Financial planning and analysis is a critical process in business planning and management, helping executives and boards of directors improve their abilities to make strategic decisions. Using FP&A processes and best practices allows businesses to have a more realistic picture of financial health and better plan for future unknowns.
This comprehensive guide to financial planning and analysis covers everything businesses need to know about the FP&A process and the responsibilities of FP&A teams.
We also cover the basics of FP&A technologies, including how FP&A software helps improve the financial planning process, especially for startups.
Finally, we offer an overview of what a career in FP&A looks like, including skills and salaries, as well as the types of conferences, courses, and certificates available to FP&A professionals.
Financial planning and analysis (FP&A) is an approach to corporate finance that involves all strategic activities that set a business up for financial success.
In corporate finance, FP&A teams budget, forecast, model, and analyze financial, human resources, sales, and operational data that allows finance experts to create a highly informed and intelligent financial plan for the short-term and long-term of the business.
While a company’s finance department involves all activities related to the incoming and outgoing cash of the business, the FP&A team specifically is responsible for using company data to paint a picture of the overall health of the organization.
Ultimately, the work done by the FP&A team allows executives and management to make better-informed decisions about the direction the company should take.
Corporate accounting has traditionally been limited to the sets of activities that involve tracking and managing the incoming vs. outgoing cash of a business and resolving and reporting on discrepancies. Accountants report on the business’s financial health at set fiscal periods, and they traditionally don’t get involved in the forecasting and modeling aspects of financial analysis.
Compared to accounting, financial analysis involves the analytical activities undertaken to determine why and how financial results occur. FP&A takes this even a step further and engages in the planning of financial futures by using historical data and analyzing past results.
In summary, accounts are concerned with the present, financial analysts are considered with the why, and FP&A professionals are concerned with how both these components fit together to tell the bigger story.
Strategic finance is an overall approach to corporate finance that involves interpreting and analyzing data to make sound financial decisions that impact the long-term success of the business.
While strategic finance is an overall philosophy regarding financial decision-making, FP&A is the processes, strategies, and activities that enable businesses to manage finances strategically.
Often, FP&A is thought of as all the near-term activities that allow for long-term strategic financial decisions to be made.
The larger the organization, the more delineation there tends to be between strategic finance professionals and the FP&A team. In smaller businesses, FP&A teams are often responsible for both the financial planning and analysis and strategic finance roles. The executives overseeing FP&A vs. strategic finance may also differ based on the organization’s size.
A financial planning and analysis team has numerous responsibilities that involve day-to-day duties along with forward-looking activities.
In any given organization, an FP&A team may be responsible for the following aspects of financial health and strategic decision-making:
Each organization structures its departments differently. In larger organizations, an FP&A team may be a separate sub-unit within the broader Finance department. In some cases, an FP&A team may be led by an FP&A manager who reports to the CFO.
Ideally, an FP&A team should report directly to those responsible for making strategic decisions about the future of the company—the CEO and the board of directors.
Financial planning and analysis teams may meet regularly with the CEO and the board, preparing and presenting reports regarding certain projects within the organization, asset evaluations, or other relevant business activities.
Financial planning and analysis follows a particular methodology that begins with collecting all the necessary financial data that’s to be analyzed. FP&A professionals then use that data to produce various models based on potential scenarios and conditions.
The resulting analysis can then be assembled into a report that’s presented to executives and boards of directors to make better-informed decisions about the direction of the organization.
Financial planning and analysis is also an iterative process where the outcomes of those strategic decisions can be measured and used to better inform the types of models finance teams build and how to build them.
Below are the basic steps in the FP&A process, followed by detailed sections on each item:
A vital step in the financial planning and analysis process is to collect data from each department, business unit, or source of analysis.
Data collected by FP&A teams can include:
The FP&A team consolidates the entire dataset into a database where it can be analyzed and used to create reports, models, budgets, and other FP&A activities. Before working with the data, the FP&A team will also verify its accuracy to ensure high standards of data hygiene.
