What is FP&A, and does your business need it?

FP&A, short for financial planning and analysis, is the work of turning your accounting records into a budget, a forecast, and a monthly review of results, so you can decide what to do next. Accounting records what happened. FP&A uses those records to plan what comes next and to explain why results differ from the plan.

What is FP&A, and is it accounting under a new name? A lender, a board member, or a partner says you need it. It is a different job with a different output, and most owners need the output more than they need a department.

What is FP&A made of?

The Association for Financial Professionals describes four parts of the work: planning and forecasting, performance management, financial analysis and modeling, and continuous improvement of the process behind the numbers. For an owner, they look like this:

What is the difference between FP&A and accounting?

Accounting records and reports what already happened, and FP&A starts from those records to plan and to explain. The Association for Financial Professionals calls FP&A "proactive and strategic" and describes accounting as focused on recording and reporting past transactions.

You need the accounting first. FP&A is only as reliable as the records under it, so a business whose books close late or change after the fact should fix that before it builds a forecast.

What does FP&A look like in a growing business?

It runs as a monthly cycle: the books close, actual results are compared with the budget, the biggest gaps are explained, the forecast is updated, and the owner makes one or two decisions.

For example, suppose revenue comes in 8% under budget in month three. The accounting shows the number. FP&A shows where it comes from, say two customers who delayed orders and not a price problem, updates the forecast and the cash weeks that follow, and asks whether the planned hire should move back a quarter. The numbers in this example are made up.

Does your business need FP&A?

Look for these signs:

• You hire, price, or buy on instinct because the reports cannot answer "what if?"
• Cash is hard to predict more than a few weeks out.
• A lender, partner, or buyer has asked for a forecast and you built it in a hurry.
• The budget was set in January and nobody has compared it with results since.
• You run more than one product, location, or revenue stream, and you cannot tell which one earns the margin.

A business with one simple operation and an owner who sees everything may only need a monthly cash view. Once two or three of the signs apply, the budget, forecast, and review are worth setting up.

Who does FP&A in a smaller company?

Three arrangements are common: the owner with an in-house finance lead, the accounting team with an expanded scope, or a fractional CFO, a senior finance leader who works with you part-time. The right one depends on how much judgment the work needs and how many hours it takes each month. Does my company need a fractional CFO? covers the third option.

What to do next

1. Pick the one decision you most want to test, such as a hire, a price change, or a loan.
2. Pull 12 months of results from your accounting system into one sheet, and check that they reconcile.
3. Build a budget and a 13-week cash forecast from them. How to create a financial plan for your business walks through it.
4. Hold a monthly review: compare actual results with the plan, explain the three biggest gaps, and update the forecast. How to do financial forecasting covers the method, and key financial KPIs every business owner should track covers what to bring to the review.

To see how Surfside Capital Advisors builds forecasts and KPI dashboards that track your cash and margins, read about its FP&A work.

Questions owners ask

Is FP&A the same as budgeting?

No. Budgeting is one part of it. FP&A also covers forecasting, reporting progress against goals, and analyzing decisions before you make them. A budget says what you intend to do, and the rest of the cycle tells you whether you are on track and what to change.

Can your accounting team do FP&A?

Some can, if you scope the work and they have the hours. The jobs differ: one keeps the records accurate and compliant, and the other uses them to plan and advise. If your team is already stretched by the close, planning work tends to be the first thing to slip.