Profit Frog is the leading financial planning and analysis software designed specifically for small businesses. We give you powerful profitability modeling and scenario capabilities—without the unnecessary complexity.
What is FP&A?
Financial planning and analysis (FP&A) is the process of predicting how a company’s finances will do in the future by looking at how they did in the past. FP&A can also include forecasting hypotheticals based on scenario planning.
FP&A is driven by a budget: a document that lays out how much money a company expects to earn and spend over a specific period of time. From there, financial data analysts use historical data to predict how likely it is that the company will meet its budgeted targets. This information can be used to make important decisions about things like pricing, hiring, and investing.
The future of financial planning
The future of finance planning and analysis is bright, and we can expect to see even more innovation in the coming years.
FP&A trends include:
- Use of technology to automate and streamline processes
- Use of data analytics to provide insights into business performance
- Artificial intelligence, machine learning, and big data analytics
FP&A professionals play a key role in linking strategy to execution, developing budget and forecast projections, and managing cash flow.
Companies rely increasingly on FP&A to help them reach their strategic goals; FP&A professionals should be in high demand in the future.
Here are trends we can expect to see in 2023:
Finance department automation
Automation takes over tasks that used to be done laboriously by hand. This lets businesses spend their time on tasks that are more important. By adopting automation, more time will be available for analysis and reporting. Using FP&A software to keep and manage data will help your business make more money and give you more information.
Profit Frog is the leading FP&A software for small businesses. Give us a try today!
Dynamic scenario planning
Scenario planning is a type of financial modeling for future hypotheticals.
They enable business owners to be prepared for uncertainty by having dynamic plans in place for a variety of contingencies.
Pandemics, climate change, supply chain disruptions, and other unpredictable events have made businesses realize how important it is to plan for the unexpected.The economic landscape is increasingly volatile,and scenario planning helps companies develop antifragility in the face of guaranteed disruption.
Utilizing scenario planning tools (hint, hint, Profit Frog) is the best way for businesses to deal with complexity and uncertainty. Conventional scenario planning models are hard to understand and don’t have enough information to plan and replan in case something unexpected happens. Profit Frog makes the process easy and intuitive.
Forward-thinking, or forecasting, is an important aspect of modern FP&A. In the past, FP&A was mostly about keeping track of and reporting financial results and using past financial data to make predictions about the bottom line. The availability of data and tools for analysis has made it possible for financial planning and analysis to be less reactive and more proactive.
Forecasting requires predictive planning, which is when historical data is put into advanced analytics models to make accurate predictions about events, behaviors, and outcomes in the future.
Extended planning and analysis (XP&A) goes beyond the boundaries of traditional financial planning and analysis (FP&A). XP&A helps businesses become more adaptable and agile. Because the business environment is unpredictable, the ability to pivot quickly is no longer a luxury, but a necessity.
FP&A with Profit Frog
Most FP&A teams solely rely on spreadsheets to manage planning, budgeting, and forecasting. This becomes untenable as the business expands. A solution for planning and budgeting that pulls real-time data from source systems and stores it all in one easily accessible location makes the jobs of FP&A professionals easier and increases their value.
Small businesses don’t have a team of Excel wizards, which is why they struggle with traditional FP&A. With good software, you can create contingency plans for the worst while hoping for the best. This strategy will allow you to thrive while other businesses are caught off guard. You’ll be able to confidently make decisions that maximize profitability, and avoid decisions that would tank your profits.
Benefits of FP&A
FP&A tools like Profit Frog can help businesses of all sizes in important ways. When used correctly, these tools can help businesses improve forecasting, planning, and budgeting processes.
Some of the specific benefits that businesses can experience from implementing FP&A tools include:
- Improved forecasting accuracy: better data analysis can help FP&A tools improve forecasting accuracy. This means that they will be able to better predict future sales, revenue and net income, as well as plan for future expenses.
- Smarter business plans: with better information at their disposal, businesses can create more effective plans. For example, a business may decide to discontinue certain product lines—or launch new ones.
- Improved budgeting accuracy: accurate budgets are essential for any business looking to stay on track financially. FP&A tools can help businesses create budgets that are more realistic and accurate, thus reducing the chances of unexpected financial setbacks.
- Better operating plan: by modeling different future scenarios with a clear view of the financial results of each outcome, businesses can navigate to the most profitable waters.
Financial planning and analysis FAQ
Can Profit Frog help me in creating a business strategy?
Profit Frog can help small businesses create a business strategy by giving them visibility into the real drivers of profitability. When a business owner can see all of the factors that affect profitability, they can allocate their resources more efficiently, identify areas where they can cut costs, and make more informed business decisions.
For example, a company might use Profit Frog to plan for an expansion by forecasting how much money they will need to invest in order to grow their business.
Or, a company might use Profit Frog to predict how much revenue they will generate in the coming year and make decisions about whether or not to hire additional employees.
Overall, Profit Frog can be a great way for businesses to come up with a plan that works.
What are the basic steps in the FP&A process?
The FP&A process typically includes four steps: data collection, consolidation, and verification; planning and forecasting; budgeting; and performance monitoring and analytics.
