More revenue often means more people are needed to keep the organization’s all-important finance function running smoothly and generating data that senior leaders can use to make strategic decisions.
But how do you know if staffing levels in your finance department are aligned with standards for your industry and organization size? Keeping tabs on the ratio of finance function employees per $1 billion in revenue is critical for assessing the efficiency of finance operations, particularly in phases of growth.
All else being equal, organizations should generally strive for a lower number of full-time equivalent (FTE) finance and accounting employees per $1 billion in revenue, which allows an organization to perform the same activities as competitors with fewer employees. Through its Finance Organization Open Standards Benchmarking® assessment, APQC finds that top performers (organizations in the 25th percentile) report 45.5 or fewer FTEs per $1 billion in revenue. Organizations in the 75th percentile, by contrast, require more than twice as many FTEs (102.1) to carry out the same work. At the median, organizations employ 78.6 FTEs in the finance function per $1 billion in revenue.
For this data, the finance function includes activities such as financial strategy and planning, investment management, tax funding and treasury, profitability and cost management, revenue cycle, accounts payable and expense reimbursements, payroll, general accounting and reporting, fixed asset management and internal audit.
The value of automation
Across these activities, investments in technology and automation can serve to reduce the need for human labor, driving down the number of FTEs required to carry out these processes. However, over-reliance on automation can lead to sacrificing the quality of your financial information and reports. Finance leaders must strike the right balance between cost efficiency and the capacity to generate reliable financial insights that adequately equip strategic decision-makers to steer the organization.
Finding that balance is a context-specific endeavor, requiring a deep, robust analysis of the current state of the organization, industry and market, to determine both baseline and target staffing levels for your finance function. This analysis should factor in both top-level strategic goals and your specific objectives for the structure of the finance function.
Consider the structure of finance operations
Organizations at the higher end of the FTE-per-$1 billion spectrum are more likely to have decentralized finance functions, with employees working across various locations or business units. Becoming more centralized, such as through establishing regional instead of state offices, can help reduce demand for FTEs, but centralization isn’t the right choice for every organization.
If finance staff in a local or regional office must wait on decisions from a central office to act, but the central office is in a different time zone, then centralization may backfire in terms of efficiency. Additionally, specific operational challenges in different regions can dictate the need for decentralized finance staffing.
Where people meet process
Examining specific processes within the finance function is another good way to identify opportunities to reduce headcount. Increasing process performance can mean consolidating software systems or designating a single process owner to avoid multiple, unnecessary touchpoints. Efforts to harmonize the people and processes in the finance function can meaningfully affect the number of FTEs per $1 billion revenue.
For a more complete staffing-level picture, finance leaders also can assess a different measure alongside this revenue-related one — namely, the number of finance function FTEs per 100 business entity employees. Tracking this figure over time and across various business units can also provide important information about uneven growth patterns and productivity losses.
Ultimately, balancing capacity and quality with cost efficiency requires a diligent, ongoing analysis that accounts for internal and external factors as well as shifting strategic objectives. This effort is always worth a finance leader’s time because a finance function with a staff that is the right size and possesses the right skills to move the organization forward contributes significant and lasting value to the business.
