Financial Planning and Analysis: Why Is It Important?
Financial planning and analysis (FP&A) is an important part of any company. Usually the responsibility of the finance team within an enterprise, FP&A analysts are responsible for collecting and analyzing financial data that will inform the decision-making process by major stakeholders within the company.
As a versatile advisor, it’s important that you get familiar with the process. Understanding FP&A processes will help you answer questions and advise corporate clients.
In this article, we’ll discuss the day-to-day responsibilities of an FP&A analyst and the software they use to complete their duties.
Understanding financial planning and analysis
Incorporating analytics into the financial planning process can help uncover patterns and trends that may not be immediately apparent. This allows you to assess your client’s financial health in a more comprehensive way. This approach no doubt will allow you to give a higher quality of service to your clients, helping them reach their financial goals.
Financial planning analytics is a process that combines financial planning methods, data analytics, and forecasting techniques to support an organization’s financial decision-making.
Unlike accounting, which focuses on the history of your transactions, financial planning & analysis focuses on forecasting and predictive analyses.
Even if you’re a consultant, FP&A will be helpful when you consult enterprise clients.
The first step in the planning cycle is data collection. The data include financial data, such as cash flow, expenses, revenue, and profits. But it’s likely that you’ll need to collect various data types from external and internal sources alike, including:
Market data that shows the state of the market, such as market trends, competition, customer behavior, business metrics and KPIs, and other data that might affect your business.
Operational data related to business units, such as customer satisfaction, production capacity, supply chain, and employee productivity.
The next step of this process is to verify the data that are collected from various data sources. After the collection and verification process is complete, you’ll need to consolidate the data into a database so you can analyze the data.
Due to the importance of this first step, FP&A teams use Enterprise Resource Planning (ERP) systems to manage their data. ERP systems have many features that would be useful for this step, such as providing real-time data, workflow automation, and data integration.
With the data compiled and ready for analysis, there are other things that are part of an FP&A professional’s duties, including:
Planning and budgeting
Rolling forecasts
Ad-hoc financial reporting
Scenario planning
Operational planning
Profit margin
Performance management
Due to the high volume of data that needs to be processed, financial planning and analysis (FP&A) are typically done with the assistance of software. These pieces of software allow financial advisors to collect, organize, and analyze vast amounts of financial data, facilitating a holistic view of clients' financial situations. This comprehensive financial modeling and analysis helps identify trends, patterns, and potential areas of improvement.
FP&A teams use various tools, software, and techniques to analyze and interpret financial data. These tools help you with various aspects of your duties as an FP&A analyst, including getting deeper insights into your clients’ financial health, communicating the data, and being more efficient during analysis, and more.
What does FP&A software do?
FP&A solutions are designed to streamline and automate various financial planning and analysis tasks — making the process more efficient and accurate.
Some FP&A software might be designed specifically for certain tasks, while others are more comprehensive and flexible so they can adjust to your client’s needs.
Let's look into some of the key functionalities FP&A software usually provides.
Planning and budgeting
FP&A software allows financial advisors to create comprehensive financial plans and budgets.
A tool with this purpose should support integration from multiple data sources — such as historical financial data and market trends — so it can develop realistic and achievable plans based on those data.
Combined with the ability to perform "what-if" scenarios, advisors can assess the impact of different variables on the plan and make adjustments accordingly. These features help you develop strategic plans that consider potential risks and opportunities, ensuring a comprehensive approach to financial decision-making.
Scenario modeling
The ability to conduct scenario modeling is a key feature of FP&A software.
Financial advisors can simulate hypothetical scenarios to assess the impact of various factors — such as market conditions, regulatory changes, or investment decisions — on clients' financial outcomes. This helps in identifying risks, formulating contingency plans, and making strategic decisions to effectively navigate uncertainties.
Cash-flow forecasting
FP&A software facilitates accurate cash-flow forecasting, which is essential for effective financial management.
