FP&A – Financial Planning and Analysis
The Financial planning and analysis (FP&P) is one of the important functionc within a company. It includes the end-to-end processes of strategic planning, budgeting and forecasting, combined with the downstream quality of management information analysis and reporting.
These aspects should not be limited to so-called “Finance” activities. The contribution of added value requires participation in all operational sectors of the company by setting up indicators for measuring and managing performance from a financial and non-financial point of view. These indicators form the key performance indicators (KPIs) generated in the various reporting packages within the company.
The FP&A Manager (Financial Planning & Analysis) is emerging as one of the new professions to follow closely in the finance and accounting sector.
Juggling with tasks of financial analysis, budget management and management, he multiplies the missions and plays a key role in any company.
The process of FP&A
The FP&A process is an ongoing cycle of data collection and analysis. In times of market volatility and rapid change, this process becomes more complex as companies expand and target new markets. Companies need to collect and analyze more data. This is why many medium and large companies have set up dedicated FP&A teams within their financial departments. However, despite the increasing complexity, the FP&A process includes four main steps:
1. Data collection, consolidation and verification
The first step in the FP&A process involves gathering financial and operational data from ERP systems, data warehouses, and other enterprise solutions. In addition, data from sources outside the company (expanded demographic, economic and market data) may also be collected.
Once all the necessary data has been collected, it must be consolidated, standardized and verified. The accuracy of plans, forecasts, budgets and analyzes depends on the quality and completeness of the data used. This step is therefore crucial, but time-consuming. That’s why companies are now turning to AI-powered solutions that can automate many tasks.
2. Planning and forecasting
During this stage, FP&A analysts use the prepared data to create financial forecasts regarding the future performance and direction of the company’s activities. Financial forecasts include sales and cash flow forecasts, etc. Financial forecasting models are also used to test our different scenarios, simulate the impact of different variables and determine the best course of action to optimize results.
Here are the most common financial planning methods:
Predictive planning
It allows FP&A professionals to create a model on large volumes of data relating to past performance. This time series forecasting model is then used to forecast future performance. Predictive analytics boost planning tools, especially when integrated into a single solution powered by AI and Machine Learning.
Levers-based planning
In this type of planning, analysts identify a company’s essential levers (i.e., the elements essential to its success), then they create a series of plans demonstrating a mathematical point of view how these levers can be affected by different variables.
Multiple Scenario Planning
Nowadays, companies increasingly favor scenario planning and analysis. In multi-scenario planning, analysts make assumptions about future events. They anticipate the consequences, then create a plan to respond to each plausible scenario.
These financial models and forecasts are used to create the financial and operational plans needed to achieve the company’s main strategic objectives. Developed by senior management using FP&A data, the strategic plan includes high-level goals like short- and long-term revenue and bottom line.
Collaboration between departments is essential for all types of planning. It allows the consideration of all data, variables and knowledge, while improving accuracy and engagement. Collaboration increases the validity of plans and builds consensus around them. Hence the value of xP&A, which combines and synchronizes plans between departments to allow the company to break down silos and gain efficiency.
3. Budgeting
The budgeting stage allows FP&A professionals to estimate the expenses necessary to execute the business plan based on the revenues of the strategic plan. They then allocate an expense budget to each operating unit or business function, along with the revenue and cash flow they are likely to generate. Management works with each department and then consolidates the agreed budgets into a master budget.
The corporate budget is usually created annually and updated quarterly to keep pace with changing financial conditions. However, in order to better adapt to volatile market conditions, many companies have now adopted frequently updated rolling budgeting cycles with rolling forecasts. Some companies have also adopted a zero-based budget, which avoids bloated expenses and cost overruns by constantly evaluating necessary and unnecessary expenses.
4. Performance monitoring and analysis
To guide business strategy and provide decision support, FP&A teams analyze financial data and monitor performance on an ongoing basis, including sales, expenses, profit, working capital, flow cash and other key performance indicators. They respond to ad hoc queries and turn data into a scenario or data story to help decision makers understand a situation and take thoughtful action.
