The company had a problem: our expenses were too high. Department heads were spending money unevenly and ineffectively. We had a brainstorming session to solve it: rebudget, implement zero-based budgeting, assign a new budget owner, cut next year’s budget by 20%, slice the data three more ways, add new policies—the list went on. Eventually, the CEO just got tired of it all. He asked for last quarter’s expenses from the most problematic department, called in the department head, and spent an hour going through each expense line. It wasn’t pleasant; it ruffled feathers; it even involved the CEO grilling people about “coffee costs.” But was it a good use of his time? Yes. Yes it was.
The problem is:
All your department heads have different philosophies on money and spend differently.
Nobody has the time to budget down to a “coffee cost” or “3-night hotel stay” level.
Nobody reads policies, and there are always a lot of exceptions.
Turning normal budgeting into cost controls misses the forest from the trees
When the focus is on big numbers like headcount, it leaves smaller costs to add up in aggregate unchecked.
People compartmentalize “finance stuff” rather than seeing a company's purpose in creating value through expenditure
That’s when I saw the power of the Line By Line CEO Review. Ultimately, You want to give your teams flexibility to spend money, encourage fast action, and still retain control. When done successfully it:
Changed the culture of how teams spent
Empowered department heads to own the budget
Shifted expenditure from a ‘finance thing’ to a key part of the company
Made smart-spending an ongoing part of the business (rather than just coming up at budgeting)
Solution: The Line By Line CEO Review
The process is straightforward. Sit down with a department head, CEO, and finance. Then, review their team's expenses over the last quarter. It’s simple and it works.
Tip: Do this twice a year in your biggest departments. Once a year for the smaller ones. *Not* during budgeting. The goal is to create a culture, not waste the CEOs time going through small expenses.
It works because it…
Sets a cultural expectation. Spending happens everyday. Expenses are often a small part of the budget. You want every department head producing results with the money they spend. By including the CEO, by looking at the details, you not only give practical guidance to the department head and allow back-and-forth but you also emphasize the importance of effective spending year-round.
Tip: People act differently when they believe every expense (or decision not to spend) could be reviewed.
Aligns everyone on a single spending standard. People have different opinions about spending. Some believe that spending on five star hotels is the best way to improve performance. Others worry about sending their teams to meet clients because of the cost. This allows you to have those conversations in a private setting, and have the culture setter (CEO) make it clear the company’s values. Oftentimes, people are hesitant to speak up in group meetings or ignore guidance because they have their un-vocalized thoughts on what is “best” to generate results. The line-by-line meeting allows an open conversation to set the spending standard.
Tip: You don’t want teams to be unbalanced, because in the end, the teams will naturally gravitate toward the “freeist spender.”
Is simple, straightforward, fair, and memorable. No-one forgets their line-by-line review with the CEO. It doesn’t take much time. It cuts directly to the chase (spending culture) rather than resulting in back-and-forth around policies, frameworks, overall strategy, etc.
How to Do It Right?
The easiest way is to just jump right in. The beauty of the process is that it doesn’t need a kick-off meeting, a powerpoint, or a team alignment meeting taking away all of the executive team’s time.
1. Get the last quarter’s expenses. Get last quarter's expenses for a team. Do a quick check for accuracy. Make this as easy as possible. Include: Amount, Date, Description. Anything else is pretty superfluous and you don’t want to get caught up in a chart of account bucketing discussion.
2. Sort expenses from high to low. Generally, a quick sort will ensure focus on the ‘biggest of the small stuff.’ The one exception to this would be if in the initial review you notice a huge amount of ‘small costs’ that add up to a large total.
Tip: Don’t include salary in this as it is a different type of cost and is dealt with through your normal processes.
3. Schedule a meeting. Include the CEO and department head. Anytime is fine. You could do this now as the meeting takes very little preparation.
Tip: If the problem is within the executive team itself, it might be worth asking a board member to run it on the executive team expenses before it gets too late.
4. Go through each line. This will take some nuance, but the key thing will just be to generally ask:
Do you believe this is a good or bad expense? This gives both you and the CEO insight into its purpose beyond you could ever get by looking at an expense line.
What was the result of this spending? This focuses the discussions on making sure the results are tracked.
What would you have done without spending this money? Ask people to be creative. Nobody has infinite resources.
Obviously, you don’t need to ask each question for each expense. This is where finance judgment comes in to lead the conversation, productively.
5. Ask about missed opportunities: This is the KEY step. People forget that the goal of a company is to generate returns by spending money productively! This means spending money! To get at the heart of this, I would recommend asking at the end of the meeting:
What could you have spent more on to produce a better result? What spending could they have to have a better result?
If you got an extra 20% to your budget, where would it go? This could often lead to bigger headcount discussions, but focus your answer on whether their are any specific expenditures. Much higher spend asks should be dealt with through the reforecast and budget process.
This not only is an effective way to ferret out missed opportunities, but often ends the meeting on a high note.
Conclusion: Implement a line-by-line CEO review
That’s it. Why not do it now?
Stories from the Trenches: Inside insights from Abacum’s team of seasoned finance professionals, sharing real tales of tackling financial challenges head-on.