Once the data is assembled and verified, FP&A professionals can use the data to build financial models, scenarios, budgets, and forecasts, as well as compile reports and measure key performance metrics.
Financial modeling is the FP&A practice of using spreadsheets or other accounting tools to project a company’s future financial performance. Models are based on historical data as well as assumptions about the effects that present and future conditions will have on the company’s success.
To produce financial models, FP&A professionals use the three financial statements—income statements, cash flow statements, and balance sheets. These statements, along with other advanced models, help companies to make decisions about:
One of the most important uses of financial modeling is the ability to apply models to various scenarios and test which ones are the most viable.
Once FP&A professionals have built financial models, those models can then be used to determine whether particular scenarios of interest are worth pursuing, either by gaining profits or preventing losses.
Scenario-building is the practice of using financial modeling data to determine the best and worst-case outcomes of certain decisions.
Scenario building is an FP&A practice with numerous benefits including:
FP&A scenarios can also be built based on specific events that could take place, such as economic downturns or global supply chain interruptions. These scenarios can predict either favorable or unfavorable outcomes, depending on the event.
A what-if analysis is a specific type of scenario analysis used in financial modeling to determine the financial outcomes of various hypothetical events.
Examples of what-if scenarios include:
What-if scenarios can also involve situations that lead to favorable outcomes, such as a global event that drastically increases product demand.
Asking these “what if” questions and then modeling potential outcomes can help organizations prepare for possible situations that will impact business.
What-if analysis can help businesses:
Because what-if analysis is useful across the organization, financial planning and analysis professionals should work with other department managers to come up with and plan for various scenarios.
Using the combination of present and historical financial data, financial modeling data, and scenario outcomes, FP&A teams can then develop a budget. A budget is a forecast of projected revenues and expenses based on all previously considered relevant factors.
Some of the benefits of conducting regular budget forecasts include:
FP&A professionals prepare budget forecasts for each department or business unit. They gather data and meet with department or business unit leaders to better understand how to allocate expenses and project revenues. Once budget forecasts are finalized, departments can set and update key performance metrics to keep on pace with targets.
Budgets are usually created on an annual basis, however, some organizations or departments use rolling forecasts to regularly update their budgets. There are many different approaches to budget forecasting, with some organizations adopting zero-based budgeting (ZBB) to avoid overspending on unnecessary expenses.
Regardless of how often organizations prepare budgets or the approach they take, all budgets can then be used to compare against actual outcomes, allowing companies to produce reports on real-world results.
Once a budget forecast is created, it then forms the basis for the next step in the financial planning and analysis process which is budget variance analysis, also known as budget vs. actuals.
Budget variance refers to cases where the actual amounts in revenues or spending are higher or lower than the budgeted amounts. How far off the budget the amounts are is known as variance and it can be either favorable (higher revenues or lower expenses) or unfavorable (lower revenue or higher expenses).
For example, if revenues were budgeted at $150,000 for one month, but ended up being $125,000, then the variance is -$25,000. A budget variance can also be applied to expenditures.
When FP&A professionals investigate the potential causes or contributing factors to budget variance, it’s known as budget variance analysis.
During a budget variance analysis, FP&A teams should look for variance drivers such as:
Any factors that influence sales or expenses can be considered budget vs. actuals variance drivers. Identifying relevant budget variance drivers is an essential part of FP&A reporting.
FP&A professionals can use analyzed financial data to produce reports and measure performance. FP&A reporting involves taking analyzed data and presenting it in a visual format so that investors, executives, directors, and other stakeholders can better understand the current and future financial state of the organization.
Some of the common types of FP&A financial resorts include:
With Excel, Google Sheets, and modern FP&A software, financial planning and analysis teams can use different styles of charts and graphs to depict financial reporting data.
Different data visualization methods for financial reporting include:
Financial planning and analysis professionals can use data visualization to help businesses make compelling cases for investment or to make it more efficient when reporting to boards of directors.
The final step in the FP&A process is to take everything gleaned from the data, modeling, analysis, and reporting and measure the complete picture against predetermined financial metrics.
