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What is Financial Planning and Analysis (FP&A)?
FP&A is a specialized function in financial planning, forecasting, maintaining financial models, decision-making, and analysis. It provides strategic insights that drive business performance and strengthen the overall financial health of an organization. Who uses FP&A, and how can you leverage its capabilities to increase efficiency across your business?
The Director of Finance, in collaboration with the Chief Financial Officer (CFO), typically uses FP&A to help determine, review, and update the company’s business goals as part of their corporate financial planning process. FP&A teams commonly comprise the Director of Finance, CFO, controller(s), accountants, financial analysts, business analysts, data analysts, and other analysis professionals. These teams work closely with other departments including, accounting, sales, marketing, and operations, to develop and execute financial plans that align with the company's goals. These plans use financial models, data analytics, and forecasting tools to unlock insights into the company's performance, trends, and future opportunities for growth.
Corporate financial analysts have several key responsibilities that can benefit from FP&A:
- Budgeting and forecasting: Develop and maintain the company's annual budget and forecast to help meet financial targets.
- Financial reporting: Prepare and analyze financial reports to provide insights into the company's financial performance.
- Performance analysis: Conduct financial analysis to identify areas of improvement and opportunities for cost savings or revenue growth.
- Strategic planning: Help provide financial insights and analysis to support the development of the company's strategic plan.
- Risk management: Identify and manage financial risks that could impact the company's performance or financial position.
FP&A empowers you to make informed business decisions while achieving your big-picture goals.
The Evolution of FP&A
FP&A emerged from the early days of late-1970s spreadsheet software and progressed through the development of more sophisticated analytical capabilities in the 1990s, to emerge in today’s cloud-based solutions offering greater scalability, advanced analytics, machine learning, and artificial intelligence (AI). From the beginning, the goal of FP&A has always been to help provide finance teams like yours with real-time insights and enhanced decision-making capabilities.
The Tech That’s Making it Happen
The FP&A process uses several key tools to streamline processes, analyze data, and deliver clear, informative results:
Business Intelligence
Business intelligence and analytics tools can process vast amounts of information more efficiently than humans—enabling deeper business performance insights, more informed forecasting, and better decision-making.
Advanced analytics help you identify everything from patterns and trends to data anomalies, allowing you to mitigate risk proactively and protect your company’s bottom line.
Cloud Solutions
Cloud-based platforms offer flexible, scalable solutions that support collaborative planning and analysis across your organization. Powerful integrations help you consolidate data from multiple applications, revealing relevant processes and workflows.
With the right tools and tech, your finance teams can operate efficiently and access important data, regardless of their physical location. Moving to the cloud will allow you to better support both remote workers as well as other teams across your organization.
AI and ML
Artificial intelligence (AI) and machine learning (ML) enable you to automate routine tasks like data collection and processing, helping ensure more accurate forecasts while preparing for any unexpected risks.
How Can FP&A Help You Work Smarter?
Knowing the basics of financial planning is only the beginning. The next step is using that knowledge to go through the actual planning process, starting with these key steps:
Gathering Information
The first step in financial planning is collecting clean, accurate data. This means gathering everything from accounting documents to operational information, along with other external data like customer demographics and market trends.
Remember, too, that high-quality in equals high-quality out—if you input top-level data, your analytics reports will be useful and complete. You’ll be able to make decisions based on sound intelligence, which can help your business hit financial targets and meet its goals.
Building a Plan
Next, decision-makers need to identify the organization’s long-term goals and how to achieve them. You can’t set realistic goals unless you understand the market, the competition you’re facing, and the internal capabilities of your workforce.
It’s vital to identify important milestones, which help determine whether the company is on pace to reach its goals or whether you need to pivot. Plans shouldn’t be rigid, but they should be clear enough for you and your team to execute.
Making a Budget
Now, it’s time to create a budget, which involves setting concrete targets for various business units, departments, or projects. Allocate these resources in alignment with the strategic priorities of your business, helping ensure that you direct funds toward those areas with the highest potential to create value.
The finance team and key department heads should collaborate throughout the budgeting phase, enabling the final budget to reflect both strategic goals and operational realities.
Forecasting
Forecasting involves predicting future outcomes based on current trends, historical information, and external factors. It allows the organization to anticipate changes in revenue, expenses, and other key financial metrics, helping drive proactive decision-making and allowing your business to capitalize on potentially fleeting opportunities.
However, creating effective forecasts requires an abundance of quality data, as you’ll have to account for potential market shifts, economic conditions, and internal factors that might impact performance.
Analyzing Variances
A variance is anything that doesn’t align with your predictions. The greater the deviation, the bigger its impact on your company’s performance—that’s why it’s critical to analyze all figures that don’t match your initial predictions. Identifying what went wrong allows you to determine what happened and why, so you can quickly adjust and get your business back on track.
Running Reports
Your final step involves generating the reports and insights that can inform decision-making. Your team will summarize this financial data, analyze performance metrics, and report their findings—transforming complex information into digestible content.
Through reporting, you can obtain a holistic view of the company’s fiscal health. These reports deliver value as you prepare for the next revenue cycle, allowing your company to make strategic adjustments that keep you moving forward toward your long-term growth goals.
Overall Benefits of FP&A
Current user-friendly solutions, like Epicor FP&A, offer several advantages over manual or outdated financial planning and analysis tools:
- Centralized Data: Merge information from various sources across your organization, creating a single source of truth and eliminating data silos.
- Automation: Eliminate many of the manual processes involved in financial planning and analysis, saving you time and minimizing errors.
