Having a dedicated financial planning and analysis (FP&A) team in your business model can significantly improve how your business grows. An excellent FP&A team can mean long-term financial stability and sustainability for your company.
With that said, what is financial planning and analysis? Is this something only big companies need or can you take advantage of its benefits too? Here’s everything you need to know.
What is Financial Planning and Analysis?
Take a look at companies that thrive and succeed in their chosen fields. Look how it is run. You’ll find that they have a financial planning and analysis team that works on keeping the company’s financial health in check.
Financial planning and analysis is the amalgamation of all the financial processes that support the financial well-being of an organization. This includes the planning, budgeting, analyzing, reporting, forecasting, and modeling of the business’s financial operations.
Typically, the FP&A team directly reports to the Chief Financial Officer (CFO) and Accounting and Treasury. FP&A analysts usually take up roles as financial advisors. The team closely works with senior management, helping them with decision-making.
Financial Planning and Analysis vs. Accounting
Your company's accounting and financial management functions are critical to its survival. However, there are vital differences between them. From a broader perspective, these functions handle all the financial transactions and data. But the work differs based on the specific task.
The accounting team’s function is responsible for collecting financial data, preparing financial statements, and ensuring the accurate and timely submission of these reports to regulatory authorities.
On the other hand, a financial analyst aims to estimate the value of investments and projects. The analysis is carried out with the help of models and technology, and such work cannot be done in a conventional way.
Where accounting deals with record-keeping and financial reporting, FP&A takes it one step further. The FP&A analyzes the financial statements along with other financial and operational data.
The FP&A team also provides the necessary recommendations to ensure everything runs smoothly. This ensures that the company is right on track with its financial plans.
Why Is Financial Planning And Analysis Important?
As a business owner, you must be aware of the challenges of managing a business. One important thing to consider is how you deal with your corporate financial situation.
The success of your business venture depends on your ability to develop innovative strategies, appeal to your target audience, and, most importantly, make timely investment decisions.
Managing finances can be daunting, especially if you have not planned your finances well. Many companies falter due to unforeseen circumstances, and, in some cases, they are forced to close down. Not having a proper plan in place can make things difficult.
The insights of a solid finance and management team can prove instrumental in supporting and propelling the business towards growth and profitability. It helps the management and the board make informed decisions that have the potential to accelerate the development of a company.
Companies that want to scale their business need to invest in a solid FP&A team. A strategic corporate finance plan will grow their business exponentially and sustain that growth.
The FP&A team has a finger on the pulse of the company’s overall well-being. They know how it performed before and have a solid forecast of how it can perform in the future.
FP&A can propel the company into faster and smarter growth. They can also advise the company on better risk management. FP&A can also give the company a strategic financial roadmap supporting faster and smarter growth.
Understanding The Structure of An FP&A Team
An FP&A Team follows a similar model as most financial teams, with a top-down approach to responsibilities. Depending on the business model and structure the company follows, there are many ways to optimize the financial planning and analysis team’s structure.
The CFO usually carries out the analytical and financial decision-making. In some models, teams report directly to C-suites that handle investor relations or even dedicated FP&A positions.
The team members can be assigned to various divisions based on their skill sets. A chief analyst is responsible for managing the entire team. They are also responsible for strategic planning.
Some companies set up two complementary FP&A teams: a field team and a corporate team. The field FP&A team handles annual planning at an operational level, creating month-to-month forecasts of fiscal probability and opportunities, and reviewing overall financial performance.
The field team tries to understand the key drivers that help impact the company's financial stability. Revenue management can be a part of their responsibilities too.
On the other hand, the corporate team consolidates company operations with its general and administrative functions. The group prepares a long-term forecast, working a monthly performance review for the company. They also handle the company’s sales and operations metrics.
What Does the Financial Planning and Analysis Team Do?
FP&A analysts have different roles in the team. However, it can be simplified to the analysis of internal and external trends and historical data to provide financial plans and forecasts.
