Whenever the words “financial planning and analysis” are mentioned, most people tend to think that the topic is beyond their scope of responsibility. FP&A is often viewed as a preserve of elite corporate executives, accountants, and finance managers within institutions.
The senior management that is entrusted with these decisions rarely takes the time to understand the financial implications of the choices they make. As a result, many institutions and businesses have experienced difficult economic times, and some even closed their doors due to poor financial decisions.
However, this need not be the case. By having a well-guided FP&A, you will avoid this pitfall and make sound decisions. It is vital to involve financial planning analysts in any organization, especially where there is an impact on finances. The FP&A team ensures that the decisions made are financially viable both now and in the future, based on the analysis done. The result is an organization that is not only thriving but also prepared for the future.
Here is a simple guide to financial planning and analysis:
1 – Have a strategy
You have probably heard of the word strategy numerous times than you may care to remember. It is common for corporates to come up with a strategic plan for specific periods. Unfortunately, immediately after launch, most of these plans are shelved and seldom are they implemented.
For you to have a proper FP&A, a strategy is crucial. An FP&A strategy guides you on the path that you want to travel for a specified period. This is done through a continuous process of improving performance through actionable plans in the day to day operations. The periodical reports show whether the organization is running as expected, or there are unmet targets. In the case of the latter, the need to re-evaluate then comes in handy.
2 – Identify the resources
Developing a financial plan needs FP&A professionals to understand the fundamental operations of the business and the resources necessary. Having analyzed the business trends, growth forecasts, and potential growth, the decision to identify and allocate resources becomes more meaningful.
3 – Budgeting
Budgeting is one of the critical processes in an organization that can break it or build it. While it can be tranquil when appropriately done, lack of proper planning and analysis could lead to misuse of resources. Developing a financial plan and having regular review will help you to observe the trends as the period unfolds.
4 – Forecasting
Forecasting is probably the most crucial aspect of FP&A. While all the processes mentioned earlier are tangible and can easily be carried out by the top management, forecasting typically can only be done by a few people in an organization. This is because forecasting differs from budgeting and involves digging into all the reports, observations, and data collected over a specified time. It includes compiling the data and coming up with information that will be used to made decisions for the future of the business.
Forecasting requires someone to have an eye for detail and the ability to decode all the information that is presented to them. It is important to note that frequently, some of the information shown is not clear. Experienced forecasting resources can decrypt raw data and make something out of it.
5 – Challenges of FP&A
Whereas the role of FP&A in organizational growth cannot be overstated, most are yet to embrace it fully. Some aspects, such as strategic planning and budgeting, are viewed as the critical roles leaving out the rest. In turn, forecasting and analysis are done as an afterthought. The implication is that a lot of time is wasted as the team tries to gather the baseline data.
6 – How can you achieve a successful FP&A function?
A successful financial planning and analysis function can be intense because it requires regular follow-up and maintaining the status of all the functions in an organization. The numerous aspects of financial planning and analysis also require a focused collaboration of all the departments.
Unfortunately, it is almost impossible to have all the operations completed simultaneously. There are bound to be delays, miscommunication, and distortion within the systems. It could be as a result of not understanding the role of FP&A or a breakdown in the entire system.
First and foremost, the success of any process is mostly attached to its appreciation by the shareholders. When shareholders appreciate the importance of FP&A and how it eventually affects them, the senior executives will ensure that there is engagement across the organization. It is essential to involve the shareholders.
Finally, the application of technology through automation is a sure way to collect all the data that is needed tirelessly. eCapital Advisors works with companies, large and small, to leverage leading technology to increase speed and efficiency in the finance department.