Brief update on the state of FAO (financial administration outsourcing solutions) for mid-market buyers.

1. The State of FAO for the Mid-Market
(Financial and Administration Outsourcing)
“30 years ago, firms did their own payroll; while today the vast majority outsource payroll. FAO
delivers costs savings through financial and administration services that streamline cash collection
and provide institutional level financial controls that every business needs to survive, thrive, and
create wealth.” - Garry E. Meier
Today, the vast majority of enterprises outsource some component(s) of their financial responsibilities
with the scope of F&A (financial and administration) services depending upon the company’s maturity and
complexity. Accordingly, FAO has grown beyond providing tax services, bookkeeping, and receivables
management to multi-process, multi-functional providers delivered via a SaaS platform that includes the
following capabilities and benefits that make companies more effective and efficient.
FAO capabilities include:
 Automation of billing and collection across online payment processing tied to bank and financial
reporting integration which allows for better cash collection, cash management, and visibility.
 Efficiency of transactional processing from an average of $15 per transaction to a few dollars.
 Governance including regulatory compliance and risk mitigation (Leap into 3rd generation
governance practices!).
 Global features including embedded language, user preferences regulatory compliance and
reporting across global operations.
 Complex services such as revenue forecasting, revenue-recognition complexities, total
compensation reporting, global payroll capabilities, etc..
FAO benefits include:
 Replaces “people dependent” F&A model with a “process dependent” FAO model (P2P,
O2C, R2R1).
 Personnel cost savings:
o Rather than buy a CFO, hire a fractional CFO and support with a FAO.
o Rather than staff a department, hire on-demand a well oiled professional team with 15+
years average experience.
 Shifts the burden and costs of technology upgrades from the buyer to the FAO provider.
 Replaces “fixed-cost” model with a flexible cost model.
 Reduction in DSO, asset recovery, spending, slippage, mistakes.
 Improvement in inventories and/or labor and job scheduling and costing.
1
Functions: Record to Report (R2R), Order to Cash (O2C), Source to Pay (S2P), Procure to Pay (P2P).
Ephor Group | 1 (800) 379-9330 | www.ephorgroup.com | 24 E Greenway Plaza Suite 440 | Houston, TX 77046

2. Solving the Value Equation
FAO trends include:
 Buyers continue to be cautious and implementations are done via a phased approach by
module, process, or function one or two at a time.
 The hybrid pricing model continues to become the dominant pricing model (annual retainer plus
FTE-based pricing in combination with either transaction-based pricing models).
 Beyond efficiency of operations, cost savings, and business process improvements, buyers
requirements include strategic support in the areas of financial and operational analytics,
capital and financing, and overall support of the new role and agenda of today’s CFO including
sourcing procurement, ITO, HRO, Risk, and other key functions.
 Clients demanding more than labor cost arbitrage; SaaS platform plus analytics an upfront
requirement along with broad scope of expertise and then point specific processes and functions
delivered via a transaction based pricing model.
The State of FAO Adoption and Utility:
The scope of FAO outsourcing is growing and as technology evolves the cost to implement decreases. With
the demand for efficiencies risen executives can meet their efficiency of operations requirements with
shared service centers.
Ephor Group | 1 (800) 379-9330 | www.ephorgroup.com | 24 E. Greenway Plaza Suite 404 | Houston, TX 77046

3. Solving the Value Equation
While still evolving, FAO technology platforms have been consolidated to a few major players paving the
way for global, national and regional service providers to approach the mid-market.
The definition of FAO is expanding. Multi-process FAO is growing.
Adoption is increasing along with vertical specialization (i.e. focusing on healthcare dental practices, or
restaurants or professionals) with the primary reason for buying being to bypass technology ERP upfront
costs while gaining access to the capabilities and benefits of FAO.
Ephor Group | 1 (800) 379-9330 | www.ephorgroup.com | 24 E. Greenway Plaza Suite 404 | Houston, TX 77046