These plans and forecasts help the company take the necessary steps to move forward and thrive in its industry.
FP&A monitors and helps manage the company’s working capital. If the FP&A notices a dangerous downward trend in working capital, they notify the proper teams to speed up accounts receivable collections or reduce inventory.
The FP&A tracks and analyzes business cash flow to spot any upward or downward trends that could affect the company's overall financial health. They give appropriate recommendations to meet short-term needs and achieve any long-term goals.
FP&A Responsibilities
The team focuses on the company’s financial health. They use different gauges, such as the debt-to-equity ratio, to better understand the business's current financial standing. They also analyze various company operations and their financial impact.
They are in frequent contact with the different departments such as operations, marketing, sales, treasury, and accounting. This makes the FP&A team familiar with almost every department and role in the company.
The FP&A doesn’t just look at the company's current financial status. They are also forward-thinking.
Two things are required of the FP&A team to create an effective financial forecast. First is an in-depth understanding of the company’s historical performance. The second is understanding the assumptions and trends that could impact the company’s performance in the future.
The Different Roles in a Financial Planning and Analysis Team
The FP&A team may vary depending on your company’s maturity. Your company can have one expert handling multiple responsibilities or several analysts and managers with specific functions. Typically, there are three leading roles in a robust FP&A team.
There are a variety of FP&A models that companies follow, dictating structures that the business primarily needs. Some companies can benefit from a small, agile analysis team that can provide business intelligence in a snap. Others would need big teams that can crunch more data over a longer period of time.
FP&A Director
The FP&A Director is the leader of the team. They lay the groundwork for the processes required for financial reporting and analysis.
They’re usually in charge of allocating company-wide budgets and assets for the fiscal year. They work closely with Accounting and Treasury and are always aware of the other departments’ operations.
Answering directly to the CFO, the FP&A director provides the executive with the key insights and high-level strategies the company needs to scale and expand the business.
FP&A Managers
The FP&A managers usually analyze the overall business performance. This is to develop long-term financial strategies. These strategies can improve asset allocation, cost savings, and revenue streams.
They also draft model budgets and forecast scenarios. This helps company executives visualize and mitigate investment risks. They also support the higher-ups with any major decisions that could impact the company’s finances and growth.
Financial Analysts
The financial analysts have their eyes and ears on the current company's performance. Tracking, measuring, and analyzing the finances to prepare financial statements. These statements can be delivered monthly, quarterly, or yearly.
Financial analysts also keep an eye on the company’s financial activities. They identify the trends and patterns and compare the forecasts to the actual budget results.
What Are The FP&A Teams’ Primary Statements?
The FP&A team handles three primary statements within a company. These include:
- Profit and loss statements
- The balance sheet
- Cash flow statements
Revenue, cost of goods sold, net income, and various expenses are included in the profit and loss statement to determine a company's value and profitability. The balance sheet represents a company's assets, liabilities, and shareholders' equity at a given time. The cash flow statement shows the cash flowing out and in of the business and from operations, financing, and investing.
The capability to produce and maintain the three financial statements is not required for an FP&A analyst. They should, however, grasp each of these statements and their meaning.
FP&A analysts need to understand their historical value. Knowing how these statements work is a must if you’re performing financial modeling, analytics, and profitability forecasts.
Get The FP&A Support You Need
When leveling up your company, don’t just think about how your team looks professionally. It’s not just about getting the right business card for your team or having a fancy office set-up. Your company should invest in a team that can look out for the business’s future.
To support your company’s finances, streamline your expense reporting and management with Fyle.
Fyle empowers FP&A teams with its intelligent expense management software that provides real-time data feeds, easy expense reporting, and automated reconciliations to speed up your analysis.
Schedule a demo with Fyle today and learn how it strengthens your finances with its streamlined reporting and fiscal intelligence capabilities.