The coronavirus (Covid-19) pandemic has highlighted the importance of future-proofing your business to ensure it can survive unexpectedly turbulent times. Financial planning and analysis (FP&A) technology is making it easier to do.
Apart from uncertainty, the coronavirus crisis has spawned huge amounts of data, highlighting another need for the modern accountant – the ability to transform information into actionable insight.
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In a rapidly changing and hazardous world, the way accountants do budgeting will profoundly alter. The days when budgeting meant poring over spreadsheets into the small hours will soon be gone.
In its place? Accountants cast in roles such as “analysts”, “architects” and “storytellers”, who’ll deep-dive into datasets using shiny software to determine how a business will perform.
Welcome to the world of the FP&A team.
The financial planning and analysis (FP&A) team is an in-house group that works within a company’s finance department. It typically provides senior management with analysis and information to make strategic decisions.
“FP&A doesn’t work on the frontline making the wheels spin,” explains Anders Liu-Lindberg, who co-runs the Business Partnering Institute consultancy. “It’s more strategic and tactical – they work with a much bigger agenda. Historically, there’s never been anybody [in finance] supporting the senior team on this bigger agenda before – now businesses need that support.”
Ready for takeoff after coronavirus
With the Covid-19 pandemic having a seismic impact upon business, the ability for companies to accurately mine and interpret data to guide future performance will be crucial in the years to come.
In recent years, analytics software has become more affordable. That’s going to make it spread.
“FP&A is set to be even bigger than before,” says Larysa Melnychuk, qualified accountant, CEO at FP&A Trends group.
“All those old budgets and forecasts are dead and worthless now. Companies will have to start over at the beginning. Can they predict what’s going to happen? No. But FP&A can help leaders make flexible decisions.”
Liu-Lindberg agrees: “For many companies, simply knowing how long you can survive in this environment is difficult. Sooner or later, they may run out of cash.
If I was a business-leader, I’d always refer to my FP&A team to give me information and decide what options to go for. They’ll play a critical role.”
From building a team to choosing the right tech, here’s how to get FP&A-ready…
Why do companies need FP&A?
Business leaders are bombarded by scores of decisions every day.
However, when armed with data-driven insights given to them by their FP&A team, they can vastly improve these choices.
Why? Put simply, it provides a real-time (and often more accurate) overview of risks and opportunities.
“With today’s growing uncertainty and increasing speed of change, business leaders need somebody to tell them, ‘how are we doing?’,” says Liu-Lindberg.
“Classic finance teams can’t really do that – they might show the CEO some numbers in Excel, but can’t take it to the next level like FP&A.”
By furnishing shareholders with deal-breaking information on revenue and income, budgets and forecasts prepared by FP&A can also directly influence a company’s share price too.
For start-ups and developing businesses, these forecasts are essential – giving them the competitive oomph of higher valuations or attracting investment and talent.
“FP&A is crucial for companies if they want to successfully run a business,” says Glen Foster, director of accounting partners, UK & EMEA, at cloud-based accounting platform, Xero.
“It helps businesses small and large understand how the business is performing, plus forecast costs vs revenues and outgoings vs incomings. It can help implement strategies used to measure success and make decisions on the future of business. Just as importantly, it can spot any potential issues too.”
FP&A in your company – the first steps
Implementing FP&A can “take anything from a couple of months to two years”, according to Melnychuk.
“If you’re a company of fewer than 30 people, you can start tomorrow. Just hire an FP&A person or allocate an accountant who’s good at it, and do it straight away.”
Before splashing money on swish new software, the first (and probably most important) change should be cultural – convincing your team FP&A is important.
“You could be a company with the best FP&A system in the world, but if you don’t have a mindset that allows for analytical projects, you won’t be successful,” says Melnychuk. “Companies should drive this from the top down.”
“The reason most IT projects fail isn’t because of technology – it’s because of people and poor time management,” adds Chris Argent, founder of online finance community Generation CFO (and a member of AAT who developed its data analytics course).
Building an FP&A team – the three key roles
1. FP&A architect
This person is the bridge between data management and data science.
“Typically, they work in systems or IT. They’re not just finance people, but also data scientists who can understand statistics as well as mathematics”, says Melnychuk.
2. FP&A analyst
FP&A analyst is typical role favoured by accountants.
“FP&A analysts marry numerical skills with an ability to analyse different types of data. Thanks to our accountancy training, we’d make good FP&A analysts,” Melnychuk says
3. FP&A storyteller
The main role of an FP&A storyteller is presenting the insight you’ve amassed.
“You have to deliver this to different audiences, adjusting the detail and jargon to their level of understanding. Whether it’s the CFO or other finance colleagues (who’d appreciate technical detail), your CEO (who might not have a financial background) or the marketing team who want to know why their budget is being cut.
“Unfortunately, many finance professionals tend to be too corporate in their presentation skills. Communication skills are vital.”
