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.
Make it easy. Do a line-by-line expense CEO review every six months (or quarter) where you pull in the CEO (to show the seriousness) and walk through a team’s expenses.
The problem is…
All your department heads have different philosophies on spending.
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 for the trees
When the focus is on big numbers like headcount, it leaves smaller costs to accumulate 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:
Changes the culture of how teams spend
Empowers department heads to own their expenses
Shifts expenditure from a ‘finance thing’ to a key part of the company
Makes smart spending an ongoing part of the business rather than an issue that only arises during 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 smart culture.
It works because it…
Sets a cultural expectation. Spending happens every day. Team 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 clear the company’s values. Oftentimes, people are hesitant to speak up in group meetings or ignore guidance because they have their unspoken thoughts on what is “best” to generate results. The line-by-line review 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 “freest 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 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 require a kick-off meeting, a PowerPoint, or a team alignment meeting, saving the executive team’s time.
1. Get the last quarter’s expenses. Do a quick check for accuracy. Make this as easy as possible. Include: Amount, Date, Description. Anything else is superfluous and you don’t want to get caught up in chart-of-account categorization discussions.
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: Do not include salary in this, as it is a different type of cost handled in your normal processes.
3. Schedule a meeting. Include the CEO and department head. Anytime is fine. You could do this now. 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 review the executive team expenses before it gets too late.
4. Go through each line. While this requires nuance, focus on asking key questions:
Do you believe this is a good or bad expense? This provides you and the CEO with insights into its purpose that go beyond what is visible in a simple 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? Would something that you didn’t do because of cost have made a difference?
If you added an extra 20% to your budget, where would it go? This could often lead to bigger headcount discussions, but focus your answer on whether there are any specific expenditures. Requests for significant increase in spend should be dealt with through the reforecast and budget process.
This is not only an effective way to ferret out missed opportunities, but also ends the meeting on a high note.
In conclusion
That’s it. Why not do it now?
