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How to conduct a spend analysis in three easy steps

Posted on 29 September 2018 by Soldo

Having a rigorous expense policy is only one part of the spend control jigsaw. To make your policy meaningful, you need to carry out a thorough spend analysis.

In fact, if you’re not conducting a meticulous spend analysis on a regular basis (quarterly, at least), then your expense policy could be about as worthless as a New Year’s resolution that’s abandoned midway through January.

Some people find spend analysis easier than others – their eyes seem to find patterns in spreadsheets, and meaning in piles of crumpled receipts. Others find the range of numbers to be disorienting and stressful and it’s for this reason that spend analysis is so often neglected.

However you feel when faced with the task of spend analysis, the good news is that there are some really simple steps to follow to ensure that you elicit meaning – and savings – from your company’s lists of outgoings.

We’ve divided our spend analysis methodology into three steps, to help you stay focused and clear at every stage.

Spend Analysis: The Visibility Step

Visibility spend analysis

The first step of your spend analysis is focused on visibility. If you can’t see it, you can’t analyse it. At this stage you’ll want to focus on unearthing everything you possibly can about the money your company is spending.

If you haven’t done this before, it can be quite overwhelming, but the good news is that your second spend analysis is almost never as onerous as your first.

Round up the data

If you want to analyse your spend you have to know where to find the data.

Depending on how your company is structured, you may need to source data from several different departments, so make sure you kick off the visibility step with plenty of time to allow for the gathering to take place.

For smaller companies, the round up step might just involve opening a box of receipts in your desk drawer, or doing a search for invoices in your email inbox.

If your company is using Soldo, this step won’t take long at all. Just log in to the admin dashboard and download reports for the period you’re analysing.

Assess the round up process

Before moving onto the next step, take some time to reflect on how easy (or difficult) it was to round up the data. If it was difficult, don’t feel doomed – this is a great opportunity to refine your company’s expense process so that next time round it’s a cinch. If it was easy, don’t rest on your laurels – you should still look for other ways to refine the process.

Spend Analysis: The Sorting Step

Sorting for spend analysis

Now that you’ve sourced your data, you’ll need to set it in order, so that it makes sense and can be analysed without making you dizzy. Above all, the key goal at this stage is to be systematic, so that like can be compared against like.

This is where technology comes in (if you haven’t been using it already). Excel is still the most widely used software for expenses but, as Bernard Marr of Forbes Magazine says, this may not be the best idea:

“Companies are getting on the data bandwagon and then using outdated tools to try to visualize and communicate that data: namely, spreadsheets (such as Microsoft’s Excel).”

Don’t panic if you’re not ready to explore new alternatives to Excel but if you are, read on.

Say yes to tech

There are some fantastic technological solutions out there now to help you manage and analyse your company spend. SageQuickbooksConcur and Xero are all really solid options, as is (relative) newcomer, Expensify.

Of course, you’ll still need to input your spend – either on an as-you-go basis (the best way) or, if you’re starting out with one of the expense management software options, you can input your spend data in an Excel file.

Soldo users won’t need to input any data because Soldo’s integrated payment control platform does it automatically. Every time an employee buys something with their Soldo Mastercard™ card, Soldo records full purchase details, together with the rich data you’ll need to make spend analysis meaningful.

Spend categories: putting purchases into categories

The best way to be systematic about your spend data is to organise it by category.

Your company will have its own particular spend topography – but the list below shows the most common categories, and is a great starting point:

  • Travel
  • Food
  • Accommodation
  • Software
  • Office Supplies
  • Marketing
  • IT
  • Telephony/Internet

It’s really important to get the categorisation step right. It’s even more important that you implement a categorisation process for all future spend – if you haven’t already done so.

If you’re a Soldo user, you can create your own categories in the admin dashboard, and get your staff to add the relevant category to each purchase they make – it only takes a couple of seconds.

If you’re using an expense management software such as Xero, you can add categories when you upload your expenses, or review and accept the software’s automatic suggestions.

Spend Analysis: The Analytical Step

Microscope Spend Analyisis

Ironically, analysis is the final step of the spend analysis process.

Making your expenses visible, and then sorting them into categories, often takes longer than examining them for patterns and opportunities for savings.

But if you’ve done the visibility and sorting steps properly, the analytical step should be relatively straightforward.

The search for patterns

Beginning with one category, such as travel, try to zoom out mentally, and look at your company spend with fresh eyes. You’re looking for patterns and trends that you might not have noticed.

Finding patterns is not an end in itself. Instead, patterns are a rich source of spend intelligence to instantly clarify new opportunities for savings and efficiencies.

Patterns often betray old habits that your company has taken for granted as ‘just the way things are.’ Challenge this. Why are you spending in this way? How could you do things differently?

Patterns can also show an over-reliance on a small range of suppliers. Challenge this, too. If you’re a loyal customer, could you negotiate a bulk discount? Is there a way you could organise your buying over the year to make better use of existing bulk discounts? Are you over-reliant on one supplier for a crucial regular item? What would happen if they folded or were unable to fulfil an order? Should you diversify for the sake of risk?

Scrutinise the outliers

The other reason to seek out patterns is so that you can easily identify outliers.

Are there any expenses that stand out? Why do they stand out?

Did those outliers trigger an internal expense review, or did they fall below the maximum amount for automatically approved purchases? Do you need to consider changing the maximum amount for such purposes?

Has the company paid twice for something in error? Or have you overpaid?

Are all of your departments adhering equally to your company’s expense policy? Are some doing better than others? What can you do to ensure that each department, and each employee, adheres?

Scrutinising the outliers is not about being pernickety for the sake of it. It’s about making sure that everything makes sense – that every expense can be tied to a relevant business need.

The Bottom Line

Once you’ve analysed your company spend, it’s worth dedicating some serious thought to the time it took you to make sense of all the outgoings.

If you manage your company’s spend well, the visibility and sorting steps will be condensed into just a few clicks. And, once everything is in order, analysis should be fast, accurate and stress-free.

With Soldo’s instant notifications and real-time balances and transaction data, spend analysis really is second nature. You’ll notice patterns almost before they have chance to form, and you’ll be able to query any purchases that seem out of character, or unreasonable.

A good spend analysis will save you far more than money – recent research that we commissioned from independent pollsters, YouGov, showed that nearly a quarter of all medium-sized businesses are wasting between 2 and 4 hours every month on financial detective work to reconcile their spend.

Are you ready to break through to new levels of productivity and profit? Learn more about Soldo now.

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