3 FP&A Trends Shaping Our Digital Economy

3 FP&A Trends Shaping Our Digital Economy

Finance professors often teach that markets are working toward efficiency—that they’re linear. The reality? They’re bumpy roller coasters full of ups and downs.

“Things are usually changing fast enough and people are imperfect enough that markets don’t always have it just right,” says Kevin Landis, CEO and CIO of Firsthand Capital Management and veteran technology investor.

Like COVID-19, unprecedented situations happen that leave the economy in flux. The best way for finance professionals to navigate the market’s uncertainty? By staying on top of current FP&A trends. In 2021, that means examining how agility, cloud technology, and microplanning are redefining FP&A.

Agility Is a Must-Have, Not a Nice-to-Have

When COVID-19 hit in 2020, many businesses were unprepared for the lockdowns and how the pandemic hit the market. Companies like 24 Hour Fitness and ALDO Group had to close down hundreds of locations or file for bankruptcy.

Agile financial planning can help during times like these. Agile FP&A involves prioritizing people over process, with a focus on continuous changes and proactive communication. The process makes companies more resilient to market disruptions by taking uncertainties into the equation. The key lies in being flexible (so you can quickly respond to change) and collaborative.

Many finance leaders understand the importance of agile planning. Following the start of the pandemic in 2020, 89% of CFOs found the “external economic and financial uncertainties facing their business as high or very high,” which was up by 34% from the previous quarter.

And CFOs expect the “ability to rapidly model the implications of business decisions,” to be one of the biggest challenges to plan for in the future. 

So, how can more finance professionals practice agile FP&A? The process involves challenging your existing beliefs, so you can prepare for various scenarios. From there, determine your strategy, drivers, and key performance indicators (KPIs).

To get started, Gartner’s Agile Finance Strategy CFO Toolkit provides some useful insights on how you can start thinking about agile financial planning.

Spreadsheets Are Dinosaurs Next to AI and Cloud-Based Planning

Spreadsheet errors aren’t rare and minor—there are so many incidents that have resulted in companies losing millions of dollars.

JPMorgan Chase lost $3.1 billion due to a spreadsheet error as they relied on copying and pasting information, and TransAlta lost $24 million due to a cut and paste error in a spreadsheet. Besides leaving room for error, spreadsheets are time-consuming to complete—taking up valuable time leaders could be using for decision-making.

Unfortunately, FP&A teams often rely on spreadsheets.

Many companies recognize the need for a more flexible and dynamic planning model; over 80% of CFOs, controllers, and FP&A heads plan to make “advanced data analytics technologies and tools in finance” a priority in 2021.

The transition to remote work increased the urgency of shifting away from spreadsheets with FP&A.

Due to COVID-19 and the transition to working from home, many companies questioned long-held views that FP&A staff must be present on office premises, and some companies think FP&A can work just as well virtually. According to Deloitte’s latest CFO Signals survey, “72% of respondents say more finance work will be conducted remotely post-crisis.”

With more people working from home, there’s an increased need for centralized, accurate data—a result that’s tough to achieve with spreadsheets. Cloud-based Enterprise Performance Management (EPM) tools and AI-supported process automation seem to be the answer.

The good news? Finance professionals are smoothly making the shift to cloud-based technology.

According to a survey by The Hackett Group, 31% of roughly 300 finance executives surveyed “have done large-scale deployments of cloud-based financial applications this year, up from 23% in 2020.” Moreover, 66% of CFOs say they’ll focus on robotic process automation (RPA) and other workflow automation as it brings “speed, efficiency, and cost optimization to finance.”

Elias Khnaser, VP analyst at Gartner, put it best: “If you have not developed a cloud-first strategy yet, you are likely falling behind your competitors.”

It’s never too late to migrate to the cloud. To get started, follow Gartner’s step-by-step guide for planning a cloud strategy.

Organizations Need Micro—Not Just Annual—Planning

The COVID-19 pandemic taught an important lesson: traditional annual planning isn’t sufficient to prepare for the future. Navigating unprecedented events requires looking at the most recent data impacting your company.

