FP&A, also known as financial planning and analysis, refers to the strategic activities that are critical to the overall financial health of all companies—regardless of size, revenue or industry.
In this guide, we focus on the finer details of FP&A, ranging from the basics to the best tools and everything in between.
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What Is FP&A?
Financial planning and analysis is a set of four distinct activities that support a company’s financial health. These four activities include:
- Planning and budgeting
- Integrated financial planning
- Management and performance reporting
- Forecasting and modeling
Unlike accounting in general, FP&A is unique in the way that it focuses on forward-looking data to predict and prepare for future outcomes.
Why Do Businesses Need FP&A Processes?
As noted above, there are four activities associated with financial planning and analysis. With those in mind, let’s examine five points associated with these activities:
1. Analyzing Your Company’s Current Financial Circumstances
No matter your approach to financial planning and analysis, the first step is to always analyze your company’s current financial circumstances.
2. Defining Financial Goals
Outline short and long-term financial goals that fit within your budget and make sense for your organization’s overall financial plan.
3. Consider Variables and Run What-If Scenarios
This is where forecasting comes into play. Consider variables and run what-if scenarios to prepare for anything the future could bring—both good and bad.
4. Create a Plan of Action
Financial planning and analysis is only as good as your plan of action. You can collect and analyze as much data as you want, but it’s only useful if you back it up with a plan of action.
5. Re-Evaluate and Revise as Necessary
Even if you’re fully dedicated to FP&A and have a sound understanding of what you’re doing and what you’re trying to accomplish, you could still make mistakes along the way. Re-evaluate and revise your plan, as necessary, to ensure that it’s as accurate as possible moving forward. The more times you do this, the more you’ll realize how to avoid similar situations in the future.
Excel: Integration vs. Imitation
Some modern FP&A software vendors try to solve the limitations of Excel through imitation. But unfortunately, it’s quite the opposite. Many go to great lengths to try and recreate the familiar feel, flexibility and performance of Excel, but they never duplicate the full Excel experience. They almost always require extensive training and a steep learning curve—especially for business users.
Features like data integration and version control eliminate many of Excel’s limitations, but the vast majority of users still have a hard time moving past Excel. Most finance professionals have used it their entire careers and will often go out of their way to use what they’re most comfortable with: real, full-featured, flexible Excel.
The ideal solution is to combine the best of both worlds by using Excel as a window into a centralized, connected database. This approach enables teams to continue using Excel while adding:
- a single source of truth, made possible by a centralized database
- workflow management and automation
- detailed audit trails
- user-level permissions and data access levels
- automated data integration and consolidation
- full-spectrum FP&A capabilities—from budgeting to account reconciliation to scenario modeling and management reporting (This post covers how to mitigate risk with agile scenario modeling)
- intuitive, self-serve reporting for every stakeholder group
- a scalable, secure cloud architecture
Using Excel as an end-user interface allows you to connect your existing spreadsheets, templates and models to a central database governed by a sophisticated workflow engine and business rules. As a result, you continue to benefit from Excel’s flexibility and unmatched computing power while doubling down on data integrity, usability, and security.
FP&A Best Practices
As you learn more about FP&A, you’ll come to find that you can approach it in a variety of ways. However you decide to move forward, follow these best practices to help you evaluate your process and make informed decisions that benefit your organization.
1. Start With a Strategy and End With an Actionable Plan
FP&A starts with a strategy, but should end with an actionable plan. This is the plan that guides your organization moving forward.
2. Set Goals and Identify Resources Needed To Reach Them
Set short- and long-term goals so that you can identify the resources required to reach them on time.
3. Collect and Review All Applicable Data
It’s best to collect and review all applicable data before making key decisions. This saves you from having to redo your work.
4. Identify Who Is Responsible for Which Tasks
You must pinpoint who is responsible for each task associated with your plan. Below, we’ll discuss the roles within the FP&A process.
