Running a company isn’t just about coming up with a great product, finding the right market and selling to lots of customers. In fact, the actual operation of the company can be a complicated beast. Simply put, there are dozens – if not hundreds – of different expenses and costs that get accrued in the day-to-day running of a business.
CFOs and CEOs need maximum visibility into these day-to-day costs. One of their most important priorities is to make sure the company never runs out of cash. Of course, increasing bookings – and subsequently, revenue – will help on one side of that equation. The other side?
Making sure you’re spending the cash that you do have responsibly. In other words, keeping the number of bills you have in check, to include only the ones that your company absolutely needs to grow and be successful.
To do this, it helps to have a detailed breakdown of operational costs. Many companies can find complex lists of all expenses in Quickbooks, but what they really need are advanced operational analytics presented in a visual manner.
Which is where our Quickbooks Analytics product comes in.
Where are you really spending your money?
Typically, as part of a monthly or quarterly budget reconciliation, department heads – the Marketing Director, the Sales VP – will submit a full breakdown of all relevant expenses to the CFO. While helpful, this also creates a complicated paper trail of all the little pieces that contribute toward the entire marketing spend pie. To take just one department as an example, look at all the costs that go into running a marketing department:
Hiring brilliant marketers to keep the engine running (salaries, benefits, health insurance)
The tools to help the marketers do their jobs (software, research briefings, mobile apps)
Actual costs of marketing (hosting events, flying employees out to said events, buying lists of names, paying for campaigns)
Transportation and miscellaneous expenses (travel to-and-from marketing events, caterers for hosted events, hotels)
Marketing collateral (brochures, SWAG, promotional materials)
Outsourced expenses (PR agency, Facebook advertising)
It’s not enough for a CFO or CEO to be told by the Marketing Director, “We spent $300,000 this quarter.” That type of broad information does not allow the CFO any room for analysis. Was that $300k appropriately spent on things that the company needs? Was it wasted on a lot of extraneous or superfluous items? Should the marketing team be given an even bigger budget?
With a detailed cost breakdown, the CFO can then make more confident and informed financial decisions. For instance, looking at this accompanying table above, the CFO’s eyes might be drawn to the $20,000 the company spent to attend Trade Shows. Common industry knowledge suggests that trade shows deliver a poor ROI, and this company’s experience was no different. The CFO might then ask for a more stringent justification from the Marketing Director in regards to future Trade Show expenses.
Spend over time
Another helpful aspect of this report is to see how costs are trending over time. As a company grows, it would make sense that expenses increase as well – hiring more employees, paying for more software licenses, running more expensive marketing campaigns to hit more aggressive sales goals, etc.
CFOs need to ensure that if costs are increasing, they are doing so in conjunction with revenue and growth. If the company reached a new high in monthly costs – like in April, above – but saw revenues shrink that same month? That is a problem that calls for a tighter and stricter budget reconciliation. Remember, it’s all about cash flow. If more cash is flowing out without a comparable amount flowing back in, the company might very well miss its cash flow goal. That portends more trouble on the horizon.
More visibility is always a good thing, especially when it comes to breaking down the day-to-day costs of running a company. Don’t settle for broad and general Quickbooks figures that don’t really tell you anything – dive into real operational analytics to see the specific and minute ways in which your costs break down. Then, and only then, can you make smart, rational and informed financial decisions.