FP&A analysts also generate regular reports and visualizations of data, and perform activities such as profitability analysis including forecasts of future earnings to answer the following questions: “Which products and services will be most profitable?” next year and today? or “Should we outsource production or keep it in-house?” necessary and superfluous expenses on a permanent basis.
776 000,00 -237 000,00 -1 793 400,00
Example: CASH FLOW (Excel cash tracking – Treasury)
| CASH FLOW (Excel cash tracking – Treasury) | ||||||||||||||
| MONTH | Start of activity | January | February | March | April | May | June | July | August | September | October | November | December | TOTAL |
| IN (Revenue) | ||||||||||||||
| Capital injection | 450 000,00 | 450 000,00 | ||||||||||||
| Bank loan | 0,00 | |||||||||||||
| Capital contributed | 65 000,00 | 4 000,00 | 69 000,00 | |||||||||||
| VAT recovered | 0,00 | |||||||||||||
| Invoice settlement X | 0,00 | |||||||||||||
| Invoice settlement X | 0,00 | |||||||||||||
| Invoice settlement X | 20 000,00 | 20 000,00 | ||||||||||||
| Invoice settlement X | 0,00 | |||||||||||||
| Invoice settlement X | 0,00 | |||||||||||||
| Invoice settlement X | 0,00 | |||||||||||||
| Total entries | 515 000,00 | 4 000,00 | 20 000,00 | 0,00 | 0,00 | 0,00 | 0,00 | 0,00 | 0,00 | 0,00 | 0,00 | 0,00 | 0,00 | 539 000,00 |
| Out (Expenses) | ||||||||||||||
| Loan repayment | 400,00 | 400,00 | ||||||||||||
| Miscellaneous purchases | 0,00 | |||||||||||||
| Current account withdrawal | 34 000,00 | 34 000,00 | ||||||||||||
| Administration fees | 1 500,00 | 1 500,00 | ||||||||||||
| VAT refunded | 0,00 | |||||||||||||
| Rent | 10 000,00 | 10 000,00 | ||||||||||||
| Utilities (Gas, water, electricity bills) | 300,00 | 300,00 | ||||||||||||
| Supplies | 0,00 | |||||||||||||
| Maintenance, repairs | 0,00 | |||||||||||||
| Insurance | 4 500,00 | 4 500,00 | ||||||||||||
| Accounting fees | 0,00 | |||||||||||||
| Advertising costs | 300,00 | 40 000,00 | 40 300,00 | |||||||||||
| Shipping | 0,00 | |||||||||||||
| Business travel expenses | 0,00 | |||||||||||||
| Telephone – internet subscriptions | 0,00 | |||||||||||||
| Bank charges, interests | 0,00 | |||||||||||||
| Executive compensation | 35 000,00 | 300 000,00 | 335 000,00 | |||||||||||
| Social charges Manager | 0,00 | |||||||||||||
| Salary (Wages) | 50 000,00 | 300 000,00 | 350 000,00 | |||||||||||
| Employee social charges | 0,00 | |||||||||||||
| Total expenses | 84 400,00 | 51 600,00 | 640 000,00 | 0,00 | 0,00 | 0,00 | 0,00 | 0,00 | 0,00 | 0,00 | 0,00 | 0,00 | 0,00 | |
| Input/Expense difference | 430 600,00 | -47 600,00 | -620 000,00 | 0,00 | 0,00 | 0,00 | 0,00 | 0,00 | 0,00 | 0,00 | 0,00 | 0,00 | 0,00 | |
| Treasury | 430 600,00 | 383 000,00 | -237 000,00 | -237 000,00 | -237 000,00 | -237 000,00 | -237 000,00 | -237 000,00 | -237 000,00 | -237 000,00 | -237 000,00 | -237 000,00 | -237 000,00 | |
You can download for free this excel table Cash flow in and out.
Sources: PinterPandai, Gartner, SAP, Corporate Finance Institute®, Jedox