When you run a small business, it’s crucial to stay on top of your finances, including what you spend for your business. If you spend more than you earn, you won’t be able to maintain profitable operations. 

But if you want to understand your money habits, you might want to perform a spend analysis on your business. 

This guide covers spend analysis best practices, including:

  • Locating and centralising data
  • Verifying and cleaning your data 
  • Using automated tools 
  • Simplifying and categorising your data
  • Creating long-term solutions
  • Forecasting for the future 

What is spend analysis?

Spend analysis is the process of collecting and analysing your business expense information. Doing so allows you to understand your habits, spot weakness, and make better financial decisions. 

With this approach, you can gain a comprehensive understanding of your business spending. For example, you might notice things you commonly overspend on or things that don’t offer great returns. 

When you conduct spend analysis, you’ll find ways to cut down on spending for your business and create a plan for more effective spending.

What are the spend analysis best practices?

If you’d like to try this for your small business, you may want to know a few spend analysis best practices to get it right. Let’s go over the essential things to know.

Locate and centralise your data

It’s much easier to perform spend analysis when you have your financial data in one place. So, start by listing all the sources that hold evidence of your business expenses. 

For example, you could compile your accounts statements, credit cards, and receipts for things you spend on your business. 

If you don’t have one already, consider opening a business current account to consolidate your spending into one place. This way, it’s easier to find the money you spend and compile it for analysis. 

Also, look at your bookkeeping and add your expenses to one spreadsheet to centralise the information.

Verify and clean your data 

You can get more valuable information from your spending data if you clean it and ensure accuracy. To cleanse data, you’ll need to take the time to:

  • Check for duplicates
  • Check for omissions
  • Check for typos 
  • Check dates 

To make this easier, think about organising your spreadsheet by date. This structure makes it easier to catch errors when looking over the data.  

Try using a tool like Adverity to cleanse your data. 

Simplify and categorise your data

If you organise it clearly and concisely, it’s far easier to analyse your spending data. So, categorise your data in a way that makes sense to you.  

For example, you might break up your spending into the different areas of your business, such as marketing, production, sales, and operations. 

Make sure your organisation matches the main goals of your spend analysis. You may want to see how your spending increased over the last year or which areas you spend the most.

Then, consider breaking that data into colour coded-categories to find and arrange it efficiently. With these categories, you can create pie charts and line graphs that show trends in each area of spending. 

Use automated tools

Spend analysis may feel tedious and time-consuming, especially if you analyse transactions over an extended period. But you don’t have to waste all that time if you use an automated tool

Spend analysis software will do all the heavy lifting for you and provide valuable and informed insights that you may not have found on your own. 

Try software like Funnel, Domo, and SpendHQ to simplify and streamline your analysis. 

Create effective long-term solutions

As you look at the results of your spend analysis, try not to think only of what you can change for immediate results. Instead, analyse your spending to find long term solutions

For example, you may notice you spent more on marketing than you budgeted. Rather than cancelling all pay-per-click advertising to reduce costs, look closely at where you spend and what offers the least results.

You may notice that some lesser expenses didn’t result in substantial revenue while some more expensive ones offer great returns. In this instance, you could use that information to reevaluate your overall marketing strategy.

Focus on the future of your business as you analyse spending. Try listing five weaknesses you see in your spending. Then, form SMART goals around these habits to improve them. 

Forecast for the future 

What you spent in the past offers valuable insights into what you might spend in the future. So, looking at your current spending trends can also help you forecast future spending. 

For example, say you spent twice as much on production than anticipated. This data can show you that production costs are more than you expected. As a result, you can form more accurate budgets to break up your finances efficiently. 

How can you improve your business spending?

With these spend analysis best practices, you’ll gain insights into what you spend on your business. Just remember to: 

  • Gather your data together
  • Clean up your data for accuracy 
  • Rely on automation to increase efficiency 
  • Categorise your data to organise it
  • Form solutions that help your business in the long term 
  • Consider what your data suggests about future spending

As you use the results of your spend analysis to improve your behaviour, you may want to cut costs. Next, check out our article on six proven ways to reduce your business expenses

Analyse your spending and more with a clever app

To perform spend analysis right and improve your financial habits, you’ll need to maintain organised finances. 

Countingup is the business current account and accounting software in one app. It automates time-consuming bookkeeping admin for thousands of self-employed people across the UK. 

Save yourself hours of accounting admin so you can focus on growing your business. 
Start your three-month free trial today.