Corporate FP&A teams use both quantitative and qualitative analysis of all financial and operational aspects of a company to evaluate the company’s progress toward achieving its financial goals and to map out future goals and plans. FP&A Managers utilize financial and economic trends to review past company performance and attempt to predict opportunities and anticipate challenges, all while working towards forecasting a company’s future financial results.
The FP&A team is numbers-oriented, but also requires a great deal of communication skills. The FP&A manager must be able to clearly explain specific financial concepts at a high level for busy executives. He or she must be able to work with all departments within the company on revenue or expense targets, while also providing guidance on how to stay on track with the overall plan. In order to do this, the FP&A manager must work with his FP&A team, department heads, and business leaders to manage company performance. FP&A teams can do so by leveraging these four essential reports techniques.
1. Department Budget vs. Actual Reports
Every department in the business is responsible for a budget. Throughout the month, department managers need help from the FP&A team to understand how actuals are tracking against their budget targets. The FP&A team has the job of tracking departmental actuals against budgets, capturing commentary from department managers that explains any variances, and communicating the status to the executives. By sending out Department Budget vs. Actual (BvA) Reports each month, FP&A teams can collaborate with department managers to quickly identify large variances in expected business performance, and proactively take steps to fix the situation. This also gives the FP&A team access to all the information they need to report the state of the business up to the CFO and other executives.
2. Short Term Cash Flow Analysis & Forecasting Reports
The goal of cash flow forecasts is to predict future financial liquidity and cash collection over a specific period of time. “Short-term cash flow forecasting is based on actual cash receipt and disbursement data, while long-term cash flow forecasts are projections based on data from the income statement and balance sheet.” – (Chron). FP&A managers should be sending out a weekly short-term cash flow analysis report to every business function that has the ability drive cash collection. These reports track period-to-date activity against cash collection goals to anticipate where the final results will land for the period. That way, the FP&A team can collaborate with business managers to quickly spot issues and opportunities to improve the cash position and collection metrics. They can then take those recommendations to the executive team and advise them on real actions the business can take today to improve the cash position of the company. This is a high-impact value add to the organization.
3. Operation Review Reports
Financial analysts are also financial planners. Their goal is to collect and analyze data and take those insights to advise the company’s management team and business leaders on the most efficient means of improving business performance. Financial models are tools to help evaluate different scenarios and make educated business decisions based on a variety of potential options. These decisions can include investing in a new market or launching a new product line, hiring more staff, or evaluating a merger or acquisition. FP&A managers should provide operational review reports to line-of-business managers that enable them to model what-if test scenarios, analyze different outcomes, and choose the best course of action, and then track the progress of the project to see how the actuals compare to the original targets. This gives the team the ability to quickly spot problems and take corrective action.
4. Tie Together the Three Financial Statements
Corporate FP&A professionals have to be able to read and understand the company’s financial statements: Income Statement, Balance Sheet, and Statement of Cash Flows. A good FP&A team not only understands the meaning and implications of each individual financial statement, but also knows the larger picture of a company’s overall financial health. Financial statements are a big part of what C-level executives base their decisions on and for public companies what the shareholders and analysts monitor. The FP&A team has to know these numbers cold, and the FP&A team should be using these reports as analysis tools to identify opportunities to improve business operations and company performance.
Accurate reporting is fundamental for strategic decision making
FP&A managers and analysts oversee a broad range of financial activities. Unlike accounting teams who primarily oversee recordkeeping and closing the books, the FP&A team is charged with examining, analyzing, and evaluating the entirety of a corporation’s financial activities, and mapping out the company’s financial future. For public companies, the role of the FP