Dr. Barry Keating, professor of business economics and predictive analytics at Notre Dame, recommends “nowcasting”—conducting short-term forecasting with very recent data.

Ed Goldfinger, CFO at Quantum Metric, agrees.

“Only by looking at the data in a granular way can you really understand what’s going on in the business and draw the connections and the insights,” says Goldfinger.

The need for current data won’t go away after COVID-19. The future of work has changed and FP&A with it. With so many shifts in recent years, from workplace policies and company structures to digital transformation and constantly evolving markets, there’s always going to be a need for immediate, granular data to make accurate forecasts.

Microplanning requires the ability to pull and analyze data on the fly. A powerful cloud-based tool like Planful can make all the difference in increasing efficiency and productivity. Many companies have saved on close, budgeting, and reporting time as Planful eliminates manual processes through automation; easily migrates model structures, formulas, and formatting; and conducts ad-hoc analysis. The best part? You don’t have to learn new formulas—Planful works with existing spreadsheet formulas.

FP&A Involves All Corners of Business

Finance professionals aren’t recordkeepers—they’re business partners. Fulfill this role by keeping up with the latest FP&A trends, so you’re better able to predict how shifts might impact your company and its larger goals.
You’ll never be able to predict the future accurately, but you can boost the precision and speed of your FP&A with the right technology. If you haven’t already, consider investing in a powerful cloud-based tool to strengthen your company’s FP&A. Watch a short, on-demand demo to see how Planful can help.

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When Is It OK to Prioritize Business Growth Over Business Debt?

When Is It OK to Prioritize Business Growth Over Business Debt?

If you’re in finance, your instinct likely tells you to always protect the money—and your gut’s not completely wrong. But business debt isn’t always a bad thing.

It’s not uncommon for high-growth companies to use debt financing to achieve positive cash-flow status and fund business expansion. In 2019, global corporate debt held by non-financial corporations reached over 75 trillion U.S. dollars—that’s almost two trillion more than the previous year. In the United States, most companies hold business debt in the form of unsecured bonds.

Sometimes, it’s OK to take on healthy business debt for expansion. Investing in business growth now can help you inform future decisions. While there’s no magic formula to define what’s “healthy” debt, you can answer these questions to decide if your company is ready to prioritize growth over business debt.

Are You Putting Money Toward Competitive Drivers?

As Deloitte put it, “all growth is not created equal.” Business growth should give your company a competitive advantage.

Some growth investments aren’t necessarily competitive drivers. Mergers and acquisitions (M&A) can increase market share, but they require big upfront investments. Putting money toward M&A may not necessarily give a company an immediate competitive advantage or a worthwhile ROI.

Marketing and branding can also be questionable growth investments, as many companies tend to stretch beyond their means. It doesn’t matter how compelling your campaigns are—if your acquisition costs regularly exceed revenue, you could be in trouble.

If you take on business debt to grow the company, consider investing in the following three areas to give your brand an edge over other leaders in your industry.

  1. Cloud-based Technology

As more and more businesses use cloud-based services, now is the time to invest in this technology.

By 2022, 28% of enterprise IT spending will shift to the cloud. Last year’s pandemic has made cloud services even more essential. With worldwide spending on cloud computing forecast to grow by 18% this year, many companies already realize the value of cloud-based technology. Seventy-four percent of tech CFOs say cloud computing has the “most measurable impact on their business,” followed by the Internet of Things and artificial intelligence.

Planful’s Total Economic Impact study showed that the benefits of cloud-based services extend to financial planning and analysis (FP&A). An investment in Planful cloud-based FP&A capabilities increased productivity and capability for financial planning staff—leading to $731,630 in savings over three years without increasing headcount.

  1. Talent Acquisition

The employees you hire matter—a lot. In Inc’s Build 100 survey, more than 50% of respondents ranked “people/talent” as a primary driver of competitive advantage and identified that attribute ahead of nine other factors.

