Financial planning and analysis has always been a part of a company’s strategic arsenal in one form or another.
What once functioned as a record of historical financial events is now a forward-looking decision-support department that's integral to the company’s strategy. The data and insights it generates is a chief driver of growth.
As global economies plunge into more instability and uncertainty, FP&A teams can easily lose sight of the humans who make up the team. In the quest for profitability and efficiency, the spotlight shines brighter on FP&A teams to guide the company through tough times.
Now more than ever, there needs to be a renewed focus on ensuring that our finance teams feel supported and cared for as they serve as key business partners throughout the market downturns.
This is the conclusion of our 3-part series on how to build high-efficiency FP&A teams. Here, we cover why mental health is critical to FP&A departments and how you can help your finance team become more efficient by fostering a positive work culture.
The momentous challenges facing FP&A teams
The steady stream of interruptions presented by the pandemic, recession, war, and market crashes has forced businesses to respond to external factors. Finance teams have become the driving forces behind change management. In this context, amid the need to react quickly while trying to maintain expected growth and profit margins, finance teams are trying to cope with the following challenges.
#1. Market downturns
During a market downturn, companies are faced with numerous difficulties, all of which are important and urgent. At such times, there’s an increased focus on cash production.
Finance teams have been in the hot seat, responsible for activities such as:
- Planning for additional rounds of funding
- Implementing pricing changes
- Creating alternate streams of revenue
There’s increased pressure on FP&A functions to be flexible, adapt to changing situations, and think ahead of time to implement new processes.
In the words of Chloé Giraut, Head of Finance at Pigment:
In such times, strong finance teams can seize the opportunity to bring positive transformation to the company.
#2. Mass layoffs
In good times, cost control is often subordinated to the imperatives of growth. In a downturn, extending the cash runway becomes the primary focus of management.
The quickest route to cost sobriety is to target discretionary expenses, the first one that comes under the ax being layoffs.
Finance teams are responsible for headcount planning to budget for talent required to fulfill the company’s objectives. When they are bogged down by the laggards of legacy systems such as spreadsheets, they’re bound to underperform. Legacy systems lack integration capabilities and automation and results in rushed decisions and human errors.
Can you equip your FP&A teams with technology investments that can bridge the gaps in headcount planning ultimately leading to mass layouts?
Next-generation integrated business planning and analytics software improves the problem of headcount planning by integrating critical missing elements like scenario planning, powerful forecasting, and extensive integrations.
#3. The evolving FP&A function
Today, companies have access to mass amounts of data. As a result, FP&A can now gain the type of business insights that weren’t available or extremely difficult to uncover a few years ago.
Companies are now demanding more strategic information from FP&A departments which has created an FP&A revolution.
Also, as companies confront the uncertain economic outlook, they move past purely depending on spreadsheets and adopt technologies capable of producing rolling forecasts of data from multiple business applications, at the deepest level of granularity.
Typically, this is the responsibility of financial planning and analysis teams. Furthermore, financial leaders now need to prepare for the outcome of every possible future scenario.
How FP&A teams are responsible for company health?
Simply put, FP&A teams are not only responsible for predicting results but also for driving them. FP&A functions set the tone for the rest of the company, and act as a starting point for revenue forecasting, budgeting, and sales planning.
From the business lens, financial planning teams focus on:
- Getting a clear view of the company’s starting position
- Building a fact base and using it to model a range of scenarios
- Aligning the financial plan with future forecasts
- Determining the best actions
- Identifying trigger points capable of prompting the business to adjust and adapting forecasts and planning plans with agility
You may be under the impression that FP&A teams have a clear role in helping their organizations with a steady hand and a will to succeed. However, inefficient processes have led to widespread burnout among finance professionals.
The toll taken by the long-term pressures of a Finance leadership position
The unfortunate demise of Bed Bath & Works CFO, Gustavo Arnal, by suicide has created an uproar in the financial ecosystem. This made us revisit the toll that comes with the long-term pressures of a financial leadership position.
Over 85% of finance professionals have been seriously impacted by burnout. The telling signs of stress, hopelessness, and alienation due to high workloads are common in finance teams.
An increasing number of organizations are realizing that the risk of burnout is huge. The fact of the matter is that companies need to introduce measures that can alleviate the risk of burnout, reduce stress and foster a better working environment making the lives of FP&A professionals happier and simpler.
How to foster a better working environment for happier and more productive FP&A teams?
Step 1: Have clear and measurable goals
If you’re looking to work smarter and more efficiently, ensure that you have clear and measurable goals. They include:
- Supporting company leadership in making the best decisions to reach financial goals and scale growth
- Evaluating the results of past and present financial performance and its impact on future investments - and communicating this information to business leaders
- Improving the overall business performance by optimizing cash flow, reducing financial risk, and increasing revenue channels
- Measuring financial performance and identifying key performance indicators
Step 2: Quantify the value added by FP&A teams
The key FP&A metrics for success are:
- ARR growth
- Customer acquisition cost
- Payback period
- Gross margins
- EBITDA margins
The additional capital efficiency metrics are:
- Return on invested capital
- Venture capital efficiency ratio
- Burn multiple
Balancing growth and profitability is a critical objective for high-growth and mature companies. Sacrificing either can result in reduced runaway or reduced market presence.