- Data collection: financial analysis professionals collect operational data from a variety of sources and consolidate it. This data may come from financial reports, accounting systems, market research, surveys, and more. Once the data is collected, it is verified for accuracy and completeness.
- Planning and forecasting: FP&A practitioners use data to develop plans and forecasts. This step typically includes predictive planning (using historical data to predict future outcomes), driver-based planning (using drivers to predict future outcomes), and multi-scenario planning (developing multiple plans based on different scenarios). Small businesses use a rolling forecast as a part of financial planning strategy to predict future income and expenses.
- Budgeting: business leaders develop budgets based on plans and forecasts developed in the previous step. The budget helps organizations track actual results against desired outcomes.
- Performance monitoring and analytics: FP&A leaders monitor actual results against budgeted results. This step helps organizations identify areas of success and areas of opportunity. FP&A practitioners also use analytics to understand trends and patterns in data.
The FP&A process is essential for businesses of all sizes. Financial planning and analysis teams can find opportunities and risks early on and make decisions that help businesses reach their financial goals by constantly collecting and analyzing data.
What is the difference between FP&A vs accounting?
Here are a few differences between FP&A and accounting:
- FP&A is primarily forward-looking, while accounting is backward-looking and focused on financial statements.
- FP&A focuses on understanding business drivers, while accounting focuses on understanding financial statement drivers.
- FP&A is concerned with optimizing decision-making, while accounting is concerned with ensuring compliance with financial reporting standards, as well as with accurately reporting a company’s financial position.
What are FP&A skills?
FP&A professionals are in charge of figuring out how much money the company will make and spend in the future, analyzing how well it did in the past, and making reports that summarize the company’s financial health.
In order to effectively carry out these duties, FP&A professionals must have a deep understanding of the business landscape as well as strong analytical skills. They must also be able to communicate effectively with management so that they can translate complex financial data into clear and concise recommendations.
What is intelligent forecasting?
Intelligent forecasts use data, advanced analytics, and economic interpretation to make predictions.
What is predictive forecasting?
Predictive forecasting is an extension of financial forecasting. It is the process of estimating or predicting hypothetical future outcomes using collected data to train machine learning models and employ AI to predict upcoming events and their probabilities.
What is the scenario planning process?
The five steps of the scenario planning process are:
- Discuss multiple scenarios.
- Choose which scenarios to model.
- Develop a model for each scenario.
- Evaluate the scenarios and create a game plan.
- Implement your game plan and constantly evaluate.
What is integrated business planning?
With integrated business planning (IBS), business goals and financial goals are aligned with decisions and actions that affect the whole enterprise.
What are most important key financial performance indicators?
For most business owners, common key financial performance indicators (KPIs) are:
- Return on sales
- Operating cash flow ratio
- Gross profit
- Inventory turnover
- Selling, general and administrative ratio
Numerous profitability modeling approaches emphasize revenue and gross profit while the two metric that actually matter for most entrepreneurs: net profit and net profit margin.
Why do we focus on net profit (also referred to as net income)? Because a high-revenue, high-expense business may put less money in your pocket than a medium-revenue, low-expense business. That’s why we focus on modeling net profit and helping you maximize it. Our entire business model is to help entrepreneurs make more money through opportunity analysis and risk management.
With Profit Frog, all you need to do is plug your numbers into an intuitive, guided process, and our profitability forecasting software will tell you your business’ profitability. It will also allow you to create different business models by adjusting variables, so you can see how to optimize profitability and drive growth.
What are scenarios?
A scenario is a what-if question based on a specific set of variables and assumptions, such as:
- What if I hire a human resources manager?
- What if I raise prices 16%?
- What if average temperatures continue to rise from climate change?
- What if I invest in enterprise performance management software?
- What if the United Kingdom’s manufacturing costs increase by 50%?
- What if a serious supply chain and operations disruption occurs?
- What if my sales pipeline shrinks?
- What if I reduce employee pay?
- What if I get another business partner?
- What if I fire my chief financial officer?
- What if I make a mobile app for my business?
- What if I adopted a more aggressive recruitment strategy for talent acquisition?
- What if I break into investor relations?
What is the difference between strategic plans and scenario plans?
Most small business owners mistake strategic planning for scenario planning, when the two processes are actually very different in orientation and result.
- Strategic planning assumes a known future outcome and strategizes how to get there
- Scenario planning assumes a dynamic, chaotic future and helps you plot the course to maximum profitability through all the unknowns
While scenario planning is designed to navigate variability, strategic planning is a more static process and is disrupted by variability.
What are examples of traditional business models?
The most common traditional business models are:
- Marketplace business
- Retailer business
- Franchising business
- Advertising-based business
What does finance transformation include?
FP&A transformation can involve:
- Reorganizing and implementing finance operating models
- Accounting and finance processes
- Accounting and finance functions
- Financial capabilities
- Replatforming finance and accounting systems
What is digital transformation?
Digital transformation is the process of using digital technologies to change or create new business processes or customer experiences in response to market needs.