It is true that we are no longer basking in the glory of cash abundance. The Great Resignation, macroeconomic uncertainties, slower rate of VC investments, and record inflation have complicated financial planning for FY 2023. Adding to that, the duration of the market downturn is also uncertain.
This bleakness has led to at least one positive outcome: the FP&A department is in a position to drive more strategic value than ever before.
The growing volumes of data, increased expectations from the finance department to provide value-added insights, and automation are creating opportunities to expand the role and impact of FP&A functions in their organizations.
Therefore when setting goals, FP&A teams must be prepared to help department leaders, stakeholders, and investors understand how financial plans will impact the business's sustainability in the year ahead.
In 2023, here are the top three FP&A goals you should focus on.
Goals oriented with the company’s growth and profitability
Healthy cash runway
In the simplest terms, cash runway is the amount of time your company has left to sustain itself before running out of cash.
Cash runaway formula: Cash on Hand / Monthly Cash Burn
Cash runaway is measured in months and it can vary widely based on the maturity of your business, the industry you're in, and the current market situation.
So what is a good cash runaway? For early to growth stage companies, and based on the funding stage, it can be:
While FP&A teams are well aware of the basics of cash runway, leadership would expect the finance team to answer a critical question: How to extend the company’s cash runway amidst the downturn?
At a time when external funding is hard to come across, look at extending the cash runway as a mindset shift. The main areas of focus are:
- Scenario planning - Use scenario modeling to plan and predict for the future and avoid unpleasant surprises.
- Let’s assume you’re thinking of headcount reduction. Using scenario planning you can determine how much headcount you need to increase the cash runway. For such difficult decisions, scenario planning helps you determine where to invest and cut back, based on forecasts.
- Finance business partnership - The CEO-CFO relationship is stronger than ever. Essentially, as a strategic business partner, the finance department helps the CEO navigate turbulent times by closely monitoring the spend, assessing the impact of each decision, and maintaining strong unit economics.
- Building a strong culture of data literacy - Answering the question: what is the impact of data literacy on extending the cash runway? You are armed with data even at the most granular level. This way, you can slice and dice financials to get a complete view of the company.
Pro tip - Have enough runaway to keep the company running until the next fundraise or exit event including revenue growth and not just depending on existing raised funds.
Cash burn and the path to profitability
In a troubled economy, investors are most likely to direct their focus from growth at all costs to profitability.
Finance and FP&A departments need to outline a clear path to profitability. An important FP&A team goal is to tell the story of profitability and capital efficiency with KPIs.
Two critical aspects of profitability are:
- KPIs - In addition to profitability, some important metrics worth paying attention to are: revenue growth (how fast can you multiply revenue), headcount growth, and cash burn.
- Documents - A business planning platform can help finance teams make scenario planning and financial analysis easier. Your business plan should cover the best case, worst case, and baseline scenarios.
Pro tip - When it comes to cash burn: a rule of thumb is that your growth in cash burn should not exceed your ARR growth by more than 2X.
Building a roadmap for the company’s future plans
- Use the T2D3 concept to suggest how FP&A can build a roadmap for the company’s eventual IPO or exit event - but do include current economic perspectives where growth must be tempered by profitability. We are no longer in a growth at all costs climate.
Output generated by the FP&A department
xP&A: Stepping beyond financial planning and analysis to enable cross-functional alignment
Extended planning and analysis (xP&A) involves extending the principles of FP&A beyond the financial department to foster interdepartmental collaboration. The result is better visibility into the company’s performance, leading to better organizational-level decision making.
xP&A approach synchronizes people, data, business plans, and processes under a single platform.
Transitioning to xP&A would be an important FP&A team goal for 2023 because:
- Comprehensive business view of all departments in one place allows leadership to formulate enterprise-level decisions
- Eliminates departmental silos from the planning process and enhances the efficiency of plans
- xP&A tools like Pigment cater to the varied needs of multiple departments and ensure data accuracy
- By enabling headcount planning and strategic workforce planning, xP&A ensures that companies are nimble and prepared for any unplanned events
Especially in the time of the current market downturn, xP&A empowers business leaders with timely insights for policy-level decisions. The unified approach across the organization serves as a strong growth driver.
Pro tip: Implement an xP&A tool that brings operational and financial data from all departments onto a single platform to create a single source of truth that all decision-makers can access for consistent information.