5. Hold People Accountable for Delivering
Accountability is a must as it keeps your team on track and everyone working toward reaching the organization’s goals.
6. Monitor Results
Don’t assume that your FP&A plan is working. Closely monitor results to track progress and determine where you’re winning and losing.
7. Implement a System for Sharing Data
You’ll share data at many stages of the FP&A process. For instance, you may need to request specific numbers from department heads. And as your plan gets up and running, you’ll want to share progress reports.
8. Assess and Make Changes as Necessary
Your goal is to create a comprehensive FP&A plan that guides the organization without error. However, there will be times when changes are necessary. Make it a habit to regularly assess your plan and to make changes as necessary.
Don’t look at financial planning and analysis as an unnecessary necessity. Look at it as something that can greatly improve your company’s financial well-being. Here are some of the many benefits associated with a defined FP&A process:
- Ensures cohesiveness across the company
- Drives shareholder value
- Builds organizational awareness
- Ensures the proper allocation of resources
- Provides the tools necessary to reach and exceed financial goals
You’ll soon come to realize the power of these benefits among many others. And that’s just what you need to get on board with the importance of financial planning and analysis.
FP&A Challenges With Excel
While this approach might work great for short-term tasks, it creates a “shadow system” of disconnected spreadsheets with challenges around version control, audit trails, data integrity and other issues—ultimately the same challenges that the FP&A software was implemented to solve in the first place.
An offline, disconnected Excel spreadsheet system can show budget owners and management obsolete, inaccurate and competing versions of what should be consistent numbers. Other challenges with Excel include:
1. Manual Data Collection and Consolidation
Companies often export-controlled data from FP&A and other source systems, manually copying and pasting that data into Excel to take advantage of its familiar, intuitive interface. Even if the data was copied and pasted perfectly (which is rarer than it might seem), it’s still a highly inefficient transfer method.
2. Lack of Auditability or Version Control:
Excel lacks a robust built-in mechanism to track changes by cell or user, and it doesn’t offer the ability to revert to a previous version if errors are encountered. The result: questionable data accuracy and integrity.
3. Lack of Process Management
Excel cannot track tasks across projects, users and organizations, or the ability to set user-level permissions and access levels. This means it’s nearly impossible to keep track of who’s doing what at any given time.
Excel is a powerful, intuitive and feature-rich program, but one thing it’s not is a database. Trying to combine, analyze or report on large volumes of data in a standalone spreadsheet simply isn’t practical.
Financial planning and analysis teams play a major role in a company’s ability to perform, budget, forecast and analyze with success.
FP&A roles vary from company to company. For example, in a large company with thousands of employees, there may be a countless number of finance professionals responsible for financial planning and analysis.
Conversely, in a smaller company—one with only a handful of employees—there may be only one or two people with their hands on the FP&A process.
Some of the most common FP&A roles include:
- FP&A analyst: Gathers data about company financials, develops models and creates summaries.
- Senior FP&A analyst: Manages FP&A analysts, analyzes data, shares reports with managers and acts as a go-between with other departments.
- FP&A manager: Focuses a large portion of their time on quality control tasks, running meetings and ensuring that all departments are on the same page.
- FP&A director (sometimes known as the vice president of FP&A): Presents data to leadership and makes recommendations on how to proceed.
- Chief financial officer (CFO): Makes final decisions regarding a company's financial operations.
Even though some of these roles sound similar, each one has a distinct set of responsibilities. When working together, an FP&A team can account for every task.
FP&A Career Paths
Are you interested in working as part of a financial planning and analysis team? Are you unsure of how to get started? A basic understanding of the FP&A career path will help you decide where to start and how to move up the career ladder.
- Financial intern (often while you’re undergraduate or graduate degree)
- FP&A analyst
- Senior FP&A analyst
- FP&A manager
- FP&A director (or vice president of FP&A)
- Chief financial officer (CFO)
To decide if FP&A is the right career path, you’ll want to secure an internship. Should you enjoy the work, you can begin your search for a full-time job upon graduation. It generally takes between one and three years of working as an accountant to graduate to an FP&A analyst position. And if you have your eyes set on one day becoming CFO, expect to put in 10+ years to prepare yourself.