Setting financial performance metrics is an essential corporate financial planning practice that helps organizations remain focused on and achieve business goals.
Some of the common types of financial and management performance metrics include:
Many more financial metrics exist beyond these, and businesses can choose which KPIs to focus on based on their current objectives.
Financial planning and analysis professionals can prepare specific types of financial reports and data charts or graphs to demonstrate how the company is performing in any of these key metrics.
Corporate accounting is made up of three required financial statements that are necessary for managers, lenders, and investors to assess a company’s financial health.
The three required financial statements are:
Below we review each of these statements in depth.
An income statement is a detailed report that breaks down the company’s revenues and expenses. It’s often the first statement investors or lenders look at to see how profitable a company is.
An income statement starts with the top line, which is the dollar amount in sales the company brought in for the specific period. The income statement then lists the costs of goods sold (COGS), which results in the company’s gross profit.
From gross profit, you deduct your company’s indirect expenses to arrive at operating income. From operating income, you deduct your capital expenses, interest, and taxes to arrive at net income.
A balance sheet summarizes a company’s assets, liabilities, and shareholder equity at a given time. On one side of the balance sheet are the assets plus shareholder equity, while on the other side are the liabilities. The goal of a balance sheet is to make the two sides of the sheet balance.
A balance sheet tells the company’s management and investors how much of a company’s assets are financed by debt compared to the total equity.
The assets and liabilities are also listed in the order of most to least liquid and most to least immediate, respectively.
The data provided by the balance sheet can be used to perform deeper analyses, such as a debt-to-equity or debt-to-assets ratio.
To know how much cash a company has on hand and what it’s being spent on, FP&A teams use cash flow statements.
A cash flow statement compares how well a company manages its inflow and outflow of cash, which is something an income statement or balance sheet alone cannot reveal.
Since revenues and expenses recorded on an income statement aren’t necessarily reflective of the amount of cash paid to or from the company, financial analysts need cash flow statements to depict the true liquidity of a company over a given period.
Further, a cash flow statement can break down the source of liquidity—either from operations or from investments or financing. Cash flow from operations reveals how well a company can maintain its sales and bring in revenue and is therefore considered a much better gauge of financial health than cash injections from investors or financing alone.
Google sheets and Excel are the most common ways of conducting financial planning and analysis activities. They’re an easily accessible, low-cost way of organizing and analyzing financial data.
To conduct financial forecasting, both programs have a forecast function, which allows FP&A teams to enter historical data and produce a predicted value using linear regressions. It’s a simple way for finance teams to analyze trends in company financial data.
However, using spreadsheets for financial forecasting has some drawbacks:
Businesses that need a more robust and centralized financial planning and analysis system than Google Sheets or Excel can use FP&A tools instead.
Teams can replace Excel and Sheets with robust FP&A tools designed to support the end-to-end financial planning and analysis process. FP&A software is designed to be a central point of data with all the built-in functionality of spreadsheets and more.
These tech options are also built to scale with your business, something that Excel and Google Sheets struggle to do while maintaining performance.
Some of the key features of FP&A tools include:
Learn more about the top FP&A tools in our 2023 FP&A software buyer’s guide.
Financial planning and analysis technology is designed to automate the financial planning and analysis process, minimizing the amount of manual labor and reducing the risk of human error.
In addition to maximizing productivity, efficiency, and validity, FP&A technology is important because it:
By automating and streamlining the FP&A process, teams can free up valuable time to focus on identifying and analyzing growth opportunities or achieving other key business objectives.
In corporate finance and financial planning, teams face some common challenges that pose limitations to achieving business goals. The challenges make the FP&A process error-prone, time-consuming, inaccurate, and potentially wasteful.
Teams need to be aware of the potential bottlenecks in the FP&A process so they can implement the right solutions.
Below are the top financial planning and analysis challenges facing corporate teams today.
When collecting, compiling, and storing data, there is always a risk of human error during the manual input phase. The more times data needs to be input manually, the higher the risk of human error.
