Why Allocating Adequate Resources to Back-Office Accounting and Finance Is Key to Your Company’s Success
After many years of advising business owner clients on a wide range of best practices, I’ve noticed that successful organizations are far more likely to invest in back-office accounting and finance functions. Not only does making an investment in these services improve a company’s financials but it also results in added efficiencies across all areas of the business.
I have found that successful organizations typically invest in accounting and finance teams to manage the following key business functions:
- Accounts payable and receivable
- Spend management
- Cost control
- Cash flow management
- Reconciliation
- Reporting
- Compliance with regulatory requirements
- Strategic decision-making
In my experience, the most successful organizations attribute a percentage of top-line revenue to support these key functions. On the other hand, companies that attribute only a small percentage of revenue to accounting and finance are more likely to experience the following challenges:
- Non-moderated (potentially out-of-control) spending
- Lack of visibility into company profits/losses
- Difficulties making informed and timely decisions
- Inefficiencies in reporting to the board and other key stakeholders
- Reconciliation challenges
- Regulatory risks
Above all else, organizations without sufficient accounting/financial support are more likely to miss out on potential opportunities to grow and succeed for customers, employees and key stakeholders.
What’s the right amount to invest?
The amount a business should allocate to back-office accounting and finance functions depends on several factors, including business size, industry-specific considerations, complexity of business operations and more.
Business size
The size of a business often impacts the percentage of revenue necessary to support adequate finance and accounting functions. That’s because full-time equivalent employees can more effectively implement large-scale technology solutions to help manage necessary functions across the organization.
- Small businesses (typically classified as having less than $10 million in assets) may need to allocate 2% to 5% of top-line revenue.
- Medium-sized businesses ($10 to $25 million) may be well served with a 1% to 3% allocation.
- Large enterprises (greater than $25 million) are often able to benefit from economies of scale, accessing adequate support with a 0.5% to 1.5% allocation.
Industry-specific considerations
Different industries have different profit margins and varying nuances that impact how much financial and accounting support they need.
- Manufacturing companies may be able to implement automation and standard processes to streamline their accounting and finance functions, leading to a lower allocation of between 0.5% to 1.5%.
- Retail organizations typically have a need for inventory tracking and financial reporting that places them in the mid-range of between 1% and 2%.
- Professional services companies tend to have higher accounting costs due to the need for more detailed tracking and reporting. An appropriate allocation for these companies typically falls between 2% and 5%.
Complexity of business operations
As a business’s complexity grows, so too should its investment in accounting and financial functions.
- Low-complexity businesses with straightforward operations will have lower accounting costs.
- High-complexity businesses with complex financial structures, multiple subsidiaries and/or extensive regulatory/reporting requirements will have higher accounting costs.
Additional factors
Other factors impacting finance and accounting costs include:
- Transaction volumes –Higher transaction volumes typically require additional accounting resources.
- Regulatory requirements –Industries with stringent regulatory requirements, such as financial services and healthcare, may require more robust accounting functions.
- Technology and automation –Investment in accounting software and automation can significantly reduce long-term costs.
- Outsourcing vs. in-house –Outsourcing accounting functions can often improve efficiencies and reduce costs when compared to hiring, training and maintaining an in-house team.
Tips for getting started
One of the best ways to help ensure you’re allocating adequate resources to your company’s finance and accounting functions is by working with an experienced business advisory professional who can help you:
- Evaluate your current accounting/finance costs as a percentage of revenue
- Benchmark your costs against peers and industry benchmarks to assess where you stand
- Invest in technology and process improvements to enhance efficiencies and reduce costs
- Conduct regular reviews of your accounting and finance functions and make ongoing improvements
Allocating adequate top-line revenue to your finance and accounting functions can go a long way toward helping you future-proof your company, build value and drive long-term growth, but you shouldn’t have to do it alone.
At Creative Planning Business Services, we support clients with a wide range of custom business planning strategies to improve their operations, maximize their revenue and deliver for customers, employees and key stakeholders. We offer a wide range of financial and accounting support to help your business thrive. To learn more, schedule a meeting with our team.
