Sanjay Gaggar
June, 2014
Finance & Accounting (F&A) organisation is centre of attention as business scales up with more zeroes are being added on top-line and CFO/FC (Chief Financial Officer/Finance Controller) needs to gear up to taper the challenges of rising COFF.
For an SME, cost of finance function (COFF) is a function of how business owner would like to release its own bandwidth in terms of diverting it's time to business. Smart business owner would start building the finance function by in-house hiring or outsourcing competent professional service provider to manage its F&A function. In a situation like this, CFO need to play important role by not losing quality of score keeping function by delivering accurate data with quality analytics to business owner.
COFF has typical following components:
- Cost to Company (CTC) of finance team/Service charges of outsourcing agency
- Overheads (Seat/HR cost) on F&A team
- Automation platform cost – Amortisation of hardware & new software license/customised spending on IT, on-going support & AMC
Based on prevailing scenario, COFF is generally 1-2% of top-line (revenue) in an established organic business growth scenario and 2-4% in a business which is churning hyper growth rate via inorganic ways by doing say M&A acquisition, PE/VC /JV partner fund raised.
Other way for early stage venture (may be product or market development / R&D Company) is to find out total burn rate and within that how much is the F&A cost? One need to raise an alarm, when COFF is higher than benchmark support cost for other internal functions like HR, IT, Admin or benchmark industry/peer group cost.
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