How Financial Planning & Analysis Adds Value to Your Business (2024)

What Is Financial Planning and Analysis (FP&A)?

Financial planning and analysis (FP&A) professionals own the financial planning,budgeting and forecasting process at a company to inform major decisions made by theexecutive team and board of directors. These employees collect, prepare and analyzefinancial data from across the organization to create reports that provide data-drivenanswers to business questions.

The FP&A function is becoming increasingly forward-looking. It's using bestpractices to focus not only on what happened or what's happening but on whyit's happening and what is likely to happen in the future.

An FP&A director or analyst should be a business partner for the entire organization,working closely with various business units, and a strategic advisor to the CFO orcontroller. These professionals help leaders of the finance department maintain andmitigate additional costs by identifying opportunities for efficiency, savings andinvestment.

The role of FP&A has evolved in recent years. In the past, FP&A analysts focused onrecording and reporting financial results and leveraging historical financial data toextrapolate future sales and earnings. But the flood of data available today and thetechnology that helps analysts use it has empowered FP&A to move from more reactive workto providing insightful predictions and analytics that directly influence thebusiness's direction.

FP&A is distinct from accounting in that it focuses on forward-looking data and attemptsto anticipate future outcomes, while accounting reviews past and historical informationto determine a company's current financial state.

FP&A Skills

An FP&A analyst or director needs to excel at math and have an appetite for crunchingnumbers. It's therefore no surprise that many people in this role are formeraccountants. But professionals in this field also need to be comfortable diving intocomplex and varied data sets from sales, marketing, human resources and operations.

Spreadsheets are an essential tool in analyzing that data, so FP&A employees need to beskilled with Microsoft Excel or a similar tool. They need to know the formulas andprocesses that will allow them to aggregate and manipulate raw data to produce keyreports. They should know the basics of ERP systems, understanding how this software canautomate reporting and assist with more complex reporting and analysis.

Since FP&A team members need to communicate and collaborate with colleagues from acrossthe organization, they should have strong business partnering skills. Businesspartnering skills include the ability to work well with others and understand theirbusiness priorities and goals, build a deep knowledge of the company and its processes,and turn droves of information into easily understood reports. Finally, FP&A demandsexemplary problem-solving skills, as these employees must overcome the challengesinherent in consolidating and reconciling financial data.

Is FP&A a good career choice?

Financial planning and analysis might be a good career choice if you enjoy the following:

• Complex mathematics and number crunching
• Diving into intricate data sets from across the organization
• Working in spreadsheets and using formulas to create reports
• Using automated tools like ERP to assist analysis
• Communicating with partners at all levels throughout an organization
• Consolidating and reconciling financial data

FP&A Responsibilities

• P&L:

  The FP&A team is responsible for putting together profit and loss (P&L)statements, board reports and management reports such as variancereports, whichtrack budget vs. actual spend by department, and statements of cash flow.Finalizing these statements requires collecting data from different departments(thus the business partnering skills) and then verifying and consolidating thatinformation. The FP&A team uses that to calculate key financial indicators thatwill appear in these statements—like debt-to-equity ratio and current ratio.

• Profit Margins:

  FP&A professionals often dig into financial statements to understand whichproduct lines or services have the highest profit margin or contribute the mostto net profit. Similarly, they may break down the cost and revenue or profitgenerated by each department within the company. Another common duty of FP&Ateam members is assessing a business's investments with its working capitaland finding new investment opportunities.

• Budgeting:

  More forward-looking responsibilities of FP&A include planningthe budget and forecasting the company's future financialperformance. Budgeting requires parsing through financial reports to determinehow to allocate money. Forecasting requires creating financial models thataccount for trends within the business and in the broader industry and economythat may affect revenue and profit. A smaller business may forecast 4-8 monthsout, while a larger enterprise could look 1-3 years into the future. Planningand forecasting are not just an annual or quarterly event—more businesses haveshifted to continual planning and rolling forecasts, regularly evaluating thelatest numbers to make adjustments.

• Scenario Planning:

  One type of financial modeling is scenarioplanning, a process in which FP&A employees map out best-case, expectedand worst-case scenarios by plugging in different numbers for sales and ordervolume to see how it would impact the company's financial position. Basedon those results, the team can identify steps it would take in response todifferent outcomes, better preparing a business for thefuture—“extremely orvery effective” FP&A teams were more likely to have predictivecapabilities, according to a survey fromAFP/APQC. These projections can also help plan capital expenses andother investments.

• Ad-hoc reporting:

  These on-demand reports, typically requested by the CFO or controller, oftenprovide a more detailed look at a certain KPI or business department. An analystor director may need to pull numbers from various broader reports to uncover thespecific information the executive wants. This reporting and modeling,especially if it's done frequently, gives the FP&A team the information itneeds to provide timely, accurate and actionable recommendations to seniormanagement.

