What Is FP&A: Your Comprehensive Guide To Grow Your Business

Scaling a business can be challenging. Many find themselves unable to interpret performance metrics or know how to use that data to grow their business.

The following comprehensive guide will help businesses understand what FP&A is and how it is a vital ingredient to help them reach their long-term goals.

What Is FP&A in Finance?

Financial planning and analysis (FP&A) is what companies need to forecast, budget, and analyze their financial data. It is both a process and an important job role. One can think of FP&A as the corporate equivalent of a personal investment advisor.

In this case, FP&A will look at a company’s books, consider its goals, and formulate a plan to help it reach those goals. But what is financial planning and analysis, and how can businesses of any size take advantage of it?

What Does an FP&A Do?

FP&A is used for three important purposes.

1. To Develop a Financial Strategy

FP&A is used to analyze a company’s expenses, profits, and specific financial metrics to help devise a plan for the company to reach its future goals.

2. To Advise on Financial Planning

FP&A is used to make recommendations to upper management and executives on changes that could benefit the company.

3. To Report on a Company’s Financial State

An FP&A professional can compare monthly accounting data to annual goals and offer ways to adjust budgets and decisions that help align actuals to company goals.

Why Is Financial Planning and Analysis Important?

When it comes to growing a business, ignorance is not bliss. Companies that remain aware of their financial data have a much better chance of survival. Even when management is diligent about knowing their numbers, FP&A brings insights into the implications of how a company is tracking toward a targeted goal.

Understanding your company’s performance can help you recognize potential obstacles that are otherwise easy to overlook and make it simpler to understand the impact of different decisions.

What Is the Difference Between FP&A and Accounting?

Some companies wonder why they need FP&A when they already have an accountant to keep watch over their numbers. The main difference between accounting and FP&A is this: The accountant looks to the past—FP&A looks to the future.

An accountant studies the historical record to make sure financial statements are accurate. FP&A looks at the same data to advise on decisions that will shape the future.

Who Is Typically Given the Responsibility of FP&A?

An individual who fills the financial planning and analysis role may have many different job titles and related responsibilities. It depends largely on a company’s size, budget, and complexity.

For a large corporation, FP&A may be the responsibility of a CFO or an individual solely focused on FP&A. In a startup, the accountant could be tasked with the most fundamental FP&A role.

Some FP&A job titles include:

  • FP&A controller
  • Director of FP&A
  • VP of FP&A
  • Financial planning manager
  • Manager of corporate finance
  • Senior financial analyst

For companies that have matured to the point of needing FP&A support but cannot afford to hire a professional full-time, Amplēo can provide fractional CFO services, so companies can gather and interpret valuable data at an affordable price.

How Can an FP&A Impact a Small Company or Startup?

When a company is new, it exists in a world of unknowns, often matched with high ambitions. Over time, young companies need to gain a mature, data-backed perspective on how close they are to accomplishing their goals, along with recommendations on what needs to change to get there.

Often, startups pitch their vision to multiple investors. Everything may be a projection without solid data to back up the company vision. FP&A can help these startups provide tangible reasons for a company trajectory and display how an investment will be used to reach profit goals.

When Do You Need FP&A?

FP&A should be part of every company’s operations, but every business has different needs. A small company just starting out likely doesn’t need to hire an independent analyst to pour over the details of its operations.

However, as a company generates a history of transactions, profits, and hiring decisions over time, FP&A will play a more prominent role.

Larger corporations and SMBs that have operated for years should institute a consistent monthly, quarterly, and annual FP&A process as a regular part of operations.

What Are the Four Main Aspects of FP&A?

Financial planning and analysis involve numerous functions, but there are four primary ways FP&A is used to help businesses.

1. Planning and Budgeting

An FP&A professional will analyze a company’s annual budget and develop a financial strategy designed to meet goals outlined by the company’s executives or founders.

In addition, they will look at the company’s actuals to update their forecast and help fine-tune budgeting. Instead of waiting until the year’s end in hopes of hitting an exact target, an FP&A can look at the company’s ongoing financial performance and make adjustments periodically to close the gap between its projections and actual performance.

2. Integrated Financial Planning

Businesses work within the confines of an operating budget. Managing day-to-day costs is necessary, but projections and strategic planning are equally important to help a company scale into its future vision.

Integrated financial planning (IFP), also called continuous financial planning, is a unified approach to working with financial data so FP&A projections and strategies can be aligned with a company’s ongoing operational expenses.

3. Management and Performance Reporting

Because a company’s FP&A expert develops and oversees a strategy for accomplishing annual and long-term financial goals, that same individual provides valuable reporting updates to upper management, along with investor relations, when applicable.

FP&A analyzes historical data that assists management in making more accurate decisions based on facts. FP&A assists management by:

  • Conducting scenario analysis
  • Presenting the potential impact of different strategy outcomes
  • Monitoring and reporting on performance compared to projections
  • Advising on the best strategy forward
  • Offering detailed insights on specific positions and departments

FP&A can provide specific data about monthly variance against a company’s actuals and quarterly board deck presentations, along with more extensive yearly reports.

4. Forecasting and Modeling

Just as an accountant makes calculations based on a company’s past profits and expenses, an FP&A professional studies data to guide a company’s plans for the future.

FP&A aims to help executives make deterministic company-wide decisions to meet short-term and long-term goals. Forecasting is predictive, and usually consists of using actual historical data to predict the future.

With modeling, FP&A professionals use analysis to project potential future scenarios that help guide executive decision-making. For instance, FP&A may be able to use company data and financial trends to determine methods of expanding, building a factory, and hiring key positions. Modeling can display how personnel changes, budgeting, and other factors might lead to various outcomes, helping executives choose the best course of action.

What Does the Future Look Like for FP&A?

Every industry is experiencing a technological revolution to one degree or another, and FP&A is no different. Specifically, technologies that allow challenging tasks to be automated or simplified are helping FP&A professionals uncover even more meaningful, granular data than was possible before.

Artificial intelligence (AI) allows FP&As to obtain data faster than ever before, empowering experts to share analysis and reports more often, which in turn helps companies make corrections to operations quickly and efficiently.

The trend of FP&As having better tools for diagnostics will only continue, meaning small businesses may see even better growth opportunities than were possible in the past. This is especially true for rapidly growing industries like software as a service (SaaS) and eCommerce.

Machine learning (ML) is a unique aspect of AI that allows software systems to train on specific company data to make better use of it over time. While ML isn’t an immediate benefit to companies too new to offer large datasets for interpretation, medium to large-scale companies will see new advantages from ML.

Grow Your Business with Insights from Amplēo

Amplēo provides fractional CFO, CMO, and CHRO solutions to help you mitigate risks while using actionable strategies that can grow your business. Subscribe to our newsletter to receive updates and insights about how Amplēo is shaping industries with tailored services to suit your needs. Take a look at our case studies to learn how we’ve helped companies attain their goals.

Do you want to learn more about how FP&A can help your company? Get in touch with us today.