CFOs that struggle with effective expense management within their organizations often pivot to technology as a potential solution for managing company expenses. Before taking this leap, J. Douglas Maxwell, the CFO at American First Finance, Inc., (“AFF”) recommends that you begin by evaluating your process for expense management. “Automating a poorly designed process simply makes a poor process faster. If the process is efficient, you have a greater likelihood of pairing that process with the technology solution that is the best fit for your organization.

Maxwell recommends a 4 step process that involves: 1) clearly communicated spending authorities, 2) effective feedback loops to decision makers, 3)rolling forecasts that adapt to changing trends in the business, 4) effective technology systems and controls that support business expense management.

Clearly Communicated Spending Authorities

In the absence of clear guidelines, spending decisions made by department heads will be formed by past experiences. The historical template or approach one individual brings to the decision-making process may be vastly different than another.This is especially true with individuals who are newer to the organization, as those individuals may bring with them spending philosophies that are not aligned with the culture of their new organization.“Well documented and clearly communicated spending authorities outline the boundaries of decision rights for each department head. Spending decisions that exceed those maximum levels are elevated to the President or CEO. This provides a safety net to ensure spending decisions remain within company guidelines.”

"Our ability to be good stewards over expense decisions is key to continued profitability"

Effective Feedback Loops to Decision Makers

Rolling forecasts can only be effective if the inputs to the forecast include feedback from decision makers. “A rolling forecast is truly a collaborative process. Our team actively solicits feedback from department heads so that we can understand the difference between mandatory and discretionary expenditures. During COVID, we encouraged our leaders to either defer expenses or solicit vendor discounts that were being offered. These inputs are invaluable in pulling together a forward-looking forecast.”

Rolling Forecast

Like most companies, AFF prepares an Annual Operating Plan (“AOP”) to set its financial targets for the year. Business needs change throughout the year and this is especially true in 2020, as COVID created great uncertainty. To combat these constant changes, AFF relies on a rolling forecast. “Just because we approved a certain expenditure when we finalized the AOP does not mean we can still spend that dollar in April” says Maxwell. “We have to continually evaluate forecasted revenue and expenditures and adjust accordingly. A rolling forecast allows us to adjust our viewpoint on a monthly basis so that we can better adjust to changing trends in the business.”

Effective Technology Systems and Controls

Once the process for expense management has been addressed, the key to successfully supporting the process is to supplement and support it with the right technology tools. AFF uses cloud[1]based technology for employee expense reports, A/P, and its budgeting and forecasting processes. “The integration between our technology platform supports the control structure that is built into our process. Using technology, we can gather and disseminate information for more effective decision making across the organization. This degree of flexibility is critical to our ability to respond to an ever- changing economic environment. Our ability to be good stewards over expense decisions is key to continued profitability.”