Key Takeaways
Within a medium-sized organization, the chief financial officer (CFO) oversees a financial planning & analysis (FP&A) committee. This team generates financial forecasting information for internal use by the company's decision-makers in all areas, from human resources to marketing.
Whether you're evaluating and improving your seasoned FP&A team or in the process of building a new one due to an acquisition or merger, here's what you need to know.
Table of Contents
Financial planning and analysis is an organized, intentional look at budgeting, forecasting, and planning, and a deep-dive analysis of a company's financial health to help support major business decision-making within the company.
Your CFO and FP&A committee work together to analyze financial data using open communication, collaborative teamwork, and analytical skills. These finance professionals use advanced analytics training and expertise to help your growing company achieve its business goals both in the short- and long-term.
As the FP&A team reviews your company's financial data, they work to:
This level of analysis and planning helps mid-sized businesses not only thrive but pivot when needed, thanks to financial awareness and strategic thinking.
The FP&A team often works in tandem with a governance, risk, and compliance (GRC) team.
In 2020, multinational advisory and research firm Gartner coined the term extended planning and analysis (xP&A).
This approach expands beyond the finance team and extends access to financial forecasting, planning, analytics, and monitoring to additional departments such as human resources, sales, supply chain management, and more within your business.
As your FP&A team assesses the financial health of the company, it's imperative to know what external resources can bolster your planning and goal setting.
The Government of Canada takes an active role in assisting in the success of mid-sized businesses to boost the economy. The country's free trade agreements (FTAs) work to ease the innate hurdles and pain points in doing business in foreign markets so Canadian businesses can improve their financial outlooks.
Current FTAs working for the greater good of medium-sized businesses in Canada include:
FTAs affirm the importance of Canadian businesses as creators of jobs and key suppliers of services and products. In short, the FTAs give Canadian businesses preferential access to overseas markets.
They do this by:
As you review your current financial management and planning tools or consider making a switch to a new solution, decide if you need an option that works only within your in-house finance team (FP&A) or that has the option to extend into various departments (xP&A).
Financial planning & analysis has come a long way from being calculations on spreadsheets and manual data-entry analysis. Finance teams of growing businesses currently rely on cloud-based tools, artificial intelligence (AI) and machine learning technology, and robotic process automation (RPA).
Localized software on office computers is outdated. Connected finance teams now rely on cloud-based solutions that allow for integrations with tangential tools that are easily accessed in-office at a desktop computer, on the go via a mobile device, or from a laptop anywhere.
By combining the talent of your finance team with the intelligent technology of machine learning and AI, it becomes simpler for your FP&A team to discover patterns, trends, correlations, and more beyond self-reporting. Think of AI like another super-smart team member adding helpful insight to your reporting.
Manual tasks such as sourcing data, formatting it, and aggregating results can be eliminated and done more accurately with the use of RPA. As a bonus, this frees up your finance professionals to work on next steps, such as applying the insights to planning and advising.
If you're searching for an FP&A solution that marries the best attributes of all three, consider QuickBooks Online Advanced.
Here are some of the helpful features:
You have a solid understanding of what FP&A committees bring to the table and how they generate information, but what does the process look like?
Here are the five key steps your FP&A committee can follow for success.
Gather all pertinent data from inside and outside the organization. This not only includes your internal financial reports and operational data, but also economic climate and market data to look at your industry at large. Then, consolidate and fact-check it for accuracy.
The quality of the data collected will make the process of forecasting more effective and accurate.
This foundational step in the process allows your team to predict, through statistical evidence and spotting past trends (predictive planning), how your business will perform in the future under various scenarios.
Forecasts include cash flow and sales predictions based on potential outcomes from implementing new ideas or removing failing tactics. Some finance teams double down on the key profit-making initiatives via driver-based planning.
Information collection, planning, and forecasts allow your team to devise finance-informed budgets for the company. These are often spread over multiple time periods, such as quarterly budgets, annual budgets, and five-year budgets to keep the company as a whole, as well as department leads, on track with their spending in relation to the forecasts.
Budgets include estimated expenses and allocations of funds across the organization. These are reviewed on a rolling budgeting cycle, usually quarterly, so funding continues to align with both the forecasting numbers and actual finances.
The FP&A committee generates key financial insight to provide data-backed information so key decision makers in the organization can make choices fueled by analytics.
