On both an individual and corporate level, the emphasis in managing a budget is often on increasing revenues. While that is certainly important, it is equally, if not more, important to minimize expenses – particularly the hidden ones.
These hidden expenses may manifest as credit card processing fees for online bill payments or ATM fees when withdrawing funds from an out-of-network machine. In fact, a CNNMoney analysis discovered that JPMorgan Chase, Bank of America and Wells Fargo (America's three largest banks) collectively earned more than $6.4 billion from ATM and overdraft fees in 2016 alone.
That's an insanely large figure – and one that seems easily avoidable for much of the population. But according to Matt Clark, COO of cloud-based financial process provider Corcentric, these indirect and often overlooked expenses, collectively referred to as "meta-spend," are wreaking havoc on business's bottom lines.
Clark defines meta-spend as "the money a business spends to spend money," and he notes that this category encompasses tasks like purchasing goods, managing invoices and executing payments. These are necessary processes, to be sure, but it's also important to keep meta-spend, or the "cost of growth," as low as possible.
"When companies are first starting out, meta-spend can be managed because spending is happening in a smaller, more controllable environment," said Clark. "As businesses grow, it becomes harder to control, and expenses grow at a pace equal to or faster than revenue growth. Meta-spend cuts right to the core of what all companies are trying to do, which is grow profitably. When companies are not able to grow profitably, meta-spend is often the culprit."
With increased and improved technologies that make financial processes easier than ever before, it is often the very existence of multiple options for purchasing, accounts payable and accounts receivable that makes meta-spend difficult to identify and, as a result, nearly impossible to reduce.
"In indirect procurement, a company may be buying office supplies from several different vendors across many different locations," Clark told Business News Daily. "But if there is not clear visibility to the line item data associated with these purchases … if the company does not know the potential for better pricing if all the spend was consolidated, then the company might not know how much money is being left on the table."
Ultimately, Clark believes that CFOs are responsible for controlling an organization's meta-spend, but he also believes that the CEO, CFO and other senior leaders should work together to establish a company culture that constantly searches for more efficient and less costly ways of doing business. He recommends regular self-checks to assess the company's line-item expenses and to ask, "Is there a better way?"
"The answer, in most cases, will be yes," Clark said.
But finding these spending traps and then attacking them head-on may not be the solution either. In fact, dispatching valuable resources – whether human or capital – to negotiate more favorable contracts, consolidate payments or uncover flexible credit options may actually lead to wasted time and money. Indeed, Clark notes that a rising trend in the battle against meta-spending is the desire for businesses to find a turnkey solution that manages all facets of indirect spending.
"Companies often try to tackle this on their own, and I always advise that they are better off focusing on their core competencies and allowing folks who eat, sleep and breathe procurement, accounts payable and accounts receivable to offload some of that burden from them," Clark said.
For more advice on organizing your business finances, visit this Business News Daily article.