To build a strong workforce, you’ll need talented recruiters. From this perspective, your talent acquisition roles are also incredibly important competitive drivers.

A survey by Cielo Talent even revealed “a correlation between investing in a Talent Acquisition function and increasing profits by up to 20%.” Moreover, the study showed that “as a Talent Acquisition function matures (i.e., moves from Low to High Impact), so does an organization’s productivity and profits.”

  1. Customer Experience

Today’s customers don’t just want a great product or service. They want top-notch customer support, as well. According to Zendesk’s Customer Experience Trends 2021 report, “75% of customers are willing to spend more to buy from companies that give them a good customer experience.”

Put your money toward improving the customer experience to retain your existing clients, and in the process, attract more clients through word of mouth. If customers don’t have pleasant post-purchase experiences with your brand, they likely won’t want to buy from your company again. But if you offer superior customer service, you may be able to increase prices and see higher profit margins as a result.

Is the Company in a Fast-Moving Industry?

If you’re in a fast-moving industry, there’s likely continuous, high market demand—especially if you have a unique product that gives your brand a competitive edge. In this case, your company is likely in a position to grow.

A good indication that a fast-moving industry company is ready to grow is when it needs money to keep up with the demand. A company with retail distribution might have a massive purchase order in hand, but is slightly strapped for resources to fulfill the order.

Slow-moving industries (or slow-burn industries) generally involve a time-consuming manufacturing process and require a lot of capital to get going. It might take a long time to see a return on your growth investments, so companies should expand with caution.

How do you know if you’re in a fast or slow-moving industry? Fast-moving industries usually require continuous innovation to set your company apart from the rest. Your product likely exists in a pure competition market structure where the demand is high if consumers like the product and sales happen quickly. Some examples of fast-moving industries include food service/restaurants and consumer goods products that are durable, such as clothing, cosmetics, toiletries, and packaged food.

A good sign that a slow-moving industry company’s ready to expand is when it already has resources—such as labor, machinery, and raw materials—in place to meet current demand, without having to get into a severe cash crunch. Examples of slow-burn sectors include construction, metals, and petrochemical.

Do You Understand the Company’s Cash Flows?

In an ideal world, a company would be on stable ground before it’s ready to expand. Most of the time, this isn’t the case. Businesses expand without being cash-flow positive.

But that doesn’t mean cash flow shouldn’t be a consideration when growing. If you don’t have a clear understanding of your finances, it’s easy to overlook how scaling could dramatically increase costs—and potentially sink the business.

Overly optimistic projections contributed to WeWork‘s significant financial loss and failed IPO—a major step down from being one of the world’s leading unicorns. The company’s downfall is a lesson in the importance of truly understanding your cash flows.

A powerful FP&A tool can help you manage the company’s cash flows. Through accurate course correction, eliminating many manual processes, and providing detailed insight into cash flow from various activities such as financing and operations, Planful speeds up planning and decision-making.

With in-depth analysis and insight, it’ll be easier to decide if you need to cut expenditures, collect receivables sooner, or take action—be it taking on business debt or getting an investor—to scale or increase revenue.

Business Debt Should Inform, Not Determine, the Company’s Growth

Let’s face it: Growth often means debt. The key isn’t being afraid of debt—it’s often finding the right balance between the two. When it’s the right time to scale, you can begin figuring out how to go about expansion—whether it’s through debt or equity financing.

Plan Your Business Growth with Planful

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Empathy in FP&A: Stacy Brown, Senior Manager at UHY Consulting, on the Being Planful Podcast

Stacy Brown, Senior Manager at UHY Consulting, joined me on the Being Planful podcast to talk about empathy, FP&A, and technology. UHY is an implementation specialist focused on creating sustainable and transformational change for their clients. The company is also a Planful partner.

In this episode, Stacy and I explore how her training in Finance gives her an edge in helping companies not just dissect their challenges, but also find the right solutions. Stacy’s approach starts by balancing a client’s macro business goals with individual FP&A pain points. It then ultimately uses technology to give FP&A more time to focus on what’s really important, even if that’s as human as being done with work in time for dinner.

