Four Key Components That Comprise the FP&A Process

Financial Planning and Analysis (FP&A) has a crucial role to play in business management. Financial planning analysts provide accurate and timely financial advice to business leaders. This information enables management to make the right decisions to achieve strategic goals from a financial perspective. 

A traditional FP&A process consists of four main parts.

1. Budgeting 

A budget is a financial plan that businesses use to estimate how much they’re going to be making, called revenues, and how much they’re going to be spending, called expenses, for a set future period. 

Budgeting, or the process of drawing up a budget, helps businesses plan future activities and optimize the allocation of resources. 

The process of creating budgets has to adhere to clearly outlined and documented processes and protocols. Budgets also need to be completed before specific deadlines, usually before the beginning of the following fiscal year. 

Financial planning analysts develop a consolidated master budget from individual department budgets. They provide advice to business leaders, based on qualitative and quantitative analysis, on how best to:

  • Optimize the use of a company’s financial resources for profit
  • Achieve stable growth
  • Prevent or reduce financial risks

2. Planning 

Financial planning is a task that determines how a business will utilize all its resources and activities to achieve strategic goals. It also helps to determine timelines for the achievement of specific objectives.

Financial Planning Analysts typically perform the following as part of financial planning:

  • Defining and achieving consensus on financial goals and objectives
  • Collecting relevant financial data in the form of income, expenditure, assets, liabilities, and so on
  • Analysis of the captured financial information to determine current position, strengths, and weaknesses
  • Creation of the financial plan, followed by implementation and continual monitoring

3. Performance Reporting 

Reports summarize the financial health of the business and are crucial for business owners to identify trends, note challenges, and stay on top of how the business is doing. Financial performance reports help leaders make decisions that positively impact the bottom-line. 

Potential investors will also be reviewing performance reports to help them decide whether they want to invest in your business. Banks and other lending institutions use these reports as a basis for deciding whether they want to lend the business money.

4. Forecasting and Modeling 

Financial forecasting is a process by which businesses project how they will perform for a specific period in the future. It shows the expected cash flow and expenses for a specific period in the future. Financial modeling takes this one step further. 

In modeling, analysts use financial modeling tools like Excel, to work out how different potential scenarios, events, or factors can impact short-term and long-term business performance. Forecasts are used to aid the analysis.  

Financial models are beneficial to help make decisions about aspects like raising capital, how to allocate resources, buying or selling assets, determining how much a business is worth, or how to grow the business organically. They also support in-depth financial analysis and management accounting. 

Wrapping Up

Having a solid high-performing FP&A function in your organization is seen as a strategic advantage. Work with the right business partners so you’re hiring the best people for your FP&A roles. It can be the difference between simply growing and truly thriving. 

Ghost Mountain provides FP&A and Accounting recruiting solutions for mid to senior management roles. Connect with us here if you’re looking for industry veterans who can deliver high-quality talent for your needs. Schedule a confidential conversation with an expert who can help address staffing goals at your organization. 

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