A dedicated Financial Planning and Analysis (FP&A) team in your business model can significantly improve your business's growth. In addition, 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 any business owner take advantage of its benefits?
You might have to answer such questions before making your pick as a business owner. To help you through the decision-making process, here's a quick read with everything you need to know. Let's dive in!
What is Financial Planning and Analysis?
Every successful organization in its chosen field has an FP&A 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 planning, budgeting, analyzing, reporting, forecasting, and modeling a business’s financial operations.
Typically, the FP&A team directly reports to the Chief Financial Officer (CFO) and Accounting. 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.
The accounting team’s function is responsible for collecting financial data, preparing financial statements, and ensuring these reports' accurate and timely submission to regulatory authorities.
On the other hand, a financial analyst aims to estimate the value of investments and projects. These analysts carry out unconventional analyses with the help of different models and technology.
While accounting deals with record-keeping and financial reporting, FP&A takes it 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?
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.
As a business owner, you know that your biggest challenge is staying on top of your corporate financial situation.
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, even shut down. Not having a proper plan in place can make things difficult. This is where financial planning and analysis come into play.
Benefits of a Financial Planning and Analysis Team in 2022
- The insights of a solid finance and management team can prove instrumental in supporting and propelling the business towards growth and profitability.
- The insights from these teams help the management and the board members make informed decisions that have the potential to accelerate the development of a company.
- FP&A teams can create strategic corporate finance plans that will enable your business to grow and sustain, no matter the times.
- The FP&A team has a finger on the pulse of the company’s overall well-being. They have access to information-driven insights around historical data and can make reliable forecasts of the future.
- FP&A can propel the company into faster and smarter growth. They can also advise the company on better risk management and create strategic financial roadmaps supporting sustainable growth.
SUGGESTED READ: How to Create a Financial Plan For Small Businesses and Startups
Understanding the Structure of an FP&A Team
An FP&A Team follows a similar model to most financial teams, with a top-down approach to responsibilities. However, depending on the company's business model and structure, 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.
- You can assign team members to various divisions based on their skill sets. For example, 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. They also review the company's overall financial performance.
- The field FP&A team also tries to understand the key drivers that help impact the company's financial stability. Revenue management can be a part of their responsibilities.
- The corporate FP&A 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 within their teams. However, at a high level they:
- Analyze internal and external trends and historical data to provide financial plans and forecasts. These plans and projections help the company take the necessary steps to move forward and thrive in its industry.
- Monitor and manage the company’s working capital. For example, 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.
- Track and analyze business cash flow to spot any upward or downward trends affecting the company's overall financial health. They then give appropriate recommendations to meet short-term needs and achieve long-term goals.
FP&A Responsibilities
- Gauge a business's current financial conditions and standing.
- Analyze various company operations and their financial impact.
- Stay in touch with operations, marketing, sales, treasury, and accounting departments.
- Be forward-thinking and predict areas of challenges and opportunities for the company.
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. For example, your company can have one expert handling multiple responsibilities or several analysts and managers with specific functions.
Also, there are a variety of FP&A models that companies follow, dictating structures that the business primarily needs. For example, some companies can benefit from a small, agile analysis team that can provide business intelligence quickly. Others would need big teams that can crunch more data over extended periods.
Typically, there are three leading roles in a robust FP&A team.
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. In addition, 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 to develop long-term financial strategies. These strategies can improve asset allocation, cost savings, and revenue streams.
Additionally, they draft model budgets and forecast scenarios to help 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. Their job involves 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 - 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.
- Balance sheets - Represents a company's assets, liabilities, and shareholders' equity at a given time.
- Cash flow statements - Shows the cash flowing in and out of 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. In addition, knowing how these statements work is necessary 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. Instead, 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 by providing them with real-time data feeds, easy expense reporting, and automated reconciliations that help them speed up their analysis and make financially sound decisions.
Schedule a demo with Fyle today and learn how it strengthens your finances with its streamlined reporting and fiscal intelligence capabilities.