Communicating impact to stakeholders
Let’s assume you’re a part of the FP&A team at a high-growth startup. Now that there are looming signs of recession, your board wants to know how to address the economic situation while meeting company goals.
The first step here is to source your data (timely, accurate, and synchronized) from different departments (like sales, marketing, and HR) and business applications (like CRM, ERP, ATS, and across the tech stack). Next, you need to tie it all together such that it helps craft a narrative to form a comprehensive picture. When data is cohesive, it becomes easier to communicate the impact of progress to the board members.
Business planning and analysis software can help you reduce the time you spend on adding data to presentations. You can utilize this time to incorporate topic drill-downs or deeper analysis of key issues and communicate your progress and aspirations to stakeholders.
Step 3: Streamlined headcount planning
Headcount planning which is the final state in the overall revenue performance management process optimizes budget and allocation for the roles and skill sets that meet the requirements of the organization.
A streamlined headcount planning process is a mission-critical element of a well-oiled revenue machine as it brings efficiency, cost savings, and better utilization of people into the picture. A streamlined process is possible through the right tools, technology, and automation to focus on high-impact FP&A activities.
The composition of an ideal FP&A team
Here’s a breakdown of the type of roles you can find in an FP&A organization structure:
- Chief financial officer
- Financial analyst
- FP&A manager
- FP&A director
Step 4: Investing in the right technology
High-efficiency FP&A teams spend 80% of their time analyzing data rather than preparing it. The right tech stack eliminates manual work such as data imports and exports and data preparation and cleaning so that the finance team can focus on critical tasks like budgeting and forecasting.
Finance teams should leverage technology to:
- Gain a 360-degree picture of your business by connecting business cases across the organization in real-time and building visually appealing reports, plans, and forecasts.
- Assess your key business drivers by running comprehensive what-of scenarios, flexibly changing assumptions and models, and comparing scenarios using waterfall charts and tables.
- Collaborate with your teammates, start conversations, overwrite quota assumptions, and comment on the latest figures.
- Optimize team processes with personalized workflows by gathering everything in one place instead of chasing data with endless email threads.
- View and track all metrics in real time and bring a single source of truth to drive business strategy more efficiently with key stakeholders.
The perfect FP&A tech stack includes:
- Business planning and analysis software Pigment to get a full-spectrum view of your business, model scenarios, and make better decisions
- ERP and accounting systems to get a comprehensive view of your runway, cash balances, and future cash previsions
- CRM software to plan your sales performance, analyze customer cohorts, and predict the impact of your sales pipeline
- HRIS and ATS to plan headcount for growth
- Spend management software for productivity and to save time on manual AR/AP tasks
- Billing and payment systems to get a holistic view of your payment cycles
- BI solutions to import data and build forecasts and reports
Step 5: Making time for innovation
Companies are losing approximately $7.8 billion every year due to the lack of innovation and the hours analysts spend using inefficient data processes. Too much time is spent on low-value tasks such as loading data, maintaining spreadsheets, and creating reports manually.
Automation can help FP&A teams work smarter instead of harder. They make these time-consuming activities far faster to complete and simpler to undertake. You can use innovative technologies like business planning and analysis software to increase the velocity of your reporting and forecasting processes.
For instance, advanced analytics tools can replace the bottom-up consolidation of numbers with predictive analytics models and shift the conversion from what the numbers should be (producing numbers) to how to use the numbers to make it happen. Leverage innovation to create new processes to better track and forecast your strategic progress.
Innovation in the form of automation is the key ingredient in agile planning processes and encourages activities to be led by data.
Advice for first-time CFOs
CFOs and finance teams are more important than ever during these turbulent times. There’s a unique opportunity for FP&A to add more value through scenario planning, performance management, and forecasting to drive decision-making, both before and after the current economic climate.
For new CFOs to conquer the market crash, here’s a nugget of wisdom from Ajay Vashee, who is a General Partner at IVP: a late-stage venture capital and growth equity firm.
Ajay Vashee led Dropbox to a successful IPO and scaled it from $45 million to $3 billion with more than 600 million users:
“So, you evaluate - measure - predict (with accuracy) your way through economic pandemonium. With this clear action plan, and a little help from Pigment, you can be home for dinner on time, each day of the week.”
As a new CFO, build a drumbeat of information to quickly identify the root causes and present the leadership team with solutions.
Healthy FP&A teams are effective and impactful in the long-run
Economic downturns are no strangers to the tech world. Financial teams and leaders will play a crucial role in guiding the companies through the downturns and preparing them for better times. High-efficiency teams with a positive work environment are bound to be more productive and will keep the company afloat and carve out opportunities for unparalleled growth.