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What are the most unexpected areas of overspending for your business?

Scout Young's Profile

Answers

Topic Expert
Regis Quirin
Title: Director of Finance
Company: Gibney Anthony & Flaherty LLP
LinkedIn Profile
(Director of Finance, Gibney Anthony & Flaherty LLP) |

The first place to look is at all Vendor Relationships. If you do not manage the relationship, you are setting yourself up for trouble. At least annually look at the contract to make sure that what you agreed to receive you are indeed receiving. Be very careful with auto-renew policies. Make sure that the pricing you receive is competitive.

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

1. T & E
2. Insurance
3. Phones
4. IT Services

The list goes on.... Not every vendor should be changed just because of price. Service, product mix, relationships all need to be weighed.

Remember, the grass isn't always greener on the other side...

Topic Expert
Linda Wright
Title: Consultant
Company: Wright Consulting
(Consultant, Wright Consulting) |

I agree with Wayne on T & E. I think you also need to watch IT application and development.

James Oates
Title: Owner
Company: James D. Oates, CMA
(Owner, James D. Oates, CMA) |

I would expect T&E etc to be areas of over spending. It will be interesting to see what others have discovered that they did not expect to be issues.

Timothy Beal
Title: CFO
Company: TriCerat, Inc.
(CFO, TriCerat, Inc.) |

Funny thing happened as we grew . . . recruiter fees went through the roof. We are a software development company and have hired many new developers. It seems we can only find candidates through recruiters . . . and the fees are huge! I've heard the unemployment rate for technical employees is around 3%. Has anyone else experience this?

Tim

Roger Whitham
Title: Principal
Company: Whitham & Associates
(Principal, Whitham & Associates) |

I've faced the same problem in a number of high tech firms. One thing I've experienced in high tech firms is a lack of advance planning and an emergency mentality when it comes to hiring.

I've followed two strategies to manage the recruiting process and get a handle on recruiting expenses. 1) developinga realistic staffing plan, with the aid of HR and hiring managers, that allows an orderly process for recruiting and on boarding and 2) a process of continual interviewing for all positions to develop a reliable pool of direct hire candidates thereby eliminating recruiters.

On the second point, I learned long ago from a mentor at the ITT advance research center that one of management's responsibilities is to interview. And that all managers should make it a point to recruit and interview for all their positions, open or not, on a continuous basis. This way you'll have a pool of names to go to if a planned or unexpected opening materializes.

Topic Expert
Doug Thompson
Title: Director of Revenue
Company: Castlight Health
(Director of Revenue, Castlight Health) |

You should consider hiring full-time recruiters in-house as employees.

Topic Expert
Marc Faerber
Title: CFO
Company: Amarantus
(CFO, Amarantus) |

In addition to those already stated:
Legal
Consultants
IT projects, installation costs, time and dollars

Topic Expert
Joan Varrone
Title: CFO
Company: Cloud Cruiser
LinkedIn Profile
(CFO, Cloud Cruiser) |

The frustrating thing about T&E is that there is no alignment between the traveler and the cost. Often I have seen last minute travel (even for pre arranged events) which is a waste of money. At one company we expressed T&E as a percent of sales which was 2% and it got everyone's attention

Derek Quackenbush
Title: CFO
Company: Rising Data Solutions
(CFO, Rising Data Solutions) |

Yes, T&E is a real challenge. We had luck rolling out an online expense tool. We used Expensable, but there are others out there...I hear good things about Concur. It's such a pain point--folks in the field work hard and sometime travel is just expensive. But there also is a lot of waste.

Cell phone bills are also a challenge and can get out of control--especially when folks also have air cards (probably not as common now) and they also want to use in-room internet (when not free, which suggests they are staying at the wrong hotels). We limited reimbursement to a flat $100 if allowed by the manager. Folks complained initially, but it subsided and became a non-issue.

Yes, recruiters are expensive and, frankly, not always very useful. We instituted a referral bonus ($2,500), which really worked...referrals seemed to work out much better than folks we got via recruiters.

Consultants--we had a standard contract that we ran through finance. And of course the big issue there is potentially mis-classifying someone as a consultant who is really more of an employee.