Human error in financial databases can lead to a waste of resources. Not only does it result in the need for time-consuming rework, but if taken to the report publishing phase, it can harm the entire FP&A process.
Rather than relying on the error-prone processes of inputting data manually, companies can instead use FP&A software that collects data automatically and updates it across systems without the need for manual labor.
When inputting data across multiple different spreadsheets and databases, there’s an opportunity for data to become corrupted. This risk becomes particularly problematic when teams rely on Google Sheets or Excel.
Linking together multiple different spreadsheets can present the risk of databases being linked incorrectly. Worse, when one department makes changes to how they collect and input data, it can distort the entire organization’s data warehouse.
FP&A software is designed to provide a single source of truth that compiles and stores data without the use of multiple linked databases. Teams never have to worry about their files becoming corrupted or old versions of documents being used.
Some organizations eliminate the risk of corrupted data and mislinked databases by creating separate databases for each department or business unit and then compiling them all into a master database. While this does reduce some risk, it also increases the amount of time spent both creating and managing your financial data system.
To reduce the time-consuming labor involved in managing multiple separate department spreadsheets, FP&A teams can instead convert their process to an FP&A tool that eliminates database silos and maintains one master database.
The risk of human error during the data collection phase of the FP&A process has downstream effects that can lead to inaccurate reporting. FP&A teams need reporting accuracy to make strategic financial decisions.
Additionally, Google Sheets and Excel are not the most user-friendly ways to visualize data or to maintain a dashboard with a bird’s eye view of an organization’s financial health. These programs also can’t alert FP&A teams to opportunities or threats, nor can they recommend the best type of report to pull for the query in question.
Financial planning and analysis software is designed to help finance teams create and analyze financial reports from a single source of truth. Many software tools also have advanced reporting features that help teams gain deeper and more nuanced insight into their organization’s financial health.
To make useful and accurate financial budgets, FP&A professionals need to pull from accurate and accessible financial data. When organizations maintain an overly complicated system of spreadsheets that are vulnerable to error or data corruption, it’s difficult to make accurate predictions on revenues and spending.
Since an organization’s budget is what determines key decisions about hiring, investments, and other internal strategies, the process for developing operating and sales budgets must be airtight.
With FP&A software, finance teams not only have a platform that warehouses and secures financial data but also helps gather and analyze it so that organizations can maintain effective budgets.
Financial forecasting is what allows organizations to make predictions about the direction of the business so they can better prepare for various scenarios. Poorly informed financial forecasts can lead to over- or under-estimations about business performance.
When financial performance is either over-estimated, it causes businesses to make financial decisions that are ultimately financially unsustainable. On the other hand, if finance teams underestimate a business’s performance, organizations can miss key opportunities they would have been able to leverage for better financial success.
Financial planning and analysis software tools are designed to analyze an organization’s financial data to provide accurate insight into the health of the organization. Financial modeling features allow finance teams to formulate intelligent forecasts that help the company move forward with the most realistic picture possible.
Corporate organizations that adopt and integrate an FP&A process into their financial planning benefit from improved financial decision-making, reduced waste, and potentially increased profitability.
Below are these three key benefits in more detail.
The greatest asset of the FP&A approach to corporate financial planning is that it helps finance teams, management, and executives make more informed and intelligent financial decisions.
Financial models, scenarios, and what-if analyses produced during the FP&A provide a critical blueprint for the direction the company is heading. Based on this information, leaders can choose to start or stop key business activities.
Some of the decisions that the FP&A process can help with include:
With improved financial decision-making practices, businesses can substantially reduce wasted spending on unfavorable opportunities.
The 2018 Pulse of the Profession® Report by the Project Management Institute (PMI) states that 10% of every dollar businesses spend is wasted due to ineffective implementation of business projects. Further, an estimated 43% of corporate projects end up over budget.
Having a structured FP&A process helps organizations gain more precise insight into a company’s financial health so they can better plan new projects or avoid investments that end up at a loss.