4. Solving the Value Equation
Outsourced Solution Provider Mid-Market Landscape:
The most common underlying technology platforms include: QuickBooks Enterprise, Zoho, Deltek, Infor,
Workday, NetSuite, SAGE, Intaact, Epicor, and Microsoft.
The FAO solutions provider landscape is highly fragmented with more than a hundred multi-process mid-
market enterprise solution providers.
Attributes of High Performing, BestInClass FAO Providers:
 Recurring Revenue Model (>12 month contracts) across multiple verticals and multiple processes.
 Portfolio of services, products, and solutions across strategic and administraitive financial and
administration.
 Self-service updgrades provided on a routine basis.
 Platform competencies includes: knwoeldge libraries, vertical expertise, technology, and process
excellence.
 Automation of many of clients internal processes after implementation.
 Financial and Operational Analytics and Reporting Packaged by company vertical.
Ephor Group | 1 (800) 379-9330 | www.ephorgroup.com | 24 E. Greenway Plaza Suite 404 | Houston, TX 77046

5. Solving the Value Equation
Buyer’s of FAO:
The market is significant as the table illustrates the potential universe of FAO mid-market employers with
50 to 10,000 full-time W-2 employees:
TARGET USA Americas India/Middle Asia Europe
Non-USA East
Mid-market 65,000 25,000 10,000 25,000 15,000
The most common tools adopted in the marketplace:
Solution Most Common Tools Used by SMBs (>5%)
Microsoft Outlook, Google Apps, SharePoint, Social
Communication Tools Networking Sites, Intranet
Customer Relationship
Management SalesForce.com, Microsoft CRM, Zoho, Sugar, NetSuite
Enterprise Resource Management Microsoft Dynamics, QuickBooks Enterprise
Financial Management QuickBooks, Microsoft Dynamics, Peachtree
Operational Reporting QuickBooks, Microsoft Dynamics
Productivity Software Microsoft Suite, Google Apps
Security McAffee, Norton, Zenith, Microsoft
Storage Dell, HP, EMC
Expense Management Concur, SpringAhead, Nettime, ExpenseCloud
Of note: No common time and attendance, HR management, workforce management, business
intelligence or benchmarking tools were noted in the survey. Other notable players identified, but not
utilized by > 10% included ADP, Basecamp, Lawson, Oracle, and ZOHO.
Technology adoption findings among small and mid-market buyers:
 Nearly 80% outsourcing at least one function. The “big bang” approach has given way to a
focused by function and/or deliverable scope as opposed to a “lift and shift.”
 Approximately 10% of the market evaluating outsourcing a new/additional function. While
buyers continue to be cautious, the percentage of companies using outsourcing is growing,
and the functions being outsourced are too.
 40% believe the value proposition of outsourcing is achievable or attained for their
company.
 Overall, the market is characterized with national and regional software leaders and then
highly fragmented implementation service providers. While competition is prevalent,
regional leaders continue to strengthen their standing in their local markets through
expansion and acquisitions. BestInClass performers have Gross Margins > 70% but Net
Income (EBITDA) is single digits or zero (< 10% have multiyear contracts). < 10 % using
offshore. The majority have started bundling and continue to progress:
o Bundling of products and services
o Bundling of services and management
o Bundling of technology and services
Ephor Group | 1 (800) 379-9330 | www.ephorgroup.com | 24 E. Greenway Plaza Suite 404 | Houston, TX 77046

