Complete Guide to FP&A
The responsibilities of financial management fall to a number of different parties affiliated with your business. One of these parties includes the FP&A, or Financial Planning and Analysis teams that help create a financial foundation.
The responsibilities of financial management fall to a number of different parties affiliated with your business. One of these parties includes the FP&A (Financial Planning and Analysis) team you’ll task to create the financial foundation for your growth goals.
What is FP&A?
Financial Planning and Analysis teams are generally comprised of financial analysts, but can include accountants, as their tasks typically overlap. These larger teams, however, are ideal for businesses that are in the midst of a growth cycle or that serve an expansive audience. If you’re looking to grow your revenue, raise your next round, or secure long-term financial success, you’ll want to understand at least the basics.
Even if you’re just getting started, having quality FP&A data and insights can ensure that your business grows smoothly and consistently, and that you avoid common accounting problems and can anticipate challenges before they occur.
But what, specifically, should you expect a FP&A team to do with that aforementioned financial data? The breadth of a team’s responsibilities will vary based on the size of your business and your overall ambitions, but you’ll generally want them fulfilling some – if not all – of the following tasks:
FP&A teams should create your business’s financial model, updating as necessary to accommodate for changes in business trajectory. The best models include all three forward-looking financial statements, unit economics, and a view on cash, but depending on the size and state of your business that may not be necessary.
FP&A teams, while avoiding speculation, should be able to utilize the data made available to them through the aforementioned financial models to forecast your business’s financial health. They’ll then be expected to compare future predictions against previous business growth to better understand business projections and development.
Your FP&A expert will need to monitor your business’s use of your cash runway and ensure that it is being invested in ways that lead to the business’s overall growth. This means assessing ROI and alternative utilizations of cash flow to bring the company greater success.
Financial Health & Metrics
FP&A jobs require affiliated teammates to stay on top of a company’s financial health courtesy of available financial ratios and metrics. These include burn rate, lifetime value, churn, average contract value, and customer acquisition cost, among others.
Not all products and services are created equal. A successful FP&A team will be able to identify which of your products generates the most margin and profits and which may be delaying the company’s growth.
Note that products and services that generate a significant net profit are not the same ones that generate a high profit margin. A competent FP&A team should help you differentiate between the two metrics. Likewise, that team needs to be able to identify which of your products generates the highest profit margin, and how that product’s relationship with its net profit may vary.
Whether your business has multiple people working in different departments or sees one person at the helm of each, your FP&A team will need to keep track of department spending. This means generating fiscal assessments of department spending that reflect each department’s allotted used of the company’s cash and runway.
In a similar vein, FP&A teams will need to work with department heads or representatives to generate budgets both for those departments and for the business at large. If one department overspends, the whole of this budget will need to be adjusted. As such, FP&A teams not only need to be present at a budget’s inception, but the budget should be reported against with actual data on a monthly basis, allowing for adjustments as necessary.
Internal Report Creation
Your business’s reports need to remain consistent if they’re to accurately reflect the business’s financial trends over the course of several years. As such, your FP&A team will need to establish a report model that appropriate representatives in each of your departments will be required to comply with. Not only will these outlines need to be upheld, but your FP&A team should be willing to revisit the formatting and adjust it to accommodate additional factors or business needs.
Finally, a strong FP&A team needs to work with growth in mind. This means that your team should promote the kind of fiscal spending that will lead to strong investments and improved ROI.
FP&A Teams vs. Accounting
While their ambitions may be the same, FP&A teams and their responsibilities are not the same as individual accountant responsibilities. The accountants affiliated with your business are expected to maintain your financial records and to report your financial health with an industry-determined frequency. FP&A teams do this work while also collaborating with your business’s various departments and more directly maintaining your business’s budget. FP&A team members may also require FP&A certification to fully familiarize themselves with the financial status-quo and legislation applicable to your industry.
Another critical difference is that accountants typically work with historical data, while financial planning and analysis teams use that historical data to make forward-looking predictions. That’s one of the things we specialize at airCFO, so be sure to contact us if you’d like to know more.
Other differences include:
- FP&A’s direct contact with working capital
- FP&A’s interaction and engagement with your business’s short-term needs
- Analysis of cash flow
- Presentation of a business’s positive and negative trends, as presented in an unbiased and growth-oriented manner
FP&A for Startups
An FP&A team is meant to help you stay on top of your business’s needs. If you utilize these team members appropriately, you’ll not only see financial success – you’ll generate financial awareness and company loyalty in a whip-smart faction of employees while also securing your business’s future development. Furthermore, as a startup, a good FP&A team can help you figure out when to anticipate your next fundraising round, how and when to change your unit economics, and generally head off common small business pitfalls.