5 Indicators That Your Company Needs a Finance Transformation- Finance FTEs Per Set $ of Revenue
This is the fifth in a 5-part series of blog posts that will help you identify if your company needs a Finance Transformation.
How many FTEs it takes to keep the Finance Function wheel turning varies by industry and business complexity, but to determine if you are getting more or less efficient over time, taking the # of Finance function FTEs per $X of revenue is a good way to measure it. Taking the # of Finance Function FTEs per # of transactions or number of accounts in the Chart-of-Accounts is also a good metric to track.
APQC’s Finance Organization Open Standards Benchmarking survey tracks the # of FTE per $1 billion in revenue. This metric as a benchmark does not easily scale across companies of different size as there is significant leverage that is garnered from the Finance function over large volumes of revenue. For example, the median number of Finance FTEs per $1 billion revenue is 69.4. That implies that a $100 million revenue company should have less than 7 Finance FTEs, which may not make sense for most organizations.
The Number of Finance FTEs is a Function of Complexity
What the APQC study does provide is relative perspective. Leading organizations use almost 3 times less FTEs per $ of revenue than laggards. This is a huge difference and shows the degree of operating leverage that can be garnered from a Finance Transformation. The study also states that about 56% of the Finance Function’s cost is related to personnel expenses. The FTEs at the least efficient organizations spend 56% of their time working on transaction processing. The amount of time spent on data gathering, input and cleansing is a consistent problem among all of Finance.
The way leading organizations switch the focus of its Finance staff time from data input, and other low value-added tasks to high-value, analysis related work is through leveraging technology. The digitization of the Finance function includes the implementation of robotic-process-automation (RPA), workflow automation and the Cloud. Automation is the start of a continuous streamlining process that ensure FTEs are using the tools available to focus their efforts and time on the highest value work.
Interpreting Finance FTEs Per Set $ of Revenue
Similar to other Finance Transformation indicators discussed in this series, this metric should be analyzed over time to determine if FTE efficiency is increasing, decreasing or remaining constant. If the cause of decreased efficiency is due to a strategic factor, such as staffing up prior to a large sales push, then this may not indicate that a Finance Transformation is needed. No metric should ever be analyzed in isolation but combined with other indicators to provide confirming or refuting signal.
Don’t Go It Alone
Planning and effectively executing a Finance Transformation is hard work. It requires executive buy-in, a careful assessment of a Company’s existing processes and procedures, the identification of pain points, gap analysis, prioritization of initiatives and program management. The ability for an existing resource to take this on in addition to their regular duties is a recipe for failure. Using an external partner to work in conjunction with an internal designate produces the optimal mix of internal knowledge and external resources to produce tangible results.