6. Solving the Value Equation
Legacy Software Market Landscape to be canibalized by SaaS:
Mid-Market
(companies with revenues from $2 million to $50 million) US Customers Outside US Total
ACCPAC Discovery Series (Best) 380 420 800
ACCPAC Vision Point (Best) 14,700 3,300 18,000
BusinessVision 32 (Best) 4,000 116,000 120,000
BusinessWorks Gold (Best) 31,300 700 32,000
DAC Easy (Best Software) 22,000 26,000 48,000
Microsoft Small Business Manager (Microsoft) 3,000 250 3,250
M.Y.O.B. AccountEdge (M.Y.O.B.) 160,000 440,000 600,000
Oracle Small Business Manager (NetLedger) 4,500 1,500 6,000
One Write Plus (Peachtree Software / Best) 117,400 7,600 125,000
Peachtree 2000 (Peachtree Software / Best) 8,300 200 8,500
Peachtree Complete Accounting (Peachtree / Best) 1,120,000 80,000 1,200,000
QuickBooks Basic / QuickBooks Pro / Premier / Enterprise 2,400,000 400,000 2,800,000
Simply Accounting / Simply Accounting Pro (Best) 90,000 910,000 1,000,000
ACCPAC Advantage Series (Best) 31,360 24,640 56,000
AccountMate (Best) 105,600 19,400
Blackbaud Financial Edge (Blackbaud) 4,400 100 4,500
BusinessVision 32 (Best) 1,400 118,600 120,000
Eclipse (Intuit) 550 50 600
FACTS (Aperum) 2,500 - 2,500
Great Plains Dynamics (Microsoft) 39,000 9,000 48,000
Macola Progression (Exact Software) 5,600 1,400 7,000
MAS 90 & MAS 200 (Best) 122,500 2,500 125,000
Navision (Microsoft) 3,200 18,800 22,000
NxTrends (NxTrends) 940 60 2,000
Open Systems Accounting Software (Open Systems) 59,800 5,200 65,000
Platinum for Windows (Best) 4,920 1,080 6,000
Prophet 21 (Prophet 21) 1,950 50 600
ACCPAC Pro Series (Best) 29,600 10,400 40,000
Solomon IV (Microsoft) 24,000 6,000 30,000
SouthWare Excellence Series (SouthWare) 6,800 200 7,000
Syspro IMPACT Encore (Syspro) 6,000 2,000 8,000
Traverse (Open Systems) 6,000 1,500 7,500
Visual AccountMate 5.0 (Best) 21,120 2,880 24,000
Ephor Group | 1 (800) 379-9330 | www.ephorgroup.com | 24 E. Greenway Plaza Suite 404 | Houston, TX 77046

7. Solving the Value Equation
For the High-End & Beginning ERP Market
(companies with revenues from $25 million to $500 million) US Customers Outside US Total
ACCPAC Advantage Series (Best) 31,360 24,640 56,000
Axapta (Microsoft) 800 3,200 4,000
Baan (SSA Global) 1,500 1,500 3,000
MAS 500 (Best Software) 3,200 300 3,500
PeopleSoft World (formerly JD Edwards) (PeopleSoft) 3,100 3,100 6,200
Great Plains (Microsoft) 39,900 9,000 48,000
Macola Progression (Exact Software) 5,600 1,400 7,000
Navision (Microsoft) 12,000 33,000 45,000
Traverse (Open Systems) 6,000 1,500 7,500
E by Epicor 7.0 / Vantage (Epicor) 12,000 6,000 18,000
PeopleSoft (PeopleSoft) 2,350 2,350 4,700
SAP (SAP) 4,544 9,656 14,200
SouthWare Excellence Series (SouthWare) 6,000 100 6,100
Syspro IMPACT Encore (SysPro) 6,000 2,000 8,000
Take Stock (Aperum) 500 - 500
ACCPAC Executive Series (Best) 70 10 80
Solomon (Microsoft) 24,000 6,000
Ephor Group | 1 (800) 379-9330 | www.ephorgroup.com | 24 E. Greenway Plaza Suite 404 | Houston, TX 77046