Hope this helps!

Chris Shumate
Title: Accounting Manager
Company: Dominion Development Group, LLC
LinkedIn Profile
(Accounting Manager, Dominion Development Group, LLC) |

Technology, all the way around. From iPads, to iPhone, to laptops, and various other IT related items. When new toys come available they are purchased. The more technology advances, the more money we spend.

Another category are employee meals for employee meetings. It is amazing at the departments that never have employee meals for meeting, as well as the departments that do have employee meals for meetings. Nearly three days every week a particular department have employee meals for meetings. This expense has been addressed by the appropriate people, but the people in higher authority do not seem to mind.

Work vehicles have been a drain too, in my opinion.

Jeffrey McCandless
Title: Managing Partner
Company: Stone Harbour Partners
(Managing Partner, Stone Harbour Partners) |

There are many great baseline suggestions listed above that, as CFOs and management, should be always be monitoring to ensure maximum effectiveness.

There are three in my mind that are silent killers which can cause a much greater negative financial impact that are no easily identified. Lowering these three will

1. For services firms, the cost of bench resources or those with lower than planned utilization. I've seen some firms whose bench resource costs end up being as high as 3% of Revenues and 15% of billable labor costs. Always keep a skill sets inventory by resource up to date and match skills available against booked business and pending projects in the sales pipeline to ensure matches. Make sure that your company has instituted a robust resourcing tracking and forecasting tool (even a simple one) to identify future resource soft spots.

2. For services and construction firms, eliminate project scope creep and improve project execution. How many projects are you aware of where 95% of the project has been invoiced while only 75% of the Estimated Labor Required to Complete has been expended? I find that many companies end up not realizing that there is a problem until too late and they end up giving away their project profit just to complete the project. I've seen companies that give up 10%-15% of their Revenues in this manner. The dollars involved can be huge.

3. Several mentioned recruiting costs and while the absolute dollar value of recruiting costs can be high that is only part of the problem. Companies should always be monitoring turnover (both voluntary and involuntary) and analyzing underlying trends. Recruiting costs to support turnover and growth should always be part of the DNA of financial forecasting and budgeting. Recruiting sources should be evaluated for success as well. Use 90 day guarantees and don't be afraid to cut a new hire loose at 85 days of employment if they are not meeting expectations. Employee Referral Bonuses are an excellent source to get great people in a company. I always advise that it is a great common sense test for existing employees inasmuch as who would refer someone who wouldn't fit in the company?

John West
Title: Director
Company: Expense Reduction Analysts
(Director, Expense Reduction Analysts) |

I work with a consulting company that just does expense reduction and we have analytics from thousands of projects. Since benchmark data is scarce, most people don’t know if they are paying too much so” surprising”rate reductions are quite common in a comprehensive bidding process.

We find the biggest savings in categories where clients are reluctant to switch suppliers, for example Payroll Processing, Bank Service Fees, Telcom, or categories that require a lot of research and tedious work like Factory Consumables. Everyone thinks their rates are within 10-20% of optimal for their spend level, and in fact that would be fine, better than average, but sometimes the savings are 40-50% or more, often where you least expect it.

Suppliers know when switching vendors would require a lot of research or would potentially be risky or disruptive, and therefore they don’t need to have the lowest price. So, with or without outside help, if you submit an RFP that (subtly) shows you have done extensive research and probably have other qualified vendors lined up, they will bid more aggressively to save the business. They shouldn’t be offended by this process. Your company has to fight hard for every sale, even if it’s to one of your own vendors.

Vik Agrawal
Title: President & Co-Founder
Company: ExpensePath, Inc.
(President & Co-Founder, ExpensePath, Inc.) |

T&E is easily manageable with the right tools. Larger Enterprises have been able to manage these costs with expense management solutions that allow them to set granular policy such as limits on types of expenses appropriate for subsets of employees but these systems are expensive and difficult to deploy for small and mid-size companies. Solutions targeted at the SMB market mostly don't have that functionality (the enterprise providers actually strip it out to maintain the price differential and still charge a lot). But you can find a solution that provides the same level of controls/policy/compliance/reporting at a very low cost and deployment under an hour.

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