Here are a few highlights of this episode.

“Best” Isn’t Always Best for You

Stacy has led over 100 technology implementations, specifically focusing on finance, ERP, and related systems. What makes her skilled at solving problems for Finance is that she’s an accountant by education. Using that knowledge in her role at UHY, Stacy works with FP&A to grasp their challenges so she can help them find the best technologies to make them go away.

“Consulting is about listening to understand and empathize with the client and their frustrations, and then find a solution for it,” said Stacy. “I’m trying to understand because every organization is different. Understanding what their end goal is and getting them there is the whole idea.”

The way Stacy explains it makes it obvious, but also makes you question the value of a “best practice.” Where clients frequently ask, ‘What have you seen?’, her answer always includes why that specific scenario will or will not work in the client’s case. It’s how Stacy guides clients to the best decision, no matter what other companies might have done. 

But Some Things are Universal

Being involved in so many implementations has surfaced some common success factors, if not best practices. What Stacy has seen as a consistent sign of success or failure is the speed in which the technology is deployed and gets into the hands of FP&A. 

“I tell every client this: I see more success the faster a client can get into the tool and start working with it,” said Stacy. “That’s those who really dive in, learn all they can about the tool, and let the tool work for them instead of them working against it.”

To help accelerate that process even more, Stacy advocates for bringing FP&A teams into the process earlier. Those who are going to be hands-on with the solution, more so than the CFO, are the ones whose work-life balance will be positively impacted. If they can see and understand the efficiencies to be had well before deployment, it makes for a smoother and faster adoption. It’s putting the value into human terms, and having empathy, that helps Stacy sell the value to the frontline FP&A teams. 

“I was doing an implementation of Planful, and FP&A was working through lunch, jumping between their board decks and their ERP system,” recalled Stacy. “Now they don’t have to do that. They have confidence in their numbers. If you leave Excel and you use the technology, you’re no longer stressing about, ‘Is my number wrong?’”

Turning Understanding into Goals

Stacy works empathy into her conversations with executives, too. Business leaders sometimes push their organization towards a broader business transformation goal without necessarily understanding the steps individuals have to take to get there. But that wholesale approach can actually slow down the deployment and adoption of a new technology. 

“That’s not how you get user adoption,” explained Stacy. “If you break it down into smaller pieces, and get team members comfortable with smaller pieces, that makes the tool more successful as a whole. It allows the executives to then promote the tool and how great it is across the organization.”

Leaders should then be more engaging with their teams, according to Stacy, to help ensure transformational success. They may find more opportunities for change, where their limits of flexibility can or cannot be pushed, and what the true priorities should be. That understanding must extend up and down the organization, and only by listening with empathy can leaders best position transformational projects for sustainable success. 

Subscribe to Being Planful

To hear more about empathy, considering the human element in technology implementations, and the latest trends Stacy is seeing in FP&A transformations, listen to episode #9 of Being Planful

This podcast series explores the benefits of adopting a “Planful” mindset by inviting your FP&A peers, analysts, industry experts, and more, to share their experiences and insights. Podcasting also lets us stay socially-distant while giving you a more flexible way to learn about Continuous Planning, whether it’s watching it on your phone, listening during your morning run, or tuning-in whenever it’s convenient.

If you’d like to subscribe, click on your podcast platform of choice (Apple Podcasts, Google Podcasts, Stitcher, or Spotify), or just search for “Planful” wherever you listen. I’ll be releasing new episodes often, so be sure to subscribe. And, if you have any comments, questions, or think you’d make a great guest, send me an email at beingplanful@planful.com.

