5 Steps To Next-Level Financial Planning & Analysis

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The role of FP&A has evolved from reporting financial results to a more sophisticated, holistic practice of pulling in other teams and extrapolating future results. Here’s how to stay ahead of the game.

Does your company have an individual or team dedicated to FP&A? If not, you’re missing out on valuable insights, according to a recent Association for Financial Professionals survey.

The AFP asked 300 finance pros to weigh in on how far their organizations have come in unifying and automating their business planning and forecasting functions. The survey focused on xP&A—extended planning & analysis. Companies that adopt the xP&A moniker have mature FP&A practices that incorporate both line-of-business and operations teams in the planning function.

So how’s that working for them?

15% are making moderate or extensive use of advanced tools, such as machine learning and artificial intelligence.

30% of business and operations teams can independently understand the financial impact of their decisions.

33% say operations and finance have “an integrated business planning cycle” versus 5% who say these are siloed functions; 43% say these teams collaborate to generate reports.

50% of respondent companies can easily create out-of-cycle forecasts.

52% say actual-to-forecast reconciliation efforts are split between manual and automated processes using multiple tools; an additional 24% say the work is primarily manual.

About half of the AFP’s xP&A survey respondents have revenue under $500 million, with 20% under $50 million. Sixty-one percent are based in North America, with an additional 31% having a multinational presence. The most common roadblock among the group is a lack of automation.

Critical FP&A Skills

To succeed, your team needs knowledge in five key areas:

Timely P&L and other statements: The FP&A team is responsible for pulling together timely profit and loss, cash flow and other core financial data. The more you automate functions like AR, AP and general ledger, the easier this will be. And as automation reduces the burden on finance staff, the team is able to turn its focus to analysis, and it will have at hand the data needed to help the business make better decisions.

Profit margins: Which departments, product lines or services have the highest profit margins? Figuring that out isn’t simple. You need to include all costs involved in making and selling your products and/or services and determine whether margins will be based on gross profit, operating profit or net profit.

Scenario planning: When your team can sketch out best-case, expected and worst-case scenarios by plugging in different numbers, you give sales teams more flexibility and can make pricing decisions with confidence.

Budget vs. actuals: FP&A is all about forecasting future financial performance, so these teams need a handle on budget-versus-actuals and insights into variances as well as emerging trends within the business and in the broader industry and economy.

Ad-hoc reporting: This is related to trends watching. How are sales in the Midwest versus the South? How many service tickets were resolved last week? Why are PTO costs much higher than average in one location? FP&A teams that partner with business units like sales, operations and HR can empower these departments with data and insights.

Besides investing in automation, leveling up FP&A involves adding ever more data sources. For example, a company might pull in outside information, such as seasonal changes in demand or local unemployment, or data from its suppliers, like consumer or producer prices or supplier fill dates.

If you’re looking to get started with FP&A or take your planning and analysis to the next level, check out the free business guide, “The CFO’s Guide to Planning and Analysis: How to Hit Your Goals and Be Ready for What’s Next.”

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