These two core teams work in an ebb and flow to inform one another of the financial health and needs of the company. Discussions of cash flow, working capital, expenses, profit, sales, and other key performance indicators drive their meetings.
As your mid-sized business expands, it may become beneficial to contract with external financial analysts and planners to elevate your FP&A, especially during a restructuring, merger, or acquisition. Some consultants specialize in a specific area, such as real estate transactions or bankruptcies.
Example: Healthy Greens supermarket
Let's put these concepts together to see them in action.
For this example, we will be looking closely at Healthy Greens, a fictitious health-focused supermarket chain with five locations and plans to expand by opening one new store a year for the next five years.
The finance team worked in tandem with the C-suite and external stakeholders, including real estate developers, to create a financial picture that supports the company's aggressive expansion goals.
A focus on financial planning and analysis can ensure the company is poised for growth by making sound decisions.
1. Collecting and reporting
The finance team studied the company's financial trends over its 10-year history and noticed a healthy year-over-year increase in profits. They used QuickBooks Advanced to generate reports with just a few clicks.
At a regional level, market research shows that more Canadians want healthier food choices, so the expansion supports audience demand. Healthy Greens hired an external marketing firm to validate the current positive feedback and support of the existing five stores.
2. Planning and forecasting
Based on the current trends and sales, the finance team mocked up a financial forecast of how the new stores may perform both in their first years open and with a 10-year outlook, which inevitably showed some decline as the newness of the stores wears off.
The team also performed several planning scenarios, such as financial downturns due to competing stores opening in proximity to Healthy Greens locations and changes in perceptions about health foods. The team knew that historically, Healthy Greens has been known for its eat-in cafe and massive 101-topping salad bar that attracts hungry employees over the lunch hour.
The company doubled down and made plans to offer a to-go salad bar option to cater to this audience.
3. Budgeting
As the Healthy Greens finance team reviewed the plan, they added numbers to the presentation reports. This helped stakeholders see where their funds would get distributed. Funds included expenditures for land purchases, building construction, and employee expenses associated with each new supermarket.
Projections for annual, five-year, and 10-year profits were presented. This helped the company decide if their five-year plan was feasible and profitable.
4. Supporting
In addition to bringing on the key decision makers in the company, the finance team invited relevant stakeholders who had a hand in the expansion to review the FP&A. This included private investors, partner companies (such as a private coffee shop that wants to rent space inside the supermarket), bank loan officers, and real estate developers.
This level of oversight worked as a set of checks and balances to ensure the plan was viable from all aspects.
5. Consulting
Many growing mid-size businesses have a small finance team and may contract out for specialty assistance. In their case, Healthy Greens decided to work with a financial planner to assist with the forecasting of the five new supermarkets. The project was simply too large for the internal team to conquer alone and keep up with its daily tasks.
The FP&A for the Healthy Greens expansion helped the company realize that it was indeed possible to open five new stores successfully over a five-year period.
However, the planning, forecasting, and scenarios showed potential for the market to become supersaturated with healthy food options in the planned expansion zone. Now, the company is considering widening its territory.
Market research also showed that while healthy supermarkets are desired by their target audience, people are also craving more fast food choices with a healthy slant. Healthy Greens is now going to look into adding a deli counter with ready-to-eat boxed meals and what it will cost to add a drive-through lane to serve customers looking for a fast to-go meal option. A menu board would showcase the deli boxed meals so patrons could buy them in-store or by car.
Overall, the company is pleased with the findings from the FP&A, and looks forward to more planning and forecasting before pushing ahead with the expansion.
Your in-house finance team can prepare for economic swings and industry disruptions by planning ahead. Thankfully, they don't have to do it alone. From smart connected solutions to bringing on specialty consultants, your financial planning and analysis with QuickBooks can become informed and valuable.
QuickBooks Online Advanced not only offers efficiency to your finance team, but also supports partnerships with external consultants and allows for integration of your CRM, time tracking tools, and more. QuickBooks streamlines the entire FP&A process, allowing for faster insights and better decision-making. Get started today to automate and facilitate your financial planning.
If you want to learn more about financial management for mid-size businesses, download our free e-book: Better financial management for faster business growth: A six-point checklist for scalable, sustainable financial management.
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