No CEO or CFO wants to be asked by the Board: “Why is the finance department headcount so high?” Given that fact, why are there so many finance organizations that are a significant part of a company’s SG&A? And, how can finance leaders simplify and solve this challenge?

The size of a finance function can vary by company. 

At Riveron, we have observed a variety of finance organizations, including a $250 million revenue company with more than 200 people in finance (granted, most were offshore) and a $1 billion revenue company with 250 people in finance.  Sometimes headcount is due to a company’s complexity, but, more often than not, the team size is due to how the company was built: solving the task at hand (a band-aid approach) versus creating the best solution (which challenges the status quo and often requires uncomfortable change).

Companies routinely take two shortcuts when building the finance team:

1. Throw people at a problem. This can cause significant manual processes, long-review times, human errors, and expensive finance departments.
2. Hire the lowest-rate resource for the task at hand, rather than enlisting an adequately experienced or more impactful individual. Here, CFOs or finance hiring managers might think they are getting a deal, only considering the personnel cost added today versus looking at the overall budget. 

These two common short cuts create inefficient and costly finance organizations, where employees spend time moving data from one place to another, reconciling for days due to data errors, and lengthy processes where leaders review employee’s work for errors. If there are errors, they repeat the process again until it is correct.

Efficient finance functions: Where CFOs should focus

A CFO should be automating functions and processes that are repetitive. This means building scale, driving efficiency and accuracy, and reducing expenses through technology. For small and medium size companies, a new ERP (Enterprise Resource Planning or general ledger system) or EPM (Enterprise Performance Management or FP&A/Planning system) will typically cost between $100K to $250K, depending on the number of users and scope, and this type of investment can be equal to the annual salary of one senior manager or director-level employee. 

What systems do better than people:

• Moving and reconciling data
• Repeating similar processes, functions, and steps
• Producing standardized reports

What people do better than systems:

• Analyzing data (the “why” not just the “what”)
• Building relationships with business partners to gain better insight
• Forecasting
• Putting the data in context so that executives can make better decisions

A successful mix of technology and resources starts with building a strong foundation, which includes standardizing all budget-variance and other monthly reporting, working with HR and IT to properly align and connect the underlying data to the business metrics, and managing the process in Excel for a few months to know exactly what has been needed. When the requirements are known, then the system is ready to be implemented. Finance team members should know exactly what the system needs to produce, have templates for what it should look like, and be able to map the data and hierarchies (metadata) to efficiently set up the system. CFOs and finance leaders shouldn’t build a system for today, they should build for what is needed in five years.

In addition, technology systems can provide a useful clean slate. It is easier to build a finance function from nothing than to elevate an existing team where people are set in inefficient ways and those processes must be undone. 

Reimagine an existing finance organization by uncovering the right approach.

If a CFO must work with existing teams, the right questions can inform an approach that works. Leaders should survey all business partners, finance employees, and other key stakeholders of your finance organization. In the survey, ask these four questions:

1. What are we doing well that should not change?
2. What are we producing that you are not using?
3. What are we not producing that you would like us to produce?
4. What processes require repetitive actions to produce the needed outcome (e.g., closing the books, generating a report)?

After the survey, leaders can automate the repetitious items in your existing systems or seek out innovative technology to create this automation. If done correctly, you should be able to eliminate roles or avoid backfilling roles when they become vacant.

Technology can vastly improve the operating efficiency and cost-effectiveness of the finance function.  Every system has its limits, and human input remains essential, as we’re not yet at the point where AI and other technologies can present useful and accurate financial information to business leaders and Boards of Directors, or develop sound solutions without human oversight.