When businesses make smarter financial decisions and avoid costly investment mistakes, they become more likely to boost their profitability.
The FP&A process helps improve top-line results by better controlling spending compared to revenues. Yet, it can also protect bottom profitability through intelligent financial modeling and scenario planning that determine the types of investments and capital expenditures to make.
Using scenario-building to determine how certain business decisions will affect profits is a valuable practice that organizations should routinely include in their corporate financial planning process.
To help improve strategic decision-making, reduce wasteful spending, and increase profitability, it’s important to apply the FP&A process using a few critical best practices.
Below we cover four FP&A best practices to keep in mind throughout the financial planning and analysis process.
Use financial forecasting to help your business model multiple different scenarios. Using a combination of historical data and scenario building, create a forecast that looks at both the best and worst-case outcomes.
In addition to comparing favorable and unfavorable scenario results, you can also routinely model outcomes based on unlikely or not-yet-encountered situations such as:
By forecasting multiple different scenarios in one financial planning session, your team can be better prepared for various potential outcomes.
One of the key benefits of implementing an FP&A process is that it’s able to provide teams with the insight that’s necessary to make agile decisions. Being able to change priorities or alter the direction of a current project based on real-time financial modeling can help your business capitalize on opportunities or avoid losses.
Rolling forecasts are one way of helping businesses make better strategic decisions in real time.
Since conducting regular quarterly forecasts can result in lag time between what the data shows and the opportunities that are presented, this traditional forecasting model has some potential downsides.
Instead, a rolling forecast provides a continuously updated 12-24 month outlook regardless of when it was first created.
As one of the primary objectives of the FP&A process is to help businesses make better informed strategic decisions, it’s important to incorporate a method of measuring the results of any changes made due to financial modeling or scenario building.
Having a feedback mechanism whereby you can evaluate whether the outcomes of the strategic decisions occurred as predicted in the model can help your FP&A team iterate their process and hone their financial modeling skills.
Though it’s useful to have a way of measuring the difference between predictions and actual outcomes of strategic decisions, it’s also critical to have ways of investigating the causes of variance.
When conducting your budget variance analysis, have a methodology for investigating potential drivers for any differences between budgeted expenses and revenues and actual results.
Develop the best practice of examining potential variance drivers whenever conducting a budget vs. actual analysis. Be sure to ask critical questions that help you identify the factors that have led up to the most recent budget.
Startup companies have unique financial planning needs that established organizations no longer need to account for as strongly.
A few of the factors that pertain particularly to FP&A for startups include:
Though startups face greater challenges in preparing financial models and forecasting future results, the FP&A process remains an essential finance practice for helping establish a company’s strategic decision-making abilities early on.
Some of the benefits of the FP&A process for startups include:
Since startups tend to be more nimble and flat in their organizational hierarchy, they’re able to react and realign rather quickly due to being more nimble operationally. Having fewer operating restrictions and a flatter hierarchy provide significant advantages in the FP&A process for startups.
A career in financial planning and analysis can be a lucrative and rewarding decision. With the field becoming increasingly relied upon for strategic decision-making and investment direction, FP&A is a career with plenty of opportunity for skills development and advancement.
A career in FP&A often begins at the level of an analyst and progresses to the director level. Below we break down some of the important things to know about careers in FP&A.
Depending on the level of the role, some of the daily responsibilities of an FP&A professional might include:
Given that the role involves financial planning, it’s important to be aware of the seasonal nature of the responsibilities required in this career. FP&A professionals can expect to work extensively during the closing of fiscal periods.
To fulfill their roles, FP&A professionals need certain traits, skills, and talents. The primary trait that drives success in FP&A is being analytical and comfortable with numbers.
In addition to being analytically minded, FP&A professionals should also be detail-oriented, focused, and highly inquisitive. They should be keen to solve problems and have strong communication skills in presenting opportunities for strategic decisions.
Successful FP&A professionals should also be organized and have excellent time management skills, as many of their duties fall within specific budgeting timeframes. Technical knowledge of spreadsheets and financial planning software is also essential.
