Increasing Spend Visibility at the Edges: A New Approach to Financial Management

By Wayne Chang

For decades, centralized financial management saw owners and operators gather with their bookkeepers and accountants to build lean operating budgets optimized to steer a business into the future.

Now? Software as a service (SaaS) has exploded onto the scene and destabilized the old financial management model. While employees are empowered to streamline elements of their workflow through SaaS subscriptions, there is a consequence to this shift. These decisions on spending are less visible, having been pushed toward the edges of businesses where they are further from leaders’ awareness.

What are the financial ramifications of this lack of visibility? Significant. The average company pays for somewhere between 107 and 130 subscriptions, yet a whopping 38% of these expenses go underutilized. Considering that SaaS expenditures leapt 50% from 2018 to 2020 and that wasteful spends are doubling from year to year, lack of visibility combined with the extremely efficient billing model of subscription products is quickly turning these “conveniences” into threats.

Know, however, that a new approach to financial management called edge finance can drive visibility back to the center. Edge finance aggregates financial data from the edges of your business by making more employees responsible for their slice of ownership and giving them the tools to feed that information back up to leadership. The result is your data reflected back to you in high fidelity.

Push Spending Notifications from the Edge

To keep track of this growing area of business expenses, it’s incumbent upon a leader to change the flow of financial information within their business. Below are three ways to address this growing challenge before it spins out of control:

  1. Own the issue. While most founders start their business out of a love for developing their product(s) or service(s) — not a love of the accounting function — owners would be wise to own this new financial management challenge and face it head-on. In the same way that an owner cannot outsource their organization’s culture, they cannot outsource the innovation of a financial management system to their bookkeeper. Bookkeepers represent one of the least happy careers in the US, so expecting your bookkeeper to innovate your systems and processes isn’t a realistic expectation. Change will be up to you. Now is the time to shift from holding your financials at arm’s length to embracing that relationship with open arms.
  1. Invest in an embedded finance solution. A manual or siloed approach to financial management not only results in communication getting lost in translation, but it also isn’t built to pull information from the edges of the business. Leaning on automated business accounting software can provide decision-makers a real-time solution that supports financial communication throughout an entire company. An embedded finance solution can free up an owner’s mental capacity by giving them immediate, transparent access to all financial data as they need it, but also by allowing them to set up alerts that notify them of anomalies. AI has created transparency in the supply chain, customer service, and elsewhere. AI business accounting software can effectively reduce the mental drag on owners while limiting financial surprises.
  1. Elevate the financial literacy of your employees. If spending decisions are now being made at the edges of a business, it is the owner’s responsibility to ensure that those workers at the edges are making informed financial commitments that positively impact the business’s bottom line. Employees who do not understand how money moves throughout the organization and who are unaware of the ways that their decisions impact the business’s ability to meet its goals are far less likely to consider the impact of an unused subscription, for example. In addition to supporting your shift toward the edge finance model, one side effect of bringing your employees up to speed on aspects of your financial management is that those employees can then help you drive key metrics that impact performance. As Karen Berman and Joe Knight wrote in the Harvard Business Review article “Are Your People Financially Literate?” “Those who can’t speak the language of business can’t contribute much to a discussion of performance and are unlikely to advance in the hierarchy.”

The further SaaS solutions take your business to the fringe, the easier it will become to lose sight of the areas where your business is leaking precious resources. As those leaks compound with further advancements in the SaaS industry, adopting the edge finance model will become imperative. Pushing communication on spending from the edges of your business back to the center will be imperative for your business’s long-term sustainability. With a willingness to own the issue, the adoption of an embedded finance solution, and the elevation of your people’s overall financial literacy, your business and its bottom line can rise to the occasion.

Wayne Chang is a serial entrepreneur and one of Forbes’ Top 50 Angel Investors. He’s created products that were acquired by Google and Twitter and has been involved in over 80 start-ups, resulting in 24 exits, with over $40 billion in value created. His latest venture, Digitsis backed by $32 million from Benchmark and GV.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.