The FP&A function is critical to the success of any business.
It provides the financial intelligence necessary for decision-makers to make better, more informed decisions. FP&A stands for financial planning and analysis, and it involves using data analysis to provide insight into your business’s performance.
These insights help the decision-makers on your team with everything from budgeting to hiring new employees or buying new equipment. Let’s take a look at what FP&A does and how it works.
What is the FP&A Function?
As a department within a business, the FP&A function is responsible for developing and implementing financial plans, forecasts, budgets, and other analytical activities that support a company’s major decisions and strategic goals.
The FP&A function provides critical information to internal and external stakeholders, including senior management, investors, and analysts. Better recommendations can improve performance and help the team make better business decisions.
In addition to these responsibilities, the FP&A (financial planning and analysis) department is responsible for reporting various performance insights for the organization’s multiple departments or divisions.
Insights often include revenue reports or profit/loss statements that drill down by division.
How is the FP&A Function Different From Accounting?
The finance and accounting departments are often closely aligned.
Accounting primarily focuses on historical data. However, the FP&A function’s activities are generally much more forward-looking. FP&A is responsible for managing the overall financial performance of a business or organization.
In contrast, accounting focuses on maintaining an accurate record of financial transactions within a company.
Accountants use reports to manage budgets and ensure compliance with regulations. They also prepare taxes and financial statements for stakeholders such as investors, creditors, and third parties who want information about the company’s economic performance.
In short, accounting focuses primarily on “what” questions, while FP&A focuses on “why.”
What is the FP&A Function Responsible For?
Beyond analyzing and reporting on overall company performance, the Finance, Planning, and Analysis (FP&A) function’s broad responsibilities include forecasting revenue, expenses, cash flow, and profit.
The function provides financial information to internal stakeholders and executives to make decisions that are in the company’s best interest and can be broken down into five key responsibilities.
Short- and Long-term Planning
The FP&A department helps create short-term plans to help meet strategic goals like reducing costs or increasing revenue. They also help develop long-term strategies, including five-year projections or capital expenditure budgets.
Budgeting and Planning
The FP&A department uses historical data to project future expenses to create budgets for each division within a company.
These budgets are guidelines for how much should be spent each month or quarter on various line items such as marketing, payroll, or R&D.
The FP&A function reports on its work in two ways.
First, it regularly updates senior management on key financial metrics such as revenue growth, operating income, and net income. Second, it produces periodic reports distributed to external stakeholders or the general public.
These reports include a comprehensive overview of corporate performance and detailed breakdowns by department or region.
Forecasting is another vital function of FP&A as it helps you predict future outcomes based on historical data collected from past periods (quarterly or annually). It aims to project future performance based on current trends impacting the business environment (e.g., GDP growth or inflation).
It also allows you to make informed operational decisions based on the impact of these events.
Ad-Hoc Reporting and Analysis
Finally, FP&A teams are responsible for other financial reporting, including variance analysis, scenario planning, and other ad hoc financial analyses.
FP&A teams often spend time building reports and conducting analyses that support managers’ decision-making processes. For example, they might be asked to analyze sales trends quarterly to help marketing executives plan product launch campaigns.
What Skills are Needed For Managing the FP&A Function?
On top of strong analytical skills, the role requires extensive financial reporting and analysis knowledge and strong analytical skills. Many companies also look for candidates with experience working with technology products or services and expertise in accounting.
Here are some of the skills an FP&A team needs:
- Accounting skills to understand how accounting works and critically analyze financial statements.
- Financial Analysis to interpret reports while also analyzing trends over time to determine whether they affect the company’s performance.
- General problem-solving skills.
- Business Acumen helps determine the best use of resources.
- Analytical skills to make sense of complex data sets and draw conclusions that will support decisions.
- FP&A must communicate clearly with people at all levels in your company
- Leadership skills to motivate and inspire others to work hard on behalf of the organization.
Want to Enhance Your FP&A Function?
The FP&A function serves an essential role for any company.
The FP&A Manager is responsible for supporting the CEO and senior management teams by ensuring that the data is accurate and useful. But you may not need to hire this person internally.
Engaging professional FP&A support can help you reap the benefits of an FP&A function without the cost or commitment.