FP&A tools are designed to simplify the process, automate tasks and save everyone time—all while preventing mistakes.
There’s no shortage of financial planning and analysis tools to employ. Here are the most common types:
Budgeting and Forecasting
Here’s an excerpt from our ultimate guide on budgeting and forecasting that explains these two terms:
"We already know that budgeting is figuring out how much money your company will need to spend in order to achieve its desired business results. Forecasting, on the other hand, is about proactively analyzing the budget and using both historical and real-time data to predict what those business results will look like."
There are FP&A tools to assist with both processes. For example, you can use a tool to collect all required data from applicable departments when creating a budget. Doing this in a centralized location eliminates the risk of data going missing while ensuring that you always have access to current, accurate numbers.
Corporate budgeting is a key finance function and it should be treated as such. This is the process of allocating resources to operations to enable their strategies.
Just the same as budgeting and forecasting, there are tools to help manage the process. Examples include tools for scenario modeling or zero-based budgeting.
A CapEx planning tool, such as Vena’s CapEx software, allows you to input and manage individual assets by properties such as book value, useful life, residual amount and more.
The right tool will help keep your CapEx and annual budgets separate.
OpEx may fit into the same basic category as CapEx, but they’re not one and the same. The right tool allows you to budget for operating expenses without confusing them with capital expenditures.
Find a tool to build workflows for collaborative budgeting and analyze the impact of potential changes with what-if analysis.
With cost allocation software, you can manage your cost centers with real-time allocations, build better budgets and map your overhead allocations based on many variables. The right tool can also help you shorten your month-end close.
Cash Flow Planning
Cash flow planning empowers you to dive deeper into your data so you can plan with intention across your business. The use of software that facilitates cash flow planning allows you to bring data together from your existing systems into a centralized database. This unified data helps FP&A teams create actionable insights and reports for a collaborative, cross-functional planning process.
The right revenue planning tool can be the difference between a healthy organization and one that’s burning money. The goal is to look for a solution that automatically aggregates data so you can detect issues early, hit your deadlines and execute with confidence.
The key to successful financial reporting is all about having access to the right dashboards. The three types of dashboards you need for financial reporting include:
- Business health dashboard: Evaluate short- and long-term financial metrics based on your company’s short- and long-term goals.
- Employee health dashboard: Track employee data such as days off, revenue per employee and more.
- Customer health dashboard: Measuring how client relationships impact your company’s finances.
The creation of a financial dashboard provides you with the ability to track finance-related key performance indicators (KPIs) such as operating cash flow, operating expense, current ratio, net profit margin, net profit or EBITDA, sales growth and return on investment.
Workforce planning is the process of analyzing your workforce and using the data collected to forecast and plan for current and future needs.
Workforce planning software makes it simple to run reports such as:
- Compensation report
- Headcount report
- Performance report
- Recruiting report
- Variance analysis report
Nobody knows what the future will bring, but that doesn’t mean you can’t prepare for any possibility. Scenario planning software helps you understand the potential impact of your current decisions on the future. You can also test potential changes to see how they could affect your company down the road.
According to McKinsey & Company, finance departments have become more cost-efficient over the past decade.
The management and consulting firm also noted that finance leaders are “spending a greater portion of their time on value-added activities, such as financial planning and analysis (FP&A), strategic planning, treasury, operational-risk management and policy setting.”
If you’re one of those leaders who has gained ground in this area, now’s not the time to stop. There are other things you can do to improve your approach to financial planning and analysis.
At Vena, we can help you accurately plan for your company’s financial future. Vena Foundation for FP&A is a pre-configured, customizable Excel-based solution that includes data analysis tools, data models, integrations, reports and templates.