TL;DR: For a growing business or a registered investment adviser, the full finance function, meaning the finance and accounting team, the systems it runs on, and the IT support behind those systems, typically costs 1 to 3 percent of annual revenue. That is lower than churches and nonprofits, which carry fund accounting, donor restrictions, and grant compliance. Structural complexity or high growth justifies more. Spending well below the range usually means work is not being done.
A finance function has a floor. Below a certain level of investment, a company does not save money. It moves the cost somewhere harder to see: into the owner's evenings, into errors that surface late, and into decisions made without reliable numbers.
The useful question is not how little you can spend. It is whether what you spend is proportionate to the work the function has to do.
What should a business or RIA spend on finance?
As a share of annual revenue, a healthy finance function in a growing business or an advisory firm generally falls between 1 and 3 percent.
Where a firm sits inside that range depends on size and complexity. The minimum a finance function must do, a reliable close, real review of the books, visibility into cash, and someone who can explain what the numbers mean, does not shrink in proportion to revenue. Smaller firms carry that minimum across less revenue and tend to sit higher in the range.
Businesses and advisory firms generally run below churches and nonprofits, which carry fund accounting, donor restrictions, grant compliance, and volunteer governance. For that benchmark, see what a church or nonprofit should spend on finance.
These are ranges, not targets. The point is not to land on a number. It is to know why when you are outside it.
What counts toward the cost of the finance function?
Count the whole function, not only the line labelled accounting. That means three things.
- The finance and accounting team, fully loaded: salary, benefits, and payroll taxes for everyone doing finance work, from payables and billing to the controller and the CFO.
- Outsourced finance services, including bookkeeping, controller or fractional CFO support, and payroll processing.
- The systems and the IT support behind them: the general ledger, billing and payables tools, expense management, the payroll platform, reporting, and the technical support that keeps them connected and secure.
For an RIA, count the systems that produce and reconcile fee billing, but not portfolio management or trading platforms, which belong to investment operations. Compliance is a separate function with its own budget. External audit and tax preparation are best tracked separately as well, because requirements drive them rather than design.
The cost that never appears in the finance budget
In most founder-led businesses and advisory firms, the most expensive finance labor is the owner's. It is the founder reconciling accounts after the team goes home, the principal checking billing before it goes out, the partner assembling the lender package over a weekend.
That time is real cost, paid at the highest rate in the firm, and it never shows up in the ratio. Count it at least once. A finance function that looks lean on paper often turns out to be expensive and underbuilt at the same time, with the difference carried by the person whose time is worth the most.
When is it right to spend more than 3 percent?
Two situations justify it, and they are different in kind.
Complexity is structural. Multiple legal entities, operations in several states or countries, inventory or project cost accounting, significant debt with covenants, outside investors who expect institutional reporting, or an acquisition all add work that does not go away. A firm with several of these can reasonably sit above the range while the complexity lasts.
Growth is temporary. Implementing new systems, cleaning up a ledger that no longer tells the truth, preparing for a sale or recapitalization, or hiring a controller ahead of the volume that justifies one are investments made before revenue catches up. Growth spending should have an end date. If it does not, it is complexity or waste, and it is worth knowing which.
What does spending below 1 percent usually mean?
Rarely efficiency. A firm with clean systems and disciplined processes can run lean. Far more often a firm runs lean by omission, and the signs are consistent:
- The owner is the only person who sees the whole financial picture.
- The monthly close lands late, or on no fixed day. See what a slow close costs.
- There is no reliable cash forecast, so every major decision starts with building one.
- No one reviews the work of the person keeping the books.
- For an RIA, billed fees are not reconciled to custodian values each period.
- Lenders, buyers, or auditors ask for information that takes weeks to assemble.
The cost does not disappear. It returns as billing errors, compensation disputes, a lower valuation, a lender who loses confidence, or a decision made on instinct that should have been made on numbers.
How should an owner use the benchmark?
- Total the whole function: people fully loaded, outsourced services, and the systems and IT support behind them. Add the owner's finance time at least once.
- Divide by annual revenue and place the result against the 1 to 3 percent range.
- If you are above it, name the reason. Structural complexity is a valid answer. Growth is valid if it has an end date.
- If you are below it, look for where the cost is hiding, most often in the owner's time and in work no one is doing.
- Then test whether the spending works. The ratio shows whether the investment is proportionate, not whether it is effective. A close on a committed day, reviewed books, a forecast the owner trusts, and, for an RIA, billing that reconciles every period are the evidence that it is.
The Counter-Move
When margins tighten, finance looks like overhead to trim. It sells nothing and serves no client directly.
The counter-move is to hold the function inside its range and change its shape rather than its size. Move transaction work into systems. Buy controller and CFO judgment in the portion you need. Stop paying the owner, the most expensive person in the firm, to do work a well-built function would do. See the difference between a bookkeeper, a controller, and a CFO.
An invitation
If you have never totalled what your finance function costs, including your own time, the exercise is usually clarifying. Most owners find the number is either higher than they thought or lower than it should be.
Novum helps founder-led companies and advisory firms design a finance function that fits their size and complexity. If you are also choosing a partner, see what to look for as a faith-driven business or an RIA.