Checking Out Your Expenses by Vendor to be Financially Savvy
May 17, 2024
Picking the right vendors can really boost your business. On the flip side, bad vendors who overcharge or don’t deliver can hurt your growth and profits. So how do you make sure your vendor partnerships are worth it before it's too late? The key is doing a vendor spend analysis.
When done right, a vendor spend analysis helps you see how well your vendor relationships are working. This way, you can focus on the good ones and drop the bad ones.
Let’s break down what vendor spend analysis is and why it’s important for your business.
What is Vendor Spend Analysis? Vendor spend analysis is part of a broader look at your spending, but it focuses on the money you spend on goods and services that keep your business running.
When doing a vendor spend analysis, you need to know what counts as "vendor spend."
Usually, vendor spend includes:
- Physical goods for daily operations, like inventory and office supplies.
- Subscription-based software services, like Slack or Microsoft Teams.
- Services from outside contractors or agencies.
It doesn’t include things like:
- Employee salaries.
- Employee travel or meal reimbursements.
- Taxes.
Focus on vendors you regularly buy from, like subscription services, long-term agency contracts, or regular office supply vendors. This helps you evaluate ongoing relationships, so one-time purchases or non-essential transactions shouldn’t be included.
Skipping Manual Vendor Spend Analysis You can analyze vendor spending manually or automate the process. Each method has its own pros and cons.
Manual analysis means gathering data from different places and putting it together. Even though it’s not handwritten anymore, it still takes a lot of effort. Finance teams often spend a lot of time pulling together invoices, purchase orders, and payment records, making it hard to create reports. Plus, managing contract renewals manually increases the chance of errors, like missing deadlines or incorrect payments.
Because of these challenges, many businesses are switching to automated tools like Ramp to make the process easier.
Automating Vendor Spend Analysis Automated analysis uses tools and digital payment methods. This is great for businesses that want to grow quickly and use technology effectively.
Platforms like Ramp make automating vendor spend analysis easy. Their Vendor Management dashboard gives you a full view of vendor details, documents, and transactions, speeding up decisions.
Ramp also automates contract data entry, reducing manual errors, and sends reminders for contract renewals to keep everything on track.
Basic Steps in Analyzing Vendor Spend Even though it’s tough, manual analysis is possible if you’re thorough. Here are the basic steps:
- Identify all sources of vendor spending: Check all vendor transactions, even looking into employee accounts for any unauthorized spending.
- Collect data: Gather data from invoices, bills, and financial records. Use tools like accounting software and budgeting spreadsheets to help.
- Clean and organize data: Fix any errors and categorize expenses properly. This helps you see patterns and get useful insights.
- Analyze data: With organized data, look for spending trends, cost-saving opportunities, and evaluate how well your vendor relationships are working.
Manual analysis needs constant attention to keep the data accurate and useful, but it can provide reliable insights.
By following these steps, you can ensure your vendor relationships are helping, not hurting, your business.
If you are using a system like QBO, you can use their out of the box report: Expenses By Supplier Summary. It's perfect for performing this kind of work. I guide all the businesses in my mentorship program to this reguarly to save MONEY!
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