Financial Planning And Analysis

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Financial Planning And Analysis

 

Financial planning and analysis professionals (FP&A) are responsible for the company’s financial planning, budgeting, and forecasting processes. This information is used to support significant decisions by the executive team or board of directors. This group of employees gathers, analyzes and prepares financial data from all company levels to create reports that answer business questions based on data. 

 

The FP&A function has been evolving to be more forward-looking. It uses best practices to focus on what has happened and why it is happening and what will happen in the future.

 

The FP&A analyst or director should be a business partner to the whole organization. They will work closely with different business units and serve as a strategic advisor or CFO. They assist finance leaders in identifying savings, efficiency and investment opportunities and helping to maintain and reduce additional costs. In recent years, the role of FP&A analysts has changed. 

 

In the past, FP&A analysts were primarily responsible for recording and reporting financial results. They also used historical financial data to predict future sales and earnings. The abundance of data and technology available to analysts has allowed FP&A to shift from reactive work to provide insightful predictions and analytics that directly impact the busines’s direction.

 

FP&A differs from accounting in that it focuses only on the future and attempts to predict future outcomes. Accounting, however, reviews past and historical information to determine a company’s financial status.

 

FP&A Skills

A director or analyst in FP&A must be a master of math and able to crunch numbers. This is why it’s not surprising that many of the people who hold this position are ex-accountants.

 

 However, professionals in this field need to be able to dive into complex and diverse data sets, including sales, marketing, human resources, and operations.

Spreadsheets are essential tools for analyzing data. FP&A employees must be proficient with Microsoft Excel and similar programs.

They should use formulas and processes to combine and manipulate raw data to create critical reports. They need to be familiar with the basics of ERP systems and how they can automate reporting and assist in more complicated reporting.

 

Strong business partnering skills are essential for FP&A team members. They will need to collaborate and communicate with others from the company. The ability to communicate well with others, understand their business goals and priorities, gain a deep understanding of its processes, and create easily understood reports.

 

Lastly, FP&A requires exceptional problem-solving skills because these employees have to overcome the challenges of reconciling and consolidating financial data.

 

Responsibilities in FP&A

  • P&P: The FP&A team is responsible for compiling profit and loss statements (P&L), board reports, and management reports. These reports include variance reports that track actual and budget spending by each department and statements of cash flows.

 

These statements are completed by gathering data from various departments (business partnering skills) and then consolidating and verifying that information. The FP&A team uses this data to calculate key financial indicators, such as the current and debt-to-equity ratios.

 

  • Profit Margin: FP&A professionals often look at financial statements to determine which products or services contribute the most to the net profit. They may also break down revenue and cost per unit within the company. A common task of FP&A team members includes assessing a company’s working capital and finding investment opportunities.

 

  • Budgeting: FP&A has more forward-looking responsibilitiesBudget planning forecasting, and analyzing the company’s financial performance in the future. Budgeting involves looking at financial reports to decide how much money to allocate.

 

Forecasting consists in creating financial models that take into account trends in the business and the broader economy and industry that could affect revenue and profit. For a smaller business, forecasts may be made for 4-8 months ahead. A larger company might look forward to 1-3 years.

 

Forecasting and planning are no longer annual or quarterly affairs. More businesses are now able to plan continuously and make rolling forecasts. They also regularly evaluate the latest numbers and adjust accordingly.

 

  • Scenario Planning: One type of financial modelling involves scenario planningFP&A employees use this process to map out the best-case, worst-case and expected scenarios.

 

They also plug in different numbers for orders and sales to determine how that would affect its financial position. The team can then identify the steps it would take to respond to different outcomes. This helps better prepare a business for the future.

 

“Extremely or very efficient” FP&A teams were much more likely to have predictive abilities. According to a survey by AFP/APQC. These projections are also useful in planning capital expenditures and other investments.

 

  • Ad-hoc reporting: This is usually requested by the controller or CFO and provides more detail about a particular KPI or business area. Analysts and directors may need to access data from various reports to find the information they are looking for. If this is done often, modelling and reporting give the FP&A team all the information it needs to make timely, accurate, and actionable recommendations for senior management.

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