The Importance of Having Strong Financial Planning and Analysis

Looking for growth? Having a strong financial planning and analysis function is a key to success.

The role of a financial planning and analysis (FP&A) professional or function is to provide accurate, timely financial analysis and advice to the leaders of the organization. While that sounds broad and little more than number crunching, the role brings much more value than that. In fact, lately FP&A has come to the fore as a strategic and relevant advantage to organizations, particularly given the great speed at which companies move today and the complexity of the business environment.

So what makes this role so important?

Performing financial planning is critical to the success of any business. It supports the business plan and sets forth a process to ensure the objectives set are achievable from a financial point of view. Adequate financial planning and analysis creates an understanding of how well you project your business will do and measures your success relative to that projection. The process is ongoing and should serve as a shrewd guide to running your business.

Furthermore, if funding or financing is needed, the FP&A function prepares you to present the financial section of your business plan in relatively short order. Whether you are seeking investment from private equity firms, venture capitalists, or angel investors, they are going to want to see numbers as evidence that your business will grow and that there is an exit strategy for them on the horizon, during which they can make a profit. Any bank or lender will ask to see these numbers, as well, to ensure loan repayment.

Most important, however, you could say the FP&A function picks up where accounting leaves off. Whereas a controller considers and records historical results, the FP&A function is future-focused. It links the strategy to a long-range plan and annual operating and capital budgets. It provides multiyear financial modeling and annual target-setting processes. It employs the process of interpreting the strategic targets into comprehensive annual operating and capital budgets. And it leads and oversees the financial management function to ensure delivery of annual budget results and to strengthen cash flow predictability.

Another way to look at the FP&A function is by using the “7 Habits of Highly Effective People” and drawing an analogy to habits two and three. The long-range plan and annual operating and capital budgets need to be built and analyzed with “the end in mind” (i.e., the business plan). The periodic review, analysis, modeling, and update of the financial plan are to “put first things first” (i.e., quarterly process to analyze and forecast).

Furthermore, consistency is important, and a strong FP&A process is one that eliminates variation and brings consistent and reliable information on which to base sound decisions. In addition, a well-run FP&A professional or office will develop and distribute exception reports, highlight reports, and other analytical reports (i.e., ratio analysis) to enhance the decision making of the organization’s leadership.

Value-Added Contributions

CFO magazine wrote about the need for improvements in FP&A 20 years ago, explaining that in order “to be relevant in the pursuit of strategic objectives, finance teams had to become stronger business partners and generate analyses that help decision makers increase economic profit.” It’s a clarion call that still resonates today.

A strong FP&A function can be a nimble, strategic contributor to your organization’s success, creating a positive impact to its bottom line.