BENCHMARKING STUDY: FINANCE FUNCTION COST
How CFOs plan to DO MORE, DO IT FASTER, DO IT BETTER
How much should a finance function cost?
That question sparked a discussion among members of AchieveNEXT’s CFO Alliance, with dozens of members sharing data and observations. In response to that discussion, AchieveNEXT sent members a short survey, which asked about finance function costs and headcount; enterprise size, complexity, and ownership; and CFO priorities for managing and improving the function.
“Generally, 1% of revenue (all-in...personnel, systems, etc.) is a good reference point. Larger companies ($1bn+ in revenue) will tend to do a bit better than that with the largest/ best performing companies being about 0.5%.” — Mark Glassman, CAO Brandywine Global Investment Management, LLC
HEADCOUNT IS FAIRLY CONSISTENT REGARDLESS OF ENTERPRISE SIZE.
On average, enterprises surveyed have 5.67 finance-function FTEs for every 100 employees. This finding supports the hypothesis that fixed costs account for the efficiency differences between small and large companies.
Complexity of the business does not appear to be correlated with a higher cost of the finance function. CFOs who said their enterprises are complex or very complex report finance-function costs that are only marginally higher than those of simpler companies.
Perhaps this is because the CFOs of complex businesses put a higher priority than their counterparts in less complicated enterprises on two initiatives that directly confront the price of complexity: cost management and investing in new technology.
Public companies and nonprofits spend a higher percentage of revenue on finance. It is not surprising that the auditing and reporting required of public companies drives up the cost of the finance function. The higher-than average costs for not-for-profit enterprises might have two explanations. One might be reporting, in this case to state regulators of tax-exempt organizations. Alternatively or in addition, finance costs for nonprofits might be higher on average because they are able to use more volunteer labor in other functions, thus driving up finance’s share of overall cost.
“We have done some pretty extensive benchmarking. The average insurance broker’s finance/ accounting team costs about 2-3% of booked revenue, depending on how much FPA and corporate development they do. Bear in mind that the transactional nature of an insurance broker can skew the numbers a bit.”
— Dan Heller, CFO Lamb Insurance Services#Benchmarking