By analyzing historical cash-flow patterns, monitoring current trends, and considering future projections, finance advisors can anticipate clients’ cash needs, identify potential shortfalls, and develop strategies to optimize cash flow. This ensures sufficient liquidity and helps clients make informed decisions regarding investments, expenses, and debt management.
Profitability and cost management
This type of software allows you to assess your clients’ profitability and manage their costs more effectively.
It offers comprehensive analytics that allows you to assess revenue streams, analyze cost structures, and identify opportunities for improvement.
Through graphical representations and interactive dashboards, you can visualize financial data, making it easier to identify areas of profitability and cost optimization. By leveraging these insights, advisors can provide clients with strategies to enhance profitability while effectively managing costs.
Connected planning
FP&A software facilitates connected planning by integrating various financial and operational data sources into a unified platform.
This integration streamlines the planning process, promotes collaboration, and ensures data accuracy across different departments and stakeholders.
Financial advisors can leverage this interconnectedness to provide comprehensive and holistic financial advice, aligning their recommendations with clients' overall business strategies.
Tax reporting
Effective tax planning and reporting are crucial for optimizing clients' tax positions while ensuring compliance.
FP&A software offers robust tax reporting features that enable financial advisors to accurately calculate tax obligations, generate reports, and identify potential tax-saving opportunities. By using these features, advisors can help clients minimize tax liabilities, navigate complex tax regulations, and maintain financial compliance.
Pro forma financial statements
FP&A software simplifies the creation of pro forma statements by automating calculations and consolidating financial data. This feature allows financial advisors to generate accurate pro forma income statements, balance sheets, and cash-flow statements. By analyzing these statements, advisors can assess the financial impact of strategic decisions, helping clients make well-informed choices and providing a clear picture of future outcomes.
FP&A software facilitates the creation of pro forma financial statements, which are projections of future financial performance. By incorporating historical data, market trends, and growth assumptions, finance professionals can provide clients with a clear picture of their financial outlook. Pro forma financial statements are useful for making investment decisions, securing financing, and evaluating the potential impact of strategic initiatives.
Reporting and analytics
Powerful reporting and analytics capabilities enable financial professionals to generate customized reports, visualize financial data, and track key performance indicators.
These features enhance the communication of complex financial information to clients in a clear, concise, and visually appealing manner. By presenting data through intuitive visualizations and interactive dashboards, advisors can simplify the information for clients, fostering better understanding and engagement.
The benefits of financial planning analytics for financial professionals
Implementing financial planning analytics in your planning process ensures that you can see your client’s financial situation in a holistic manner.
The insights extracted by the FP&A team are invaluable for the decision-making process. With financial forecasts based on real data, decision-makers — such as major stakeholders, the CEO, and the CFO — can do the company’s business planning confidently.
Sometimes people overlook the fine details in their financial circumstances in favor of focusing on a bigger goal. However, those minor, seemingly insignificant data points might come back later down the line if they aren’t taken into consideration.
By doing financial planning analysis, you can factor these variables into your analysis to ascertain if they possess a high risk of hindering your clients from achieving their goals in the future.
How Asset-Map can help financial professionals with their financial planning analytics goals
While FP&A teams have many use cases, their core responsibility is to help leadership make informed decisions.
The data analysis done by the FP&A teams is an important part of an enterprise’s business planning process. The insight prepared is used to help major decision makers – such as the board of directors, CEO, and CFO — make decisions informed by their financial situation.
By taking full advantage of FP&A tools available in your arsenal, such as real-time insights and predictive capabilities, FP&A software can help you do more accurate analysis, present data in a clearer way, and support your clients in making informed decisions.
Asset-Map helps you convey this information through interactive visual maps. Change things on the fly to reflect different scenarios, communicate the data intuitively for clients, and keep track of complex business data all in one place.
Get your demo today and see how Asset-Map can help you simplify your workflows so you can focus on the things your clients hire you for.