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Being Planful: Helpful FP&A Resources

Being Planful: Helpful FP&A Resources

The world really has changed, and now most CFOs are talking less about what’s changed and more about how to leverage that change. Data continues to be the logical key to success. But, finding ways to use your growing mountains of data continues to boil down to continued digital transformation, the harnessing of artificial intelligence, and building smarter teams and business processes to take advantage of the changes in how work gets done. To keep you current, below are a few insights into how Finance and FP&A leaders are moving forward. We’ve found these articles helpful and we hope you do, too.

The New FP&A

Deloitte / WSJ: Business Orthodoxies to Challenge in 2021

Much has changed over the past year and many of those changes are here to stay. That puts CFOs in a unique position to rethink how Finance operates. Taking a broader, more proactive role within the company positions Finance to provide guidance on digital transformation, growth opportunities, diversity and inclusion, and even information sharing. “For CFOs, challenging these often deeply embedded viewpoints can lead to opportunities to create value and drive their finance agendas.”

CFO: CFOs Want FP&A to Marshal Value Creation

Crafting the story behind the numbers has always been the job of FP&A. But, if you can spend more time working and collaborating with the business to actually create and manage those numbers, Finance can have more say in how the business operates and makes decisions. That’s especially helpful in today’s fast-changing and uncertain world. “(The business needs) an operating thought partner and not someone that is just keeping score.”

Diginomica: What FP&A teams need to know about AI/ML

More data isn’t always good, especially if it blocks the view of what’s really important. But, advances in artificial intelligence and machine learning (AI/ML) help sift through those mountains of data to surface important signals, especially for FP&A. These technologies are living up to the hype to improve financial forecasts, highlight anomalies, and provide increased decision-making confidence. “AI/ML applications not only save users hundreds of hours every month in manual labor, but also help craft logical, big picture stories about what’s really happening in the business.”

Digital Transformation

Harvard Business Review: How Midsize Companies Can Use Data to Compete with Digital Giants

Midsize companies might not have unlimited resources, but they do usually have the agility and speed necessary to beat bigger companies to the punch. These companies are finding that focus, alignment, and deft organizational management are what makes the difference, even if they don’t have the same data volumes as their larger competitors. “Use the data you have readily available to identify your profit peaks and profit drains and strategically align your organization around your profit core.”

CFO: Think of Digital Transformation as Modular and Nimble

Not so long ago, digital transformations were big, expensive, and disruptive. The cloud has changed that, and smart CFOs now view transformation as modular and targeted. Today, it’s relatively easy to transform or automate a single process and foster concrete business benefits in just a few weeks. And, in a short time, a few incremental improvements can create significant and lasting value. “Technology has evolved to allow for this more nimble, sequenced approach.”

Gartner: Finance analytics to motivate decision making

Being data-driven is table stakes in business today. But, the resulting insights shouldn’t be kept just to Finance. Instead, financial data should be used as a springboard for working more closely with the business. “Gartner recommends organizations shift finance analytics from passive, standardized reporting to more engaging, relevant guidance that encourages dialogue and discussion.”

CFO Thought Leadership

Diginomica: 5 CFO skills that will help finance leaders meet today’s new challenges

Speed and agility are what’s going to separate the leaders from the laggards in 2021. New challenges and opportunities will constantly emerge, but only those who have the insights to act quickly will win. That gives the CFO an opening to become the strategic center of decision-making and growth. “Once considered a numbers-only role, Finance is now balancing traditional responsibilities with growing demand for data-driven analysis and insights, risk management and other key business functions.”

CFO Dive: Survey: Most financial executives not planning to use bitcoin as corporate asset

Bitcoin is fast becoming a household name and an interesting investment opportunity for businesses. We can thank Elon Musk for both. But, continued (and incredible) volatility is keeping CFOs from jumping on this digital currency bandwagon. At least for now. “Eighty-four percent of financial executives said this month that they do not plan to ever include bitcoin among their corporate assets.”

Stay Tuned for More Useful FP&A Content

Check back for these occasional resource roundups with links to timely, helpful, and thought-provoking content for FP&A and CFOs. If you have comments, questions, or suggestions, please engage with us on Twitter, LinkedIn, and Facebook.

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