Building an Effective FP&A Team

Every business has an accountant, but many don't have someone dedicated to FP&A.FP&A team structure varies greatly—at a small company, this function could be justoneaspect of one person's job, like the controller, while a larger organization mighthave dozens of FP&A employees.

FP&A is typically a role an organization adds personnel to as it becomes more complexwith multiple locations, subsidiaries, departments or international operations. Thatexplains why some companies are just beginning to build up FP&A resources and headcount,while others have high-performing teams that regularly feed strategic reports to theC-suite.

A company looking to add this function could move an existing accounting leader hungryfor a new challenge into FP&A. That person's understanding of the unique aspects ofthe business and historical knowledge should give them a head start in their new role.If a company takes this approach, it should strongly consider paying for this person tobecome a CertifiedCorporate Financial Planning & Analysis Professionalthrough the Association for Financial Professionals (AFP). Most FP&A leaders have thiscertification, and if an external hire makes more sense, look for someone who has thiscredential.

A typical FP&A team structure at a business with one or two FP&A employees has themreporting to the CFO. As an organization builds out its team, it may add a director ofFP&A who reports to the CFO and multiple FP&A analysts reporting to the director.

Three Roles of FP&A Teams

Although job titles and roles of FP&A team members will vary by company, here are commontitles and their respective responsibilities:

Corporate Financial Analyst

• Analyze financial data and use financial models for forecasting.
• Track revenue and gross margin by business unit and expenses by cost center.
• Prepare reports on financialperformance tailored to the needs of leadership.
• Evaluate financial performance by comparing and analyzing actual results with plansand forecasts.
• Study and analyze trends and forecasts to inform recommended actions.
• Establish policies and procedures that guide cost analyses.

FP&A Manager

• Work closely with the leadership team to formulate short- to long-term financial andstrategic plans.
• Analyze financial and operational results to better understand the company'soverall financial health.
• Evaluate previous budgets and collaborate with business unit leaders to build theirannual budgets and forecasts.
• Produce models to project long-term growth, accounting for factors that will impactperformance.
• Provide detailed analysis and commentary on the performance of a product ordepartment.
• Communicate results and recommendations to senior management that will lead torevenue generation, cost reduction and more efficient operations.

Director of FP&A/Vice President of FP&A

• Own the process for preparing financial statements and financial models, includingscenario planning.
• Define processes for monthly, quarterly and annual financial budgeting, forecastingand long-range planning.
• Drive and improve existing management reporting to be more accurate and timely.
• Analyze financial results to determine key takeaways and recommendations for seniormanagement.
• Lead ad hoc financial modeling and reporting for special projects.
• Partner with IT and the broader organization to improve forecasting throughautomation and system optimization.

Key FP&A Functions

What Tools Does FP&A Need?

The primary challenge FP&A teams face is data collection. FP&A teams spend 75% oftheirtime gathering and processing data, per the AFP survey, in part because many don'thave access to source systems. They're still drowning in a tsunami of Excelspreadsheets, which are error-prone, often slow to process data and limit collaboration.Additionally, many senior executives who should draw strategic positions from FP&Ainsights don't trust the data or analysis enough to let it guide theirdecision-making.

FP&A teams that rely on spreadsheets to manage planning, budgeting and forecastingstruggle to keep up with their growing list of responsibilities. A planning andbudgeting solution that pulls real-time data from the ERP and keeps all this information in one,accessible place makes FP&A professionals' jobs easier while increasing theirvalue.

The less time FP&A spends searching for and aggregating data or sending emails, the moretime it can spend analyzing and creating reports. It's no surprise that the AFPsurvey indicated “very or extremely effective” FP&A organizations were“significantlymore likely” to have automated reporting and data visualization tools. This results infaster planning cycles, more sophisticated modeling, more accurate forecasts and betterpredictive planning that drives lasting success.

NetSuite Planning and Budgeting is integrated with NetSuite ERP, so itautomatically pulls accurate, up-to-the-minute information and eliminates the FP&Ateam's dependence on spreadsheets. Since all this data is in one place and visibleto everyone who needs it, there are no concerns about looking at outdated data orreports. This accessibility boosts collaboration and accountability, making it easier toget meaningful input and facilitating company-wide and departmental planning.

Features of the NetSuite Planningand Budgeting solution include revenue and expense modeling, approval workflowsand management reporting. The solution offers powerful predictive planning that useshistorical data and industry-specific statistical models to predict future results,improving the accuracy of forecasts. Ultimately, NetSuite Planning and Budgeting enablesFP&A team members become the valuable business partners they should be.

For more information on planning and budgeting, download the ebook, High Impact Planning and Budgeting forall Types of Growth and a ScenarioPlanningTemplate.