Financial Planning and Analysis (FP&A) is a critical function within a business, as it helps organizations make informed decisions to ensure financial stability, efficient resource allocation, and sustainable growth.
Financial planning & analysis (FP&A) is a subgroup of the finance function within an organization. The difference between FP&A and some of the other finance functions, is that FP&A is focused on performance analysis and future-looking initiatives such as budgeting, forecasting, and planning.
This is essential, as the most important objective for an FP&A department is to use both current and historical data to drive business performance, prepare management and board reports, and accurately forecast a company’s revenues, expenses, and cash flows. This then becomes the backbone of strategic decision-making to support the future objectives of any organization.
🎯 In a nutshell, FP&A teams help business leaders answer critical questions such as:
What is our current financial position?
What are the potential risks and opportunities in both short-term and long-term strategy?
Where can we invest to achieve our financial goals?
And, are we allocating resources in the right way to maximize growth and efficiency?
This is why the modern FP&A team needs to become a force multiplier across the business – moving away from back office tasks and starting to operate as a true business partner to each stakeholder across the organization.
Ultimately, FP&A brings together the different metrics from each department such as marketing, sales, operations and HR to help create a robust financial plan for the future.
Why is FP&A so important?
Since finance is the backbone of a business, FP&A teams need to develop a holistic understanding of each business function. From management reporting, sales quota attainment, to headcount planning, or owning the budgeting process, FP&A professionals play an essential role in the financial health and success of any organization.
Because FP&A has such a fundamental understanding of a company’s financial operations, the role covers both a lot of depth and breadth. Modern CFOs have enabled their FP&A teams to transition away from being the budget police and instead become true revenue enablers.
Some of the ways in which FP&A teams are doing this is by:
Complete Understanding of Business Performance
FP&A teams operate across the entire business. This gives them access to the underlying data of each function, helping them understand performance at the most granular level.
Balancing the short-term and long-term strategic planning
Companies need to move quickly, and this means decisions need to happen in real-time. FP&A teams act as unbiased business partners, and help stakeholders balance the trade-offs between short-term execution and maintaining alignment with the long-term strategic plan.
Translating data and insights into clear actions
FP&A teams leverage data to identify the key insights that will drive company performance. Then effectively partner with the rest of the business to turn those insights into a clear and measurable action plan.
How is Financial Planning & Analysis different from Strategic Finance?
While FP&A and Strategic Finance teams share some similarities, they have in the past served as different functions within an organization.
FP&A
Primarily focused on developing the financial models and forecasts that support informed decision-making
Analyzing financial and operational KPIs to identify opportunities and risks
Working closely with other functions to prepare ad-hoc financial insights and decision recommendations
Owning the annual operating plan and departmental budgets
Strategic Finance
Concerned with developing the long-term and overall strategy of the entire business
Understanding and evaluating different market opportunities to uncover new product or business lines
Calculating the financial impact of key business decisions such as potential M&A activities
However, as companies and finance teams are becoming more agile, we are seeing FP&A and Strategic Finance operating as one single team. Day-to-day, this means FP&A is responsible for both the financial planning and analysis remit of the role, as well as directly owning the long-term strategic planning that supports the entire business.
Understanding the FP&A cycle and processes:
The FP&A team has several responsibilities that range from day-to-day reporting and analysis, to future-looking initiatives such as annual planning.
All of these responsibilities help:
Bring predictability and operational rigor to the company
Facilitate cross-functional execution between senior management
Ensure operational and financial results are measured, achieved, and any variance understood
To support those responsibilities, FP&A teams follow a framework to understand their data and use it to make better business decisions. The hardest thing in any business is driving consistent performance, however, having a great FP&A cycle will definitely aid this process. The FP&A framework is broken down as follows:
Financial and Operational data collection and consolidation
Forecasting and Long-Range planning
Budgeting
Reporting and Performance Tracking
Benefits of implementing an FP&A software
The main challenge of FP&A teams owning the planning process detailed above, is that the finance department spends 75% of their time manually consolidating data, copy-pasting metrics from one spreadsheet to another, and updating stakeholders through back and forth emails.
This means FP&A professionals are left with limited time to be the strategic partners the CFO and the rest of the business needs them to be.
This is why Abacum is the FP&A automation platform, focused on maximizing your business’s most precious resources: time and money.
With Abacum FP&A professionals can:
Save 260 hours a month
with off-the-shelf reporting templates, automated BvA analysis, intuitive revenue forecasts and rolling forecasts
Run a planning process that is 20% more efficient
by leveraging streamlined budgeting workflows with approvals and user-level permissions
Ensure Budget to Actual variance <5%
your OPEX spend is reduced with vendor-level insights and data-driven planning that keeps your business on track
Have 1 Operational Source of Truth
integrate all your business systems for automated data wrangling and consolidations
Building an FP&A team
Finance teams are the engine behind efficient growth. Here is everything you need to know about scaling this corporate finance function, the difference in responsibilities between roles, and how to go from your first hire to IPO.
The key roles within an FP&A team include:
Director or Head of FP&A
FP&A Manager
FP&A Analysts
FP&A frequently asked questions
When do scaling companies need to start building out an FP&A team?
Which challenges can be solved with an FP&A solution?
How does FP&A add value to your company?
If you want to learn more on how to scale and grow your FP&A team or career, check out the following resources
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