To accomplish their duties correctly, the FP&A professionals build three statements: the balance sheet, P&L statement and cash flow statement. With these reports, experts can forecast requisite inventory and performing financial modelling becomes possible.
What Is Financial Planning and Analysis (FP&A) and Who Needs it?
Why is it necessary to hire an external FP&A team? Well, only a few firms experience smooth cash flow, leading to acute problems for managing directors. To avoid such scenarios and ensure the departments can focus on more productive engagements, it is necessary to look for these dedicated services.
Moreover, companies incorporate financial planning and analysis as an integral part of their operations to forecast inventory requirements. To acquire knowledge about each component of the financial planning process, continue reading.
What Is Financial Planning and Analysis Process?
Technically, financial planning and analysis is a collection of four activities handled by professionals to help the senior management of a firm. These activities are:
- Planning and budgeting
- Management and performance reporting
- Outright financial planning
- Forecasting and modelling aligning with business goals
These procedures are necessary for a company’s in-house finance department to work seamlessly. Without these services, the managerial panel can face issues related to the execution of any plan.
What Are the Steps in an Financial Planning and Analysis Process?
The financial planning and analysis process involves a set number of steps that must be flawlessly executed to fulfil the business goals. These include:
Step 1: To start with, financial planners analyse a company’s present cash flow situation. Their goal is to find out whether there can be better ways to involve the investments to best use the working capital. Also, they will look for alternative channels to generate surplus ROI. This can be expanding the current ventures, grabbing new investment opportunities, etc.
Step 2: After checking the overall financial health, the analysis will demand more in-depth insights. To grab ideas regarding what approach can work best for an agency, the professionals will refer to key metrics like interest coverage ratio, debt to equity ratio, net profit of the preceding fiscal year, etc.
Step 3: This stage is crucial as after understanding the company's vital revenue metrics, the professionals now focus on noting down the product lines that result in maximum profit.
Step 4: At this phase, the financial planning and analysis firms focus on finding products with the highest profit margin. It may appear similar to step 3, but it is not. You can understand this with an example.
Suppose an electronics product manufacturing brand hires its FP&A team to conduct financial planning for the upcoming year. Consequently, after their analysis, the team generated a report showing that selling TVs produces a more significant profit margin than selling air conditioners. But the company may earn less net profit from selling TVs if they sell reasonably more units of ACs.
Step 5: Business analysts closely associate with the accounts team to determine departmental expenses. It is vital to devise cost-effective operational methods and simultaneously guarantee the wastage of company resources.
Step 6: Once the financial experts have chalked out an abrupt idea of reducing costs, these professionals now sit with individual departments. The goal remains to form budgets aligning with the overall corporate budget constraints.
Step 7: This process involves exclusive report-making for top-level managers to support their decision-making processes. These reports contain easy-to-understand graphical representations and precise numerical data to eliminate chances of ambiguity while describing business prospects.
Step 8: After getting a projected plan approved, the financial planning team monitors the deployed system. Constant supervision of agendas ensures necessary intervention as and when needed. Also, this helps them to refine forecasts for the company’s seamless productivity in future.
Step 9: As the execution of plan progresses, the financial planning and analysis squad conducts variance analysis periodically. Such evaluations take place after completing a quarter, half-yearly or even annually to compare departmental performances with historical results. It enhances the scope for more profitability down the line.
Step 10: Judging a short-term outcome, the business growth analysts now map out a 3-year or 5-year corporate financial plan. Risk mitigation and optimal utilisation of available resources are the two most significant factors that influence their planning processes.
What Technologies Are Used by Financial Planning and Analysis Professionals?
Experienced professionals use certain tools to ensure flawless execution of financial planning and analysis process flow. Some of these tech innovations have been listed below:
Client Relationship Management Software (CRM)
These applications reduce a chunk of tasks related to project tracking, client handling, and generating leads so that employees can focus more on their specialisations which would mean greater profitability for the company. Also, each minute employee detail gets stacked in these tools, so they come in handy for the human resource department.
Readymade Website Builders
Financial advisors require access to website development tools to maintain their visibility. Without a website, nobody can imagine growing a business these days. Hence, to ensure 24/7 customer assistance and promote their services, FP&A professionals require an online portal as a viable communication tool.
Email Marketing Automation Tool
You cannot do away with email autoresponders, especially when handling large volumes of service requests. Besides, deploying this software guarantees you are creating a trademark of your brand by including a signature “about us” section. Moreover, the inclusive features assure a timely response, customised template-making options and content segmentation algorithms, which display professionalism.
Though not a mandatory tool, installing it can guarantee more profitable clientele at little to no extra costs. These tools give financial planning and analysis agencies specific insights regarding what kind of web traffic is raising queries related to them. Using such intricate data, they can resort to various forms of remarketing and grab those new opportunities.
FP&A teams aim for a holistic improvement of companies. To accomplish their goal, these professionals ask for access to financial insights of both present and past fiscal years. As the management remains assured of a stable cash flow with proper financial planning and analysis, we recommend you to avail such services if you own a competitive enterprise.
What are the three primary statements of an Financial Planning and Analysis team?
You can live an exciting career if you choose to learn financial planning and implement the skills. Moreover, you get the opportunity to work in close association with a CFO who helps you to refine superior decision making skills that help you advance in the career path.
There is a fine line of difference as FP&A is about scrutinising a company’s financial health and suggesting practical ways to boost profitability. On the other hand, accounting only revolves around maintaining accounts payable and receivable and keeping track of bills and has nothing to do with generating superior financial reforms.
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