8. Solving the Value Equation
The Business Case for Buyers of FAO Solutions:
Over the past few years we have seen the FAO market expand as the ability to deploy FAO via SaaS
coupled with companies adoption of more agile/flexible cost structures. Primarily, mid-market senior
executives are turning to FAO solutions for:
1. Controls
2. Intelligence
3. Real-time KPIs, Knowledge, Analytics
4. Performance Targeting
5. F&A FAO Platform
Today, FAO providers help companies overcome
the barriers to profitability and scale by eliminating
non-value added processes, automating key
processes, and providing increased resources as
needed in support of the business.
Every day more CFO’s make the decision to
outsource business process and functions. In fact,
the average business outsources part or all of at least two (2) business processes and/or functions.
Furthermore, once executives make the decision to outsource the number of processes/functions expands
as evidenced by a recent survey: Over 75 percent of the finance executives plan to expand their
outsourcing programs in 2010 and over 85 percent of the finance executives are satisfied with the benefits
from FAO2.
Consistent with economic and competitive pressures, the market demand for FAO continues. Of course,
the ROI depends on the exact situation and requirements; however, for emerging enterprises, the
business case is compelling. Historically, companies had the option to buy an industry specific financial
management software, or they could invest
in ERP (enterprise resource planning)
software. The ERP included financial
management software that cost hundreds of
thousands (Sage, Microsoft) or millions
(Oracle, SAP) in up-front costs, before
counting the cost of implementation, setup,
maintenance, training costs and process
improvements.
Driving the adoption and use of FAO are the
benefits of a variable pricing model delivered
via a SaaS model, combined with technology
capabilities and business process excellence
deployed via F&A.
Companies can leverage a SaaS FAO
platform to outsource an entire function or
single process.
Clients financial benefits include reduced
operating costs via a pay-as-you-go pricing model, thereby cutting capital expenditures. More importantly
2
WNS Annual CFO Survey 2010.
Ephor Group | 1 (800) 379-9330 | www.ephorgroup.com | 24 E. Greenway Plaza Suite 404 | Houston, TX 77046

9. Solving the Value Equation
than the financial benefits, the capability benefits really drive the adoption of FAO. Technology
advancements available today are incredible, like automated processing of payables/receivables and other
processing event transactions (no internal human resource costs), or streamlined administration so that
reports are generated automatically: the ability to provide operational and financial reporting dashboards
and reports in near real-time. Today's FAO platform provides an alternative to building internal back-
office fiefdoms before a company has the time and resources that are appropriate. In addition to gaining
enterprise controls and intelligence, cost savings for every business are a priority. And it's even more
import for service businesses that depend on their people to offload and automate transactional and
routine tasks so that ALL current employees can focus on revenue and client related tasks and processes.
Not only are companies challenged with becoming more efficient to maintain the status quo, competition
is eroding margins, globalization is causing changes in cost structures, and technology is either a
hindrance or a helper.
Did you know that the average cost of internally processing a document is $15 per invoice when done
manually?
3
The chart is clear to business owners, the time and resources spent on processing transactions must be
reduced! In the future, companies will spend less time processing and more time on the core business.
Almost all of the transactional processing can be done by technology that did not exist 10 years ago.
 Companies will spend less time processing and more time on the core business.
 Demand for real-time financial reports as well as non-financial reports and intelligence.
 World-class companies are able to close within one day.
 Controls and financial reporting reduce risk, cost overruns/rework/errors/theft and
variances.
 Rising Costs of Processing:
 Average cost of $15 per invoice done manually.
 Almost all of accounting can be done by technology that did not exist 10 years ago.
 Time spent processing transactions must be reduced!
 Rising Complexities:
 Contingent workers make up a third of the workforce.
3
Sources: http://www.faotoday.com/fao-today-resource-guide, http://www.outsourcingsuppliers.com/e/everest.html, Everest
Group, Outsourcing Institute, http://www.globalservicesmedia.com/, Equaterra
Ephor Group | 1 (800) 379-9330 | www.ephorgroup.com | 24 E. Greenway Plaza Suite 404 | Houston, TX 77046

10. Solving the Value Equation
 Profitability depends on the success of client, job or project specific teams.
 Variances and changes in cash, contracts, and margins must be managed in real-time!
Your Company Before FAO With FAO
Controls People dependant. Process alert notifications notify people to take action
based on variances, triggers, benchmarks.
Intelligence Completed by C-level executives via Routine intelligence guides pricing, forecasts,
networking on an ad-hoc basis. spending.
Financials Completed the following month and provide Financials are tied to operational measures and
summary outline of financial position. provide leading indicators to employees.
Billing/Invoicing Done ad-hoc on a daily basis by an Automated invoicing and cash collection saves time,
employee part-time. processing costs, reduces manual errors.
Cash Management Done at end of month and end of period. Cash actuals integrated with financials in real-time.
Labor Cost Excel and/or manual review done after the Labor Matching applied every two weeks to match
Management period. costs and profits.
Ephor Group | 1 (800) 379-9330 | www.ephorgroup.com | 24 E. Greenway Plaza Suite 404 | Houston, TX 77046