The finance function is critical to every business. 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.
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The finance function is the part of the business that manages the money. Historically, this was limited to bookkeeping and financial reporting. But today the finance function is a strategic partner in many businesses, responsible for things like financial planning and analysis, risk management, regulatory compliance, and much more.
As the responsibilities of the finance function have evolved, so has the need for an appropriately sized and skilled finance team. The right balance ensures that financial goals are met, financial risks are mitigated, and compliance is maintained. Here are two key things that have changed the finance function in recent years.
Many companies now outsource transactional finance tasks, such as accounts payable, receivable, and payroll to reduce costs and increase efficiency. This shift has allowed internal teams to focus less on routine processing and more on strategic work such as forecasting, analysis, and decision support, reshaping both the size and skill set of finance teams.
AI is automating routine finance tasks like data entry, reconciliations, and reporting, improving speed and accuracy. More recently we have seen the increased adoption of AI, which is the single biggest disruptor of headcount requirements in the finance function.
So, as you can see the finance function can be made up of a few different aspects, 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.
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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 five key ratios when it comes to measuring the size of the finance function, as follows:
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:
Finance to Employee Ratio = 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 support a larger number of employees in the organization.
This ratio looks at the size of the finance team in proportion to the total workforce. It gives a quick view of how heavily an organization invests in finance relative to its overall employee base. The formula is as follows:
Finance as % of Employees = (Number of Finance Employees ÷ Total Employees) × 100
A lower percentage suggests a leaner finance function, often viewed as more efficient, while a higher percentage indicates a larger share of the workforce is dedicated to finance, which may be justified in highly regulated or complex industries.
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 at the ratios above. 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 measures the proportion of a company’s revenue that is spent on salaries for people in the finance function. It helps assess the cost efficiency of the finance team relative to the business’s overall income. The formula is as follows:
Finance Salary Cost as % of Revenue = (Total Finance Salaries ÷ Total Revenue) × 100
A lower percentage indicates that the finance function is operating efficiently relative to the revenue being generated, while a higher percentage may suggest higher staffing costs or a need for specialized finance roles in complex operations.
This ratio expands beyond salaries to include the total cost of finance staff, including benefits, bonuses, and other personnel-related expenses, compared to total revenue. It provides a more complete view of the finance team’s cost relative to the company’s revenue. The formula is as follows:
Finance Personnel Cost as % of Revenue = (Total Finance Personnel Costs ÷ Total Revenue) × 100
A lower ratio suggests that finance is managing its full personnel costs efficiently relative to revenue, while a higher ratio may indicate a significant investment in skilled finance staff or heavier resource demands due to complex financial operations.
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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).
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 be more 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. This is where benchmarking the finance team size can be advantageous.
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.
Benchmarking your finance team is a vital health check, especially during periods of change or growth. By understanding the finance function’s roles, defining optimal team size, and analyzing key ratios, organizations can ensure their finance teams are both efficient and effective.
The ability to measure and adjust finance headcount is a strategic advantage that will drive adaptability and foresight. A well-structured finance function will serve as a strong foundation, supporting overall business performance and long-term success.
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