Expense management is not sexy at all but you have to admit the title did catch your attention, right?
Expense control is not as exciting as closing a sale, providing a solution to an unsolvable problem or landing that big parts account. In fact, unless you are a the person responsible for a positive EBITDA you probably find the discussion of expense control exhaustive and tedious. This article won’t change that perspective much however; we will attempt to reduce the arduous task of discussing expense control.
Expenses and expense control aren’t the most exhilarating topic’s to read or write about. The very topic of expense control as a critical component for sustaining profitability in a competitive market isn’t exactly a compelling story line.
Department managers understand the importance of controlling expenses but most likely, it is not top of mind. Proper monthly review will eliminate unnecessary expenses, reduce waste and control excess.
Here’s a creative process to help manage controllable expenses that’s easily transferable to department heads:
- Every month the department managers work with the General Manager and/or the responsible party to review expenses. On the 5th of every month (on or before the date you perform your payable) all department managers meet to review expenses (referred to as an “expense party). The expense party is the opportunity for everyone to review the accounts payable.
- Each department manager reviews his/her department expense with the General Manager (responsible party). The expense receives a value rating based on a scale of 1-10: If the expense scores a 3 or below the expense is eliminated – If the expense falls into the 4 to 7 range, review it to see how the expense can be decreased If the expense is an 8 or above, we ask how to better manage it.
- At the end of each month, subsequent to the last day of the month-end and prior to statement finalization, have the controller, or other designated employee, prepare an expense detail, by vendor for each expense account and other income/deductions. This report should be rolled forward monthly for effective management evaluation of each expense account. These summaries should be provided to each department manager prior to closing of the month-end. The month-end should be closed only when each manager has turned in his or her signed summary indicating that each expense, for which he or she is responsible, has been effectively reviewed and deemed complete and accurate.
- Run a trend analysis report and review it monthly. Any fluctuations versus prior month-to-date should be analyzed. The analysis report should compare each department’s expense with a standardized guide or benchmark. Use of an expense composite trend report as compared to similar size and/or high-performing organizations. From these reports, determine if the expense is in line or out of line.
Engaging employees to accelerate the process of trimming expenses is essential. To truly control expenses one has to understand them. Careful review of departmental expenses will often shine a light on a process deficiency. Business operations and their respective Managers must make expense control the responsibility of all employees. Offer incentives or rewards for employees that help uncover waste and save money. Department managers must always pay attention to the cost of sale accounts as well. Remember, controlling a dollar spent is more work than making that same dollar.