FP&A provides business leaders with the best insights for making the right decisions. FP&A professionals focus on forecasts and future figures. Using this method, companies can reduce waste and increase profitability by leveraging their data.
FREMONT, CA: Financial planning and analysis (FP&A) professionals oversee the financial planning, budgeting, and forecasting processes within an organization to inform major decisions. To provide data-driven answers to business questions, these employees collect, prepare, and analyze financial data across the organization.
FP&A is becoming increasingly forward-looking. By using best practices, the FP&A professionals focus not only on what happened or what's happening but also on why it's happening and what's likely to happen in the future.
An FP&A director or analyst should work closely with various business units and be a strategic advisor to the CFO or controller. By identifying efficiency, savings, and investment opportunities, these professionals assist finance department leaders in maintaining and mitigating additional costs.
In recent years, the role of FP&A has evolved. Past FP&A analysts focused on recording and reporting financial results and extrapolating future sales and earnings from historical financial data. The flood of data available today and the technology that makes it easier for analysts to analyze it have enabled FP&A to move from reactive to proactive work.
FP&A focuses on forward-looking data and attempts to anticipate future outcomes, while accounting examines past and historical information for a company's current financial standing.
Finance planning and accounting are responsible for the following:
Profit & Loss: P&L statements, board reports, variance reports, which track budget versus actual expenditures by department, and cash flow statements are all prepared by the FP&A team. Data must be collected from different departments and then verified and consolidated to complete these statements. As a result, the FP&A team calculates key financial indicators that will appear in these statements, such as the debt-to-equity ratio and the current ratio.
Creating a budget: The FP&A department is responsible for planning the budget and forecasting the company's future financial performance. Financial reports must be analyzed to determine how money should be allocated. Creating forecasting models requires taking into account trends within the business and in the broader industry and economy. It is common for smaller businesses to make forecasts 4-8 months in advance, while larger companies may look 1-3 years ahead. More businesses are shifting to continuous planning and rolling forecasts, regularly evaluating the latest numbers to make adjustments as they go along.
Planning scenarios: As part of financial modeling, FP&A employees map out best-case, expected, and worst-case scenarios by plugging in different numbers for sales and order volume to determine how it would impact the company's financial position. Finance planning and accounting are responsible for the following: An AFP/APQC survey found that "extremely or very effective" FP&A teams are more likely to have predictive capabilities based on the results gathered. Capital expenditures and other investments can also be planned using these projections.