Delivering accurate and timely insights in the form of great presentations to executives
The path to impactful board meetings lies in data wealth and using the right tools to paint a compelling picture of insights. Armed with the right data, board meetings are an opportunity to have meaningful conversations and exchange ideas.
However, the culprit behind ineffective board presentations is:
- Data inaccuracy,
- Constant refreshes, and
- Inability to share business updates and progress against growth goals along with sharing surface-level vanity metrics.
How can you move forward when your FP&A team goal is to work towards flawless and high-impact board presentations?
The answer lies in the following checklist:
- Integrate your entire tech stack to source your data and ensure data accuracy.
- Enable cross-functional alignment so that your business leaders are reporting data that sync together to form a comprehensive picture. A culture of finance-business partnership leads to the betterment of the company.
- Pigment’s Google Sheets Connector automates data refreshes and shortens the data preparation time. Utilize the time saved to analyze key issues and effectively your progress and aspirations to the board.
Pro tip - Unify your data (which is timely, overarching, and synchronized) under overarching business objectives to inspire impactful conversations and drive critical decisions.
Financial modeling and forecast accuracy
When the economy is volatile, even the most solid plans go for a toss. When the global economy is plagued by high inflation, slow GDP growth, and tightening pressure on revenue, the financial forecasts need to be faster and more flexible. FP&A team goal-setting can make a difference by tightening the accuracy of forecasts through financial scenario modeling, data validity, and faster re-forecasts.
Financial planning software for FP&A can forecast and run what-if scenarios to spot risks and opportunities while gathering cross-departmental data. At the same time, connecting financial models allows finance teams to handle the need for timely and granular forecasts and plan and predict for the future.
Pro tip - FP&A platform Pigment for finance allows collaborative budget planning. Each cost center can directly input their numbers into a centralized dashboard.
Ensure seamless data transfer across applications
One of the key FP&A team goals in 2023 is to be a strategic business partner managing multiple stakeholders, presenting important issues uncovered by data, and setting a clear agenda that aligns with the overarching business goals.
The FP&A team, as data gatekeepers, needs to collect data from different applications including the CRM, ERP, accounting systems, data lakes, and so forth. The traditional spreadsheet-based approach of copy-pasting data is replaced by automated data transfers using business planning software Pigment.
Pigment automates data collation from third-party integrations, validates this data, and serves as a single source of truth for the FP&A team.
Pro tip - Have ongoing communication with other departments to help them understand the value you deliver as a department to strengthen your role as business partners.
FP&A team efficiency and work culture
The financial planning and analysis team has become a forward-looking strategic department integral to the company’s success.
The focus shines brighter than ever on the FP&A team to guide the company through tough times and take it toward profitability.
This year, there is renewed focus on how to make FP&A teams high-efficiency, happy, and productive.
The first step is to ensure that their inputs are valued. Do you promote a culture where they can express their opinions and feel the impact of their work?
For example, at Pigment, we strongly believe our people are integral to driving the business forward. We take our values seriously: as they define our culture, who we are, and connect everyone with a common purpose.
For a more inclusive culture, we reflect on our diversity, equity, and inclusion goals. We implement a two-step framework of continuous learning and proactive action to best nurture the inclusive spirit.
The most successful FP&A teams use technology to automate and optimize manual FP&A tasks such as data entry, account reconciliation, and beyond. Don’t let inefficiencies in the workflow lead to FP&A team burnout. An integrated business planning platform Pigment gives your financial planning process a much-needed makeover.
Lastly, don’t miss out on tracking your finance team’s efficiency KPIs. They include:
- Turnaround time
- Revenue per employee
- Resource utilization
- Accuracy of deliverables free from error
- Each team member’s willingness and capacity to take on more work
- Waster in terms of unaccountable blocks of time
Pro tip - Adopt two to four KPIs that can help your team self-monitor and improve efficiency over time. For example, the FP&A team goal for overworked teams would be to reduce overtime hours.
The blueprint for 2023 FP&A team goals
The three themes of FP&A team goals are going to play a decisive role in setting your company for success. Reaching this level of agility, efficiency, and profitability does not have to be so difficult. Now is the time to build data integrity and focus on automating FP&A workflows and building smoother processes using Pigment: the integrated business planning platform for smarter decisions.