
Top financial planning software tools most used by growing mid-sized businesses
Learn more ->
Financial Planning and Analysis (FP&A) is a critical function within a business, as it helps organizations make informed decisions to ensure financial stability, efficient resource allocation, and sustainable growth.
Julio Martinez is the Co-Founder & CEO at Abacum – Automated FP&A solution to drive performance. He was previously the co-founder and CEO of Innocells, where he launched 4 fintech startups to market, and a former investment banker at Citigroup in the US, Switzerland, and Brazil.
Content created by: Julio Martínez, Co-Founder & CEO, Abacum
Financial planning and analysis (FP&A) is a subgroup of the finance function within an organization. The difference between FP&A and some of the other finance functions, is that FP&A is focused on performance analysis and future-looking initiatives such as budgeting, forecasting, and planning.
This is essential, as the most important objective for an FP&A department is to use both current and historical data to drive business performance, prepare management and board reports, and accurately forecast a company’s revenues, expenses, and cash flows. This then becomes the backbone of strategic decision-making to support the future objectives of any organization.
This is why the modern FP&A team needs to become a force multiplier across the business – moving away from back office tasks and starting to operate as a true business partner to each stakeholder across the organization.
🎯 In a nutshell, FP&A teams help business leaders answer critical questions such as:
Ultimately, FP&A brings together the different metrics from each department such as marketing, sales, operations and HR to help create a robust financial plan for the future.
Since finance is the backbone of a business, FP&A teams need to develop a holistic understanding of each business function. From management reporting, sales quota attainment, to headcount planning, or owning the budgeting process, FP&A professionals play an essential role in the financial health and success of any organization.
Because FP&A has such a fundamental understanding of a company’s financial operations, the role covers both a lot of depth and breadth. Modern CFOs have enabled their FP&A teams to transition away from being the budget police and instead become true revenue enablers.
Some of the ways in which FP&A teams are doing this is by:
FP&A teams operate across the entire business. This gives them access to the underlying data of each function, helping them understand performance at the most granular level.
Companies need to move quickly, and this means decisions need to happen in real-time. FP&A teams act as unbiased business partners, and help stakeholders balance the trade-offs between short-term execution and maintaining alignment with the long-term strategic plan.
FP&A teams leverage data to identify the key insights that will drive company performance. Then effectively partner with the rest of the business to turn those insights into a clear and measurable action plan.
While FP&A and Strategic Finance teams share some similarities, they have in the past served as different functions within an organization.
However, as companies and finance teams are becoming more agile, we are seeing FP&A and Strategic Finance operating as one single team. Day-to-day, this means FP&A is responsible for both the financial planning and analysis remit of the role, as well as directly owning the long-term strategic planning that supports the entire business.
The FP&A team has several responsibilities that range from day-to-day reporting, analysis, and automation, to future-looking initiatives such as annual planning.
All of these responsibilities help:
To support those responsibilities, FP&A teams follow a framework to understand their data and use it to make better business decisions. The hardest thing in any business is driving consistent performance, however, having a great FP&A cycle will definitely aid this process.
The FP&A framework is broken down as follows:
The first step of any FP&A process is to collect the data from the different business systems (e.g. ERP, CRM, HRIS, and data-warehouse) and create an operational single source of truth – this means consolidating your financial, operational, and workforce metrics into a single system.
A best-in-class FP&A team will put a lot of emphasis on correctly defining the operational metrics of a business and on automating the data collection process, moving away from disconnected Excel spreadsheets, and being able to leverage integrations for real-time data updates.
Once the financial data has been transformed and checked for accuracy by an FP&A analyst, teams can now use that data to prepare reporting of visualizations, dashboards, or build driver-based forecasting models.
After the FP&A team has consolidated the data from each business system, established KPI definitions, and confirmed its accuracy, it’s time to build the company’s forecast and long-range plan.
Forecasting is the process of estimating the future financial performance based on historical data, market trends, and other relevant economic factors.
It is an iterative process of asking questions that help guide the potential business trajectories such as:
To help answer those questions, Finance leaders use different financial forecasting methods such as driver-led models, scenario planning, and what-if analysis to quantify the impact of potential business outcomes and adjust their strategies accordingly.
The Finance team collaborates closely with senior management, breaking down silos and ensuring the forecast model correctly reflects the underlying nature of each department across the company.
A good forecast and long-range plan will:
Now that the FP&A team has a long-range view of the company’s strategic plan and underlying financials, it is time to cascade this into an annual departmental budget.The budgeting process entails breaking down the financial plan for the upcoming year by months, and rather than a top-down exercise, it is a bottom-up build of the financial plan for the upcoming fiscal year.
A final budget is reflected in the Income Statement, with budgets being allocated all the way down to the individual vendors and account levels,as well as the Balance Sheet and Cash Flow statement.
A good budget will:
A good report helps FP&A and the rest of the business track their progress against budget, evaluate their performance, and identify any potential areas of improvement.
For that reason, FP&A teams also play a critical role in defining operational metrics, establishing their targets, measuring against them, and identifying any potential areas of improvement.
Management reporting involves conducting a variance analysis to understand which P&L, CF lines, or leading operational KPIs landed in line with the target and which ones did not. Then, delivering the clear insights and problems that need to be fixed to get back on track with the plan.
A good management report will:
The main challenge of FP&A teams owning the planning process detailed above,
“is that the finance department spends 75% of their time manually consolidating data, copy-pasting metrics from one spreadsheet to another, and updating stakeholders through back and forth emails.”
This means FP&A professionals are left with limited time to be the strategic partners the CFO and the rest of the business needs them to be.
This is why Abacum is the FP&A platform, focused on maximizing your business’s most precious resources: time and money.
With Abacum FP&A professionals can:
with off-the-shelf reporting templates, automated BvA analysis, intuitive revenue forecasts and rolling forecasts Run a planning process that is 20% more efficient by leveraging streamlined budgeting workflows with
by leveraging streamlined budgeting workflows with approvals and user-level permissions
your OPEX spend is reduced with vendor-level insights and data-driven planning that keeps your business on track
integrate all your business systems for automated data wrangling and consolidations
Finance teams are the engine behind efficient growth. Here is everything you need to know about scaling this corporate finance function, the difference in responsibilities between roles, and how to go from your first hire to IPO.
The key roles within an FP&A team include:
Director or Head of FP&A are roles you will most likely see in more mature organizations, often companies that have already raised Series B.
This role reports directly to the Chief Financial Officer, and is accountable for coordinating the FP&A function.
Some of the core responsibilities of the role are:
Learn more:
Depending on company maturity there can be great overlap between the responsibilities of a VP and FP&A Manager. One of the high level differences separating both, is that Managers operate with a more granular view of the business.
Some of the core responsibilities of the role are:
FP&A analysts will be into the weeds of the day-to-day, as they collect, analyze and interpret both financial and operational data.
Some of the core responsibilities of the role are:
If you want to learn more on how to scale and grow your FP&A team or career, check out the following webinar “The New Gen of FP&A Leaders with Asif Masani and Julie Jin”
Discover how FP&A drives better decision making