral out of control.
One of the best ways to do this is to replace your expense process or corporate credit card with a Variable Spend Management platform. .
Each staff member gets a set amount of money to spend, and no more. With Soldo, you also get a dashboard which allows you to see what individual staff members are buying in real time. Plus, you can limit how much they can spend on certain items or not let them purchase those items at all.
Unlike silent drain, travel and entertainment are noticeably bigger expenses. But they still suffer from the same issues, particularly lack of accountability.
Soldo’s Paul Murphy puts it this way:
When it comes to travel, most people don’t bother buying the cheapest option if they’re putting it on the company credit card. They’ll go for the 9:30 flight instead of the 6:30 one because it’s more convenient, even though it costs £100 more.
Paul Murphy – Finance Director – Soldo
The same goes for entertainment.
Where they’d normally go for the chicken, staff might order the ribeye. Why not, if the company’s paying for it?
But communication and proper budgeting are also important factors. As Paul Murphy explains: “If you don’t plan carefully, you could end up with 6 teams taking clients out to lunch on company money all at the same time.”
Travel and client entertainment can be business-critical, so keeping them in check is tricky. That said, it’s still doable.
As a starting point, you’ll need a simple, clear, and fair expense policy. What will you allow? And what will you disallow? For instance, you could decide not to pay for or reimburse first-class tickets, five-star hotels, and Michelin-starred restaurant bills.
More importantly, though, you’ll need to actually enforce the policy. And, here again, a Variable Spend Management platform like Soldo can make the process easier and much more straightforward.
With Soldo, for instance, you can immediately attribute an expense to an individual staff member, which encourages accountability. You can also set limits and restrictions and get notified should a staff member make an unusual purchase, so you can address the issue straight away.
Let’s face it. The worst thing about variable spend is the admin.
Buying stuff is easy. The challenge is making sure you have the right paperwork, checking the purchase complies with the company’s expense policy, reconciling every transaction, and balancing the books.
Reimbursing expenses and reconciling credit card transactions are time-consuming and laborious processes at the best of times. But if your company has fallen victim to spending sprawl, getting it done can feel like you’re trying to unravel an endless piece of string.
Who has made which purchase? Who has the receipts? How do you input the data into your accounting software? And how do you process the reimbursement payment?
If you’re tired of having to play Columbo when managing spending and expenses, a Variable Spend Management platform is the answer, for four reasons:
Spending sprawl is so insidious because it starts so innocently. A few laptops here, a plane ticket there, and, before you know it, you have thousands of pounds to reimburse or a credit card statement as long as War and Peace.
The good news is that it doesn’t have to be that way. If you’re clear about your expense policy, track spending, and keep everyone accountable, you can empower your staff and still sleep easy at night.
Don’t let spending sprawl get in the way of a good night’s sleep.
Read our guide to Variable Spend Management for more insights on preventing it and staying in control of your spending.