- Accuracy: Gain accurate and reliable financial data, empowering your finance teams to make more informed decisions.
- Collaboration: Facilitate collaboration among different departments and stakeholders within your company, building greater cooperation, transparency, and awareness.
- Reporting: Access customizable reports and dashboards, streamlining communication about the company’s financial performance to your stakeholders.
- Forecasting: Leverage advanced forecasting capabilities, allowing finance teams to create accurate and reliable forecasts of future financial performance.
- Scenario planning: Easily create different scenarios and test the impact of various assumptions on your company’s financial performance.
Industry-Specific Benefits of FP&A
For Manufacturers
FP&A software offers manufacturers a way to make their businesses more profitable through accurate data collection, budgeting, forecasting, real-time tracking of metrics, risk modeling, and a range of other analytical tools.
This software helps you target where to make better use of your resources, reduce cost outlay, improve cash flow, cut waste, and make better decisions.
For Distributors
Distributors use FP&A solutions to help them stay ahead of the competition by tracking sales data, analyzing customer behavior, and forecasting future sales and revenue. Detailed reports offer real-time insights into business performance, allowing them to identify areas of improvement and make strategic decisions.
By automating routine tasks like data entry or report generation with FP&A software, distributors can streamline financial processes and reduce the risk of potential errors.
For Retailers
Using data visualization tools and enhanced reporting, FP&A solutions help retailers make better decisions through accurate financial projections, cost control, cashflow management, and performance tracking. These critical insights will help you identify trends and unlock opportunities to add product lines or expand into new markets.
Leveraging the power of FP&A software, retailers can improve their financial performance and maintain a competitive edge in today's dynamic retail landscape.
For Building Suppliers
Building supply and lumber companies face the intricate challenge of managing complex inventories and fluctuating material costs, making precise financial reporting indispensable. A complete Reporting and FP&A solution offers detailed reports on material, labor, and overhead costs, which are crucial for monitoring price fluctuations of raw materials like lumber.
These fluctuations can significantly impact profitability. Given the high costs associated with purchasing materials and the often lengthy payment cycles, FP&A solutions help ensure that building supply and lumber companies maintain a robust grip on their cash flow throughout the year.
By automating financial processes, FP&A solutions aid in creating detailed budgets and forecasts, facilitating the planning of future expenses and revenues. Moreover, the scenario modeling capabilities of FP&A solutions enable companies to anticipate risks and develop strategies to mitigate them—this in turn helps ensure robust financial health and operational efficiency.
Effective risk management and strategic planning are essential to navigating market volatility while maintaining competitive advantage. By leveraging FP&A solutions,
building supply and lumber companies can enhance their financial reporting accuracy, optimize cash flow management, improve budgeting and forecasting execution, and improve overall operational efficiency. These essential steps help businesses position themselves for sustainable growth in a dynamic market.
What’s Next for FP&A
Many exciting new technologies are reshaping how businesses will engage with FP&A in the future:
- Prescriptive Analytics: Tells you what is likely to happen and how to respond.
- New Integrations: Allows you to connect even more applications.
- Real-Time Analytics Tools: Provides up-to-the-minute insights.
These innovative tools have the potential to change your financial planning strategies while guiding your business forward.
FP&A Glossary
Understanding a shared set of common FP&A terms is important for both internal and external collaboration, communications, and planning:
Budget: A financial plan that outlines a company's expected revenues, expenses, and profits over a period of time.
Capital expenditure (Capex): The funds a company invests in fixed assets such as property, plant, and equipment.
Cash flow: The amount of cash coming in and going out of a company over a period of time.
Cost of goods sold (COGS): The direct costs incurred in producing and delivering a company's products or services.
EBITDA: An acronym meaning Earnings Before Interest, Taxes, Depreciation, and Amortization—a measure of a company's operating profitability.
Forecast: A prediction of a company's future financial performance based on past performance, market trends, and other factors.
Gross margin: The difference between revenue and COGS, which represents the amount of money left to cover operating expenses and generate profit.
Operating expenses: Expenses that a company incurs in day-to-day operations including salaries, rent, utilities, and marketing—commonly called "overhead."
Revenue: The income a company generates through the sale of products or services.
ROI: An acronym meaning “return on investment,” measuring how much profit a company generates from its investments.
Variance analysis: The process of comparing actual financial results to budgeted or forecasted results, in order to identify and explain any differences.
Working capital: The amount of cash and other liquid assets a company has available to cover its day-to-day operating expenses.
Here to Help: How Epicor Simplifies FP&A for Your Business
Epicor Financial Planning & Analysis (FP&A) is our licensed FP&A software that allows you to streamline financial processes and make faster, smarter decisions. FP&A is built specifically for businesses that make, move, and sell the things we all need every day: manufacturers, distributors, and retailers.
As a solution that sits on top of your ERP system, Epicor FP&A gives your business a financial storybook by leveraging the combined power of advanced reporting and consolidation, dashboarding, machine learning-powered budgeting, rolling forecasting, what-if analysis, and more. Using FP&A, you can enjoy reporting, budgeting, and forecasting on the Web or in Excel—you can also integrate data from various sources, perform detailed analyses, and collaborate with your team in real-time. It also offers templated financial statements and budget sheets, or you can create custom reports from scratch quickly and easily.
Epicor is all about ease, efficiency, and visibility. If you’re ready to move from spreadsheets to streamlined forecasting and quick decision-making, contact an Epicor sales rep today to see how we can cut through the complexities and make FP&A a whole lot simpler to manage.