FP&A analyst salaries range depending on the education level, years of experience, and organization.
According to Salary.com, FP&A professionals can expect to make the following salaries, depending on their level of experience:
If you’re looking to sharpen your FP&A skills, there are plenty of online courses that specialize in teaching the basics of financial planning and analysis methodology.
A few of the top recommended online FP&A courses include:
Leading higher education institutes also offer financial planning and analysis courses, including Harvard Business School and Berkeley.
FP&A certifications are offered through a few different institutions. The industry-leading FP&A certification is provided through the Association for Financial Professionals (AFP) called the Financial Planning and Analysis Certification (FPAC™).
To meet the FPAC certification requirements, applicants must have certain education and experience qualifications and pass an exam. Examinations occur twice per year and certification fees range from $1,025 to $1,520 depending on the application timeline and whether you are an AFP member.
Another top-recommended FP&A certification is through Wall Street Prep.
The Financial Planning & Analysis Modeling Certification (FPAMC) is a program for new and experienced FP&A professionals to hone their financial modeling and forecasting skills. The program costs $499 and takes approximately 30 hours to complete.
There are several reputable industry conferences for finance professionals to attend to help develop their skills and learn new tools and technologies.
The Association for Finance Professionals hosts several events each year, including an FP&A Series virtual event.
The Financial Planning Association also hosts an annual conference focused on learning and expanding financial planning knowledge.
Other types of conferences that are beneficial for FP&A professionals include CFO summits and executive conferences, as well as project management and operations conferences.
After obtaining a degree in finance, a person interested in working as an FP&A professional will typically begin their career as a junior analyst. After gaining sufficient work experience, a junior analyst may be promoted to senior analyst.
From there, senior analysts can become managers or directors of FP&A teams. Some companies may also hire experienced financial analysts in a VP role.
Below is an overview of the typical work experience required at each level:
How quickly an FP&A professional advances along this career pathway depends on their skill level as well as the organization they work for.
What the average workday looks like for a financial planning and analysis professional varies depending on the organization, level of seniority, and several other factors.
Some of the tasks that an FP&A analyst can expect to perform throughout the day can include:
Financial planning and analysis professionals working in a startup environment vs. an established corporate environment may also find significant differences in their day-to-day roles.
Financial planning and analysis has emerged as a separate and distinct specialty in the overall field of finance. Previously, organizations grouped all finance-related activities, such as accounting and financial planning.
Today, finance teams have evolved to distinguish the two roles of accountants vs. FP&A analysts. The former is responsible for the oversight and management of day-to-day financial details while the latter focuses on big-picture planning and analysis.
As software technology continues to evolve, the role of an FP&A analyst becomes increasingly more well-defined and specialized. With access to greater data analysis tools, FP&A professionals can produce financial models with greater accuracy and add more value to the organization’s strategic decision-making capabilities.
Financial planning and analysis plays a critical role in an organization’s ability to adapt to changing economic conditions, capitalize on growth opportunities, and build the business at a sustainable pace.
The FP&A process allows businesses to not only collect and manage data from across multiple different departments but make sense of that data in a meaningful way. With financial modeling, scenario building, and what-if analysis, financial planning and analysis teams can forecast expected outcomes with greater insight and accuracy.
By implementing the financial planning and analysis process using the latest in FP&A technology, businesses can help reduce unnecessary spending and make more informed decisions about investments, capital expenditures, hiring, and more.
To maximize your team’s financial planning and analysis process, use the top tools at your disposal. OnPlan is a top-tier FP&A software platform that helps your business maintain a single source of truth in financial data.
Use OnPlan’s built-in capabilities to model financial scenarios and forecast outcomes with greater accuracy.
Pull customizable reports and keep track of essential KPIs. Integrate OnPlan with your existing HR, CRM, and accounting software for a smooth transition.
Tour the OnPlan platform to learn more about our strategic finance capabilities. Book a demo today.
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