The Ultimate Starter Guide to FP&A

Finance teams

This complete guide to FP&A shows how to collect, prepare, and analyze data to deliver data-backed insights, enabling better business decisions.

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Priyaanka Arora
September 23, 2022
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7
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The Ultimate Starter Guide to FP&A

Summary

FP&A is emerging as one of the most sought-after job profiles in the competitive global business world.

FP&A is one of the fastest growing roles in the world, with over 75,000 vacancies in the USA alone. As FP&A becomes increasingly forward-looking, it guides companies through key financial challenges posed by scenario planning, financial modeling, and analysis.

FP&A teams employ best practices to collect, prepare, and analyze the data from across the organization to prepare detailed reports that offer data-backed insights for business challenges.

FP&A should not be confused with accounting. A detailed comparison shows that while accounting reviews historical data to determine the present financial situation of a company, FP&A emphasizes forward-looking data to determine future outcomes. This is why an increasing number of enterprises are dedicating an increasing number of resources to creating a highly functional FP&A team.

What is FP&A?

FP&A is a set of strategic activities that support a company's financial health. These activities include integrated financial planning, forecasting and modeling, management and performance reporting, and planning and budgeting. Given the latest trends and challenges in the economy, companies focus on financial aspects like cash management, risk management, and forecasting.

FP&A key practices over time

FP&A teams analyze past and present data to draw meaningful insights that can guide management while making crucial financial decisions. FP&A helps companies use advanced data analytics to formulate policy-level decisions, considerably increasing the chances of success in achieving long-term goals.  

What is the difference between FP&A and financial analysis?

Financial analysis entails evaluating budgets and financial transactions to ascertain their suitability for a given purpose. This technique is usually employed to determine if an organization is stable and profitable enough for an investment. Whereas, FP&A entails different activities to analyze past and projected financial performance to help the management determine the future of the business. 

Moreover, financial analysis is a generic activity that can be undertaken even by someone in the sales or marketing team. The task of the concerned individual or team here is to derive insights from the financial data.

On the other hand, FP&A is highly structured and is undertaken by a dedicated FP&A team. FP&A involves forecasting, financial modeling, P&L analysis, and budget variance analysis to better understand the company's present and future financial health. Leadership depends on FP&A as one of the key inputs to determine future activities required for the growth of the business.

What do FP&A teams do?

FP&A teams undertake financial analysis to identify trends and determine the patterns in the company's financial processes. FP&A teams are also responsible for preparing reports to help management formulate strategies to boost the company's operational and financial success. The key tasks performed by FP&A teams are:

  • Budgeting: FP&A teams collaborate with teams across departments to collect the necessary financial data and then consolidate the data to prepare the company budget.
  • Forecasting: FP&A teams create, maintain, and update detailed forecasts and financial models using the available budgeting tools.
  • Executive and board reporting: FP&A analyze data and prepare detailed reports and presentations to support the decision-making process led by executives, investors, and the company’s board. 

The tasks of FP&A teams can vary slightly across enterprises, but their core responsibility is to enhance the company's operational and financial success.

What are the key roles and responsibilities of FP&A teams?

FP&A teams usually feature several analysts, managers, and a director reporting to the CFO, who strategizes with the CEO and other C-suite executives. The key roles and responsibilities of FP&A teams are:

  1. Data collection: FP&A analysts collaborate with different departments, and possibly external research agencies, to collect relevant financial data. After that, they collate the data and market research to determine the company's performance compared to industry standards. After the data has been collected, the next step is data hygiene to ensure any errors and biases are removed. FP&A teams use a variety of integrations and data connectors to help them with this process.
  2. Preparing reports: Without detailed analysis, data is of little use. This is why FP&A teams focus not only on data collection but also on data aggregation, mapping, and analysis to help determine KPIs and make budgeting decisions. After this analysis, FP&A teams create reports to help leadership understand the company's performance. The reports are regularly updated based on new data coming in periodically.
  3. Managing databases: FP&A teams also undertake the task of managing financial databases. With extensive data rolling in every week, it is important to organize the data; otherwise, there are chances of errors creeping in or the data being corrupted. This task involves due diligence to verify the accuracy of the data. Bad data hygiene can wreak havoc on the financial health of the company; this is why FP&A teams dedicate considerable time to managing financial databases.
  4. Enhance operational effectiveness: FP&A teams usually handle various tasks at multiple levels, and as a result, they need to avail the latest software to automate some of their work. This strategy helps the team free up time and resources to maximize the business's operational effectiveness. FP&A teams analyze various performance metrics to estimate the performance of their specific endeavors and then how to improve them. 
  5. Prepare financial models: FP&A team is responsible for creating scenarios, forecasting, and preparing different financial models. FP&A teams use their analysis to prepare financial reports to help drive the company's strategy. This is why FP&A teams are focused not only on the present performance of the team but also on their future. Financial modeling helps the FP&A team create forecasts related to key financial parameters of the company.

FP&A Team Tech Stack

FP&A teams often spend several tedious hours on manual tasks that can be automated entirely, such as identifying errors, updating reports, and collecting data. This is why FP&A teams are integrating various tools and platforms to streamline their operations. By integrating the best tech stack, FP&A teams can eliminate manual tasks and focus on core operations like forecasting and budgeting.

  • For financial planning and analysis, financial planning platforms like Pigment are quite useful as they are highly dynamic and scalable. 
  • For treasury management, tools like Agicap empower the FP&A team to track cash balance and allocation in real time. 
  • Suitable ERP solutions are essential to streamline operations management on a day-to-day basis.
  • To enhance productivity and reduce manual tasks, spend management solutions like Spendesk offer excellent resources.
  • Pigment is also a great solution for billing and invoice tracking as it reduces manual intervention, allowing the team to focus on more important tasks. 

An average day in the life of an FP&A professional

The role of every FP&A professional is to undertake detailed data analysis for financial modeling and prepare reports with actionable insights for the management.

But this is a very broad description of the task of an FP&A professional, as the average day-to-day routine of an FP&A team member can be quite stressful based on the job profile. The standard daily routine of an FP&A manager can be described as follows:

  • 8.30 AM – 9.00 AM: Arrive at work and check emails for the latest updates. 
  • 9.00 AM – 10.00 AM: Attend the team meeting and discuss the schedule for the next few days with junior and senior analysts. 
  • 10.00 AM – 11.00 AM: Meet the director or the CFO, as scheduled, to understand if there are any revisions in key parameters for financial planning. 
  • 11.00 AM - 12.00 PM: Call a meeting with your senior analysts and discuss the director's or the CFO's suggestions. Prepare new region-wise forecasts and analyze key metrics like ROI and ROE. 
  • 12.00 PM - 1.00 PM: Head out for lunch with your new team members and brief them on the dynamics of the office. 
  • 1.00 PM - 3.00 PM: Attend conference calls with regional and international FP&A managers to discuss the net income targets for the year. 
  • 3.00 PM - 4.00 PM: Again, attend a meeting with your senior analysts to calculate the revenue shortfall and determine its possible impact. 
  • 4.00 PM - 4.30 PM: Take a coffee break and network with your colleagues. 
  • 4.30 PM - 6.00 PM: Brief your team members on the strategy for the next day. Ask them to prepare presentations on key analysis to be shared with the director the next day. 

Typical FP&A career pathway

The standard career pathway for any FP&A professional starts with the entry-level position of a junior FP&A analyst. After gaining around two years of experience, a junior FP&A analyst can be promoted to a senior FP&A analyst position. Then, after around two to three years, a senior FP&A analyst can aspire for the position of an FP&A manager. 

After reaching this level, moving to a higher designation can take some time. An FP&A manager can become an FP&A Director and move to VP of Finance or CFO. A career as an FP&A professional can be an exciting opportunity for individuals who like data analysis and financial modeling to support key financial decisions made by management.

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