Pictured: two business professionals are at a desk conducting a spend analysis, examining what they are spending by category.

Published by Marc Freedman on January 30, 2020

If you find yourself wondering “where does the money go?,” it’s time to invest in a spend analysis. Spend analysis is what you do when you know you’re spending a lot of money, but you’re not quite sure where it goes. It is essentially auditing your expenses to understand where you might be able to cut costs.

A detailed spend analysis can reduce your overhead costs and pinpoint hidden opportunities for saving money.

Table of Contents

What is spend analysis?

A spend analysis is a collection and categorization of financial data that helps account executives determine feasible places to cut costs. This can include overhead costs, billing for vendors, employee salaries, training, rent, IT services, hardware, software, appliances, gas and electricity, etc.

Small expenses can add up fast. If you know exactly where each dime is going, you can save hundreds or thousands of dollars that can go right back into your business account for better use.

How to conduct a spend analysis

Get Organized

The spend analysis process varies from company to company and can get tricky depending on the size and number of departments within an organization. There is usually a lot to sort through. Therefore, the first step is to find and organize all expenses into a database (ie. a spreadsheet, or accounting software), and categorize them.

For example:

  • Employee Payroll by Position: Entry, mid-level, C-level
  • Operational Costs: Gas, electric, HVAC, rent, office furniture
  • Operational Expenses: Hardware, software, internet, special appliances
  • Vendors and What They Do: electricity, security, telecom, health insurance

Verify

Check in with each department to see what they are using to operate, what they need to operate, and what they want. Then verify the costs of it all by cross checking your database with your bank statements. Your bank statements will never lie to you.

Keep in mind that some vendors may offer different things to different departments. Others might be paying vendors for services they don’t need at all. If you’re paying too much for services that aren’t being used, this is where you’ll find out.

Analyze

Once you’ve verified all of your spending, go through and see if anything looks odd. If you are in fact overpaying for something, take note of it. Does it come up with the same vendor across departments? Is it a budgetary issue? What information is missing? This is where savings are hidden.

Act

You may need to upgrade software, change vendors, or cancel services all together to save money. This part can be tough. That’s where we come in. We can help you manage your spending by reviewing your vendor contracts, checking the quality of the services you are paying for, and suggesting options that are equal to or better than the ones you already have. This will help reduce overhead costs. Consider us your Chief Cost Evaluator, or spend management solution.

What is spend management?

Businesses of all sizes implement “spend management” solutions when they want to gain control over their expenses. Many choose to hire a spend management consultant. A spend management consultant will help you organize, and evaluate your financial data regularly in order to reach budgetary goals. Then we look for opportunities to restructure expenses or consolidate services or renegotiate contracts. In other words, we do all of the spend analysis work and help you determine if you’re paying or spending too much on things you don’t need. Then, we find other, less expensive options so you and your employees can go about your day without thinking about it.

Talk to Us

Your time is valuable. We know what things should cost, and we know how to shift budgetary constraints. Let us do the tedious work of managing your expenses so you can build your business without worry. We would be thrilled to talk with you about how to improve your cash flow.

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