Think like an investment fund manager: Get expense management software for your business
Any business owner could do worse than to look into the mind of an expense fund manager to learn how best to manage business expenses. At first, they may seem to be very different disciplines, but look more closely; there are similarities…
Investment fund managers are keen to know about expense ratios. They’re not examining the amount of money spent on mileage, air fares, or hotel rooms, but want to train their microscopes on what proportion of a fund’s assets are sucked out by admin and operating expenses.
The figure is called the expense ratio, or management expense ratio (it’s the same thing), and is calculated by dividing the operating expenses by the average value of the assets being managed.
Clearly, the lower the figure, the better it is for investors. Translate that to a manufacturing or service business, and the similarity is obvious. The lower the cost, the better the outcome for the business, its owners, and its shareholders. The business has money to invest for the future; the owners make more profit; and the shareholders get a better return on their investment.
Better system with expense management software
This clearly calls on every area of a business to be prudent with its spending – but one which can be overlooked, because the numbers are proportionally small in the context of the whole business, are expenses. These can quickly spiral out of control without the right management processes in place. And why shouldn’t expenses be managed like HR, or production, or safety?
Rather than simply refund employee expenses, a business must ask itself if it’s getting value for that money. Is the activity that generated the expense actually necessary? Could the work be done in another way which involved a smaller spend.
The way to discover this is by using an app for small business expense tracking. Doing so does much more than record the expense; it makes it possible to interrogate the data and see where spikes occur that might indicate too much spending in a particular area.
It might highlight that the cheaper flight from an airport a long way away is actually more expensive when travel time is factored in (and in doing that, consider that high-paid executives are earning nothing whatsoever for the company by driving company cars for long distances. Perhaps they’re escaping something, but that’s another story…
And looked at in another way, if you’re buying in goods and services, do you actually need the salesperson to make a weekly 100-mile round trip to your premises for a 20-minute meeting? Who do you think is paying for that? It’s certainly not the salesperson’s company; it’s you, since every business must cover the cost of its operations if it’s to stay in business – and any expenses incurred in that scenario will be hidden somewhere in your bill.
Only by closely monitoring expenses with the help of expense management software is it possible to know if the spend is delivering value. It’s a lesson that fund managers have known for years. Will it make you think of expenses in a different way from now on?