The finance function is a key part of every business. It turns the sales and operations of the business in to revenue, costs and everything else financially related. As my business studies teacher told me in high school – If a business isn’t making money, then it won’t be in business for long. One crucial aspect of managing a finance team effectively is understanding and benchmarking its size.
In this beginner's guide, we will delve into the world of headcount benchmarking for finance teams, exploring its significance and the key ratios determine whether your finance team is overweight, underweight or in the mid-range. The specific sections are:
Before we delve into the benchmarking metrics, it's important to understand the different roles and responsibilities of a generic finance function. Traditionally the finance function was limited to bookkeeping andfinancial reporting. However, today the finance function has evolved into a strategic partner for many organizations. It is not uncommon for Finance teams to be responsible for financial planning and analysis, risk management, regulatory compliance, and much more.
As the responsibilities of the finance function expand, so does the need for an appropriately sized and skilled team. The right balance ensures that financial goals are met, risks are mitigated, and compliance is maintained. Further to this is the increased usage of technology in the finance function, such as automation software and Artificial Intelligence (“AI”). There are also many outsourced service providers who can perform parts of the finance function for you.
So, as you can see the finance function can be made up of a few different resources, but at the center of it all is usually the Chief Financial Officer (“CFO”) and their employees who pull the strings. This is the team that the rest of this guide is going to focus on.
Team size, in the context of the finance function, refers to the number of employees within the finance department. It includes all employees only, who can be accountants, financial analysts, controllers, the CFO, and more. Please note that our definition does not include contractors, outsourced resources and anyone else or thing that is not an employee.
Understanding the optimal team size is crucial for organizations to allocate resources efficiently, avoid overburdening employees, and ensure that all roles and responsibilities are adequately covered to create a high-performing finance function.
There are two key rations when it comes to measuring the size of the finance function, as follows:
This ratio assesses the efficiency of the finance team in generating revenue for the organization. Some CFOs view this as the primary metric with revenue being the driver of how many employees are required, while other CFOs will look more toward the second ratio. The formula is as follows:
Revenue per Finance Employee = Total Revenue / Number of Finance Employees
A higher ratio indicates that the finance team is efficient, as it takes less people to generate more revenue. In contrast, a lower ratio indicates inefficiencies as it takes more people (and cost) to generate the same amount of revenue.
This ratio focuses on the support the finance team provides to the entire organization. This factors in the number of people across the entire company with people being viewed as the driver of how many employees are required in the finance function. The formula is as follows:
Total Employees per Finance Employee = Total Employees / Number of Finance Employees
The higher the resultant number of the ratio the more efficient the finance team is thought to be, as fewer finance employees can supporta larger number of employees in the organization.
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My suggestion is to calculate both ratios, which will typically provide more insight rather than that from just one ratio. In fact, when I was consulting I would usually apply the worse of the two ratios to base my advice from. Understanding these ratios is what empowers organizations to make informed decisions about their finance team size, ensuring that it aligns with business objectives and industry standards.
It is more critical now than ever to measure and benchmark the finance team size. Here are some reasons why:
The business landscape is continually evolving, with new technologies, regulations, and market dynamics shaping the way organizations operate. Finance teams must adapt, and understanding the optimal team size is essential for agility. This is especially true with the recent steps forward in AI, which has created significant opportunities to speed up specific processes in the finance function (and potentially reduce the team size required).
In an era where data is driving decision-making more and more, finance teams play a central role in providing accurate and timely financial information. Many finance functions still require a lot of manual financial data work, which can be a key challenge for finance teams who are trying to bemore lean and efficient. The right team size ensures that data analysis and reporting are not compromised, supporting informed decision-making across the organization.
With an increasing focus on risk management and compliance,finance teams must stay vigilant. A well-sized team can effectively handle complex regulatory requirements and mitigate financial risks, safeguarding the organization's reputation and financial health. This is one sub-section of the finance function that may require more headcount over the coming years, depending on advances in compliance software.
As organizations seek to optimize costs and allocate resources strategically, understanding the ideal finance team size becomes imperative. Balancing the team size ensures that resources are neither underutilized nor stretched thin, contributing to overall cost efficiency. Thisis where benchmarking the finance team size can be advantageous. Check out our benchmarks on demand here, where you can find industry and company-size specific benchmarks for your finance function.
The globalization of businesses and the rise of remote work have changed the dynamics of team collaboration. Measuring finance team size helps organizations adapt to these changes, ensuring that the team structure is conducive to effective communication and collaboration, regardless of geographical boundaries. This is a recent change that typically impacts the mix of employees, rather than the overall size of the team.
In conclusion, benchmarking your finance team size is an important health check to perform every now and then, especially during times of significant change. By understanding the roles of the finance function, defining team size, and analyzing key ratios, businesses can optimize their finance teams for maximum efficiency and effectiveness.
In a world where financial success is synonymous with adaptability and foresight, the ability to measure and adjust finance team sizeis a strategic advantage that no organization can afford to overlook. A healthy finance function is an important pillar for and strong and robust business.
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