Other roles – FP&A data scientist
“This person will introduce the power of big data and predictive analytics,” says Melnychuk. “They might deal with artificial intelligence too, and will work closely with FP&A architects and analysts.”
Choosing the right tech
Quality FP&A software can help professionals centralise budgets, plans and forecasting, as well as dispense real-time insight.
“The right technology can elevate the role of accountants to business advisors by giving them the real-time data at their fingertips, such as the overall financial health of the business” says Foster.
“FP&A software provides a snapshot of both profit and loss statements and can offer projected statements through forecasting tools, giving them the insights needed to make strategic decisions.”
The sheer multitude of tech providers can befuddle many business owners though.
“Just six or seven years ago, we only had three classical systems: IBM, Oracle and SAP,” says Melnychuk. “Now, there are dozens.”
To make that decision easier, Melnychuk recommends adopting software appropriate to your industry.
“Do your research. Define what you want from the system and look at the type of clients using the software. If you’re in manufacturing, then a sales or marketing-led system won’t be right for you.”
Melnychuk also proposes business leaders book a software demonstration.
“Some systems providers allow you to send them some data, so they can create prototypes for your business.”
Problems and pitfalls
FP&A should be integrated into all areas of the business.
“Some smaller-sized firms turn FP&A into a silo, making it one person’s job who then multi-hats many different roles. To do FP&A well, it needs to partner with people outside the FP&A department,” says Argent.
Adopting FP&A too quickly
Any assimilation of FP&A should be gradual.
“You’ve got to learn to crawl before you can run,” says Argent.
“FP&A can be overwhelming… It’s best to take small steps on a day-to-day basis over a couple of years and you’ll get where you want to.”
Placing all your faith in the tech/software
Machines are great at ‘business as usual’. But as we’ve seen by Covid-19, we often don’t know what to expect.
“Anybody working in FP&A should be cognisant of things that machines can’t do, such as new trends and competition that could affect the business,” says Melnychuk.
“Being a data scientist has been described as the sexiest job in the world, according to Harvard Business Review – which can lead some people to think they need to learn coding or get an advanced science doctorate at university,” says Argent.
“But in the time it takes to study, the world will move on. Accountants need to keep doing what we’re good at, which is to understand financials and performance, as well as the business.”
As for business leaders, Melnychuk says there’s never been a better time for small businesses to introduce FP&A. “Starting this in two years is too late. It should be done straight away.”
Mind your Ps and As
The core of FP&A is its capacity to plan, as this involves forecasting how the bottom line can change, plus develop solutions and identify the company’s potential.
When planning, FP&A professionals examine gross and operating margins, variables that govern pricing, fixed and variable costs, plus estimating how long it could take for the business to reach positive cashflow (or not).
However, Chris Argent, founder of online finance community Generation CFO, suggests “performance” should replace “planning” in FP&A’s moniker.
“People get so bogged down in the budget, and how we plan, they forget the reason that budgets exist because it can help improve the financial performance of the business,” he says. “It’s like worrying about a football team having a 4-4-2 formation, when you’ve forgotten that you’ve got to score goals in the game. If you don’t have positive cash flow, you won’t survive very long, which is why performance is vital.”
“If you have data, analytics is about presenting it in a way that’ll give you a conviction about the future,” says Argent.
“The difference between traditional budgeting/planning and analytics, is that you’re trying to understand and fix problems before it gets to a performance [planning] conversation. You don’t want to wait for a year or even three months to have an unhelpful conversation about why the business hasn’t hit its budget. Analytics is much more dynamic – it can help people with decision support and trying to intervene before problems arise.”
I’m an accountant – how can I work in FP&A?
Getting a job in FP&A could be a way of building an arsenal of future-friendly skills.
“There’ll still be opportunities for people who are highly numerate,” says Chris Argent, founder of online finance community Generation CFO. “But if you look at the skills required for 2030, it’s critical-thinking, problem-solving and being tech-savvy. If you want to future-proof yourself, then analytics is a good way to start. Stay in an administrative finance role and you could be putting yourself at risk.”
There’s fierce competition for jobs too.
“An FP&A analyst or planning manager is probably one of our top roles at the moment – it’s the skill set companies are wanting,” says Matt Weston, UK managing director at financial recruitment firm Robert Half. “You’ve got to be commercially aware, have communication skills and enjoy business partnering.”
For those that do work in FP&A, a rewarding career awaits, according to Weston.
“You’ll be exposed to lots of different departments: marketing, promotions, sales. You’ll be at the heart of the business and effectively plan its future.” FP&A is also a relatively safe place to work, as the department is needed in both good times and bad.
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Christian Koch is an award-winning journalist/editor who has written for the Evening Standard, Sunday Times, Guardian, Telegraph, The Independent, Q, The Face and Metro. He's also written about business for Accounting Technician, 20 and Director, where he is contributing editor.