Most successful companies all have a budgeting, forecasting and analytics cadence to support a company’s “major” financial decisions.
For all of these “major” decisions, executives and founders need to have data to evaluate the financial tradeoffs and consequences of a decision.
FP&A professionals use quantitative and qualitative analysis to help develop a framework to evaluate trades off between one financial decision vs. another. This allows you to ensure that you are using your company’s resources in the most optimal manner to generate profits and keep costs in check.
FP&A will help you answer the following questions:
- Can we launch a new business?
- What are our most profitable products?
- What are our biggest expenses?
- How is our business going to grow in 5 years?
- Do we have money to hire employees?
- How much cash are we burning each month?
While bookkeepers and accountants can tell you how your business performed in the past, an FP&A professional will help you forecast how your business will perform in the future.
A good FP&A professional helps you find answers to the most critical questions about the direction of your business. This is achieved by providing you with insights and data to improve business performance and providing strategic advice for operational decisions.
Business Modelling and Forecasting
An FP&A professional can help you forecast how your business will perform in the future.
Let’s say you’re the founder of a startup and you’ve recently raised money from investors. Congratulations!
But now comes the hard part, how are you going to spend this money? How will you spend this money to ensure that you start selling your product or service and generate revenue? How long will it take to earn a profit? What are your costs going to be?
A FP&A professional can create a financial model and forecast for your business to help you answer all these questions. Your financial model is the actualization of your business plan into a concrete financial plan to help you understand how you will spend the money you raised to generate the revenue and profit you anticipate your business is capable of.
Improve Business Performance
An FP&A professional can help you develop a business model for a company to determine how the business will perform next year or in five years.
For example, for eCommerce businesses, an FP&A professional can create a forecast for your business to determine how many units of your product and an what price would you have to sell to hit $10 million in sales. This sales forecast is usually linked to a detailed inventory plan to help you determine how many units of inventory you will need to purchase to hit your sales goal. Lastly, the forecast will also include a projection of your various variable and fixed costs to determine whether or not your future plan will bring you the profits you’d like to earn in your business.
An FP&A professional can help you develop a framework to evaluate trades off between one financial decision vs. another.
An FP&A professional’s strategic guidance can help you determine which of your company’s products and services generate the most profit and which aren’t profitable. For example, if your business has multiple products and divisions, it could be very possible that some products or divisions aren’t as profitable as others. Your most profitable products could be funding the losses of your unprofitable products. If this were to continue it could determinantal for your business because you could be diverting limited resources (cash and manpower) towards the products and divisions that don’t contribute to your bottom line.