What is FP&A? Understanding financial planning & analysis
Financial planning and analysis (FP&A) is a set of processes that help organizations achieve their financial goals.
A professionals use data to create forecasts and models that can help guide strategic decision-making and increase profit margins with modeling.
While FP&A has traditionally been associated with large corporations, the role of FP&A is becoming increasingly important for small businesses as well.
FP&A is responsible for forecasting future performance, creating financial models, analyzing data, and providing recommendations to the C-suite.
In other words, FP&A helps businesses make informed decisions about where to allocate resources and how to grow their businesses profitably.
By understanding the business value of FP&A, small businesses can give themselves a distinct advantage in today’s marketplace.
FP&A is the process of forecasting future financial performance and analyzing past results in order to make informed decisions about how to best manage a company’s money.
This process begins with creating 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.
FP&A goals and objectives
When it comes to corporate financial planning and analysis, having goals and objectives is essential. Without them, it can be difficult to know what you’re trying to achieve or what improvements need to be made.
Without accurate data, on the other hand, it can be difficult to set realistic goals or identify areas of improvement. That’s why data management is an important part of FP&A.
By improving data collection and organization, FP&A professionals can help their organizations make better use of data to improve forecasting, cost management, operational planning, budgeting, and performance measurement processes.
Some common challenges that can be solved with FP&A include:
- Improving decision-making by providing timely and accurate insights into financial performance
- Achieving operational efficiency by planning for different scenarios, and aligning resources to meet them
- Maximizing profits by optimizing prices and product mix
- Minimizing financial risk by identifying potential areas of exposure and taking corrective action
- Improving communication between finance and other business units by producing standard reports and analysis
FP&A vs accounting
FP&A and accounting are both important financial management functions within a company. The former seeks to optimize future performance, while the latter quantifies past performance.
FP&A is a business intelligence function. It is all about forecasting future performance and improving decision-making using scenario planning and other methodologies. It’s not just about the numbers; it’s also about understanding the business drivers and risks and improving the overall financial health of a business. This information helps businesses make strategic plans that will improve their bottom line.
In order to do this, FP&A analysts look at trends and try to anticipate how much money the company will need to meet its goals.
Financial planning also includes activities such as budgeting, financial forecasting, and risk analysis, which are not typically part of accounting.
Accounting, on the other hand, looks at past transactions, balance sheets, and profit and loss statements, in order to arrive at a current financial position.
It’s important for finance departments to have a good understanding of financial statements and how to properly report company performance.
There are many differences between FP&A and accounting, but here are a few key ones:
- FP&A is forward-looking, while accounting is backward-looking.
- FP&A focuses on understanding the business drivers, while accounting focuses on understanding the 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.
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: in the first step, financial analysis professionals collect operational data from a variety of sources and consolidate it into a single platform, such as Profit Frog. This data may come from financial reports, accounting systems, market research, surveys, etc. Once the data is collected, it is verified for accuracy and completeness.
- Planning and forecasting: in the second step, planning and forecasting, FP&A practitioners use the verified 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: in the third step, budgeting, FP&A practitioners develop budgets based on the plans and forecasts developed in the previous step. The budget can be seen as a tool that helps organizations track actual results against desired outcomes.
- Performance monitoring and analytics: in the fourth and final step, performance monitoring and analytics, FP&A practitioners 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. FP&A teams can find opportunities and risks early on and make decisions that help businesses reach their financial goals by constantly collecting and analyzing data.
How is FP&A different from strategic finance?
FP&A is commonly viewed as a subset of strategic finance. The responsibilities of FP&A professionals vary depending on the size & industry of the company, and the size of the finance team.
FP&A focuses on short-term financial planning and analysis, while strategic finance is focused on long-term planning and strategies. Strategic finance also encompasses corporate finance activities such as capital budgeting, investment decisions, and financing choices.
The difference between FP&A and strategic finance is mainly one of focus and time horizon. While both disciplines are important to the financial health of a company, they serve different purposes.
FP&A helps managers make decisions in the present that will impact the future financial performance of the company.
Strategic finance, on the other hand, looks further into the future and develops plans and strategies that will have a lasting impact on the financial well-being of the organization.
What is an FP&A analyst?
If you’re looking for a career in FP&A, there are a few things you should know. First of all, FP&A is not just about numbers—it’s about understanding the business and using numbers to tell a story. You need to be able to think strategically and see the big picture, as well as have a deep understanding of financial concepts and accounting principles.
Second, FP&A is constantly evolving. The role of the FP&A professional is changing, as businesses demand more sophisticated analysis and decision support. So if you want to stay ahead of the curve, you need to be willing to keep learning and keep up with the latest trends.
If you have the skillset and the passion for it, FP&A can be an incredibly rewarding field. It offers opportunities for growth and advancement, and it provides a unique perspective on how businesses operate.
The best way to overcome the challenges is to stay up-to-date on industry trends and best practices, build strong relationships with your team members, and always keep the big picture in mind.
FP&A professionals are responsible for forecasting future revenue and expenses, analyzing past performance, and preparing reports that summarize the financial health of the company.
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.
Benefits of implementing FP&A tools
FP&A tools such as Profit Frog can provide significant benefits for businesses of all sizes. When implemented correctly, these tools can help businesses improve forecasting, planning, and budgeting processes.
Contact us to learn more about our business solutions.
Some of the specific benefits that businesses can experience from implementing FP&A tools include:
- Improved forecasting accuracy: by having better visibility into past performance and trends, FP&A tools can help businesses improve their 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.
- Better planning capabilities: with better information at their disposal, businesses can create more effective plans that take into account all relevant factors. Using scenario planning, businesses can forecast into the future for different hypotheticals and increase their flexibility and optionality as they navigate uncertainty. This increased flexibility can help businesses achieve their goals more efficiently and effectively. 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.
- Increased accuracy and timeliness of financial reporting: when financial data is entered into an FP&A tool, it is automatically calculated and organized into a report. This means that there is less opportunity for human error, and the reports are generated much more quickly.
- More effective decision-making: the reports that are generated by FP&A tools contain a wealth of information that can help a chief financial officer or other business executives make better decisions about where to allocate resources and how to grow the business. Data visualizations from a tool like Profit Frog enable visual decisionmaking that is more intuitive to the way humans think.
- Better control over expenses: by tracking expenses (COGS and OPEX) closely and comparing them to budget forecasts, businesses can identify areas where they can save money and improve profitability.
- Improved communication between departments: by sharing financial data with other departments, such as marketing or operations, businesses can get a better understanding of how different parts of the company are performing financially. This can lead to more streamlined and efficient business operations.
- Better operational planning: by modeling different future scenarios with a clear view of the financial results of each outcome, businesses can navigate to the most profitable waters with dynamic planning and modeling.
The future of FP&A
The future of FP&A is bright, and we can expect to see even more innovation in the coming years.
FP&A trends include the use of technology to automate and streamline processes, and the use of data analytics to provide insights into business performance. FP&A solutions that are currently available or in development include big data analytics, artificial intelligence, and machine learning.
FP&A professionals play a key role in linking strategy to execution, assessing budget and forecast against actual financial performance, and managing cash flow.
Companies are increasingly relying on FP&A to help them achieve their strategic goals, and those who are able to provide value-added insights will be in high demand.
Here are some common questions we get about financial planning and analysis. If you have further questions, don’t hesitate to reach out.
Is Profit Frog an accounting software?
Profit Frog is not an accounting software, but it can easily integrate with accounting software such as QuickBooks Online (QBO).
Traditional accounting software solutions do not offer the scenario planning and profit forecasting capabilities of Profit Frog, which is why we built our software to complement accounting solutions. With Profit Frog, you can import data from your accounting software and begin planning, budgeting, and forecasting.
Profit Frog also offers a variety of features to help you manage and grow your business, such as income and cash flow management, and performance reporting.
Can Profit Frog help me manage my supply chain?
Profit Frog can help companies manage their supply chains by forecasting the cost of goods sold (COGS) under different scenarios. This information can help businesses make better decisions about where to allocate their resources and how to price their products.
For example, if a company expects an increase in the cost of raw materials, they can use forecasting software to predict how this will impact the cost of goods sold and make changes to their pricing or inventory accordingly. Forecasting software can also help businesses identify trends and prepare for potential disruptions.
By having accurate information about how COGS will be impacted by different scenarios, businesses can make more informed decisions about their supply chain operations and improve their overall profitability.
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.
Profit Frog can be a useful tool in helping businesses develop a successful strategy.
Can Profit Frog help me manage investor relations?
Profit Frog can help you manage investor relations by providing a clear view of the company’s financial stability and future growth potential.
You can use Profit Frog to create detailed financial models that illustrate how the company will perform under different scenarios. This allows investors to see how the business could potentially grow and become more profitable.
Profit Frog can help you track actual results against projections, so you can quickly identify any areas that may need adjustment. This allows you to stay on course with your plans and reassure investors that you are making smart choices with their money.
Further reading on small business profitability
Cost of goods sold is an expense
How to use a profit and loss statement effectively
Best tools for small businesses
Calculating year over year growth
Understanding revenue vs profit
Profit vs cash flow: what is the difference?
Gross vs net profit: calculations and differences
What is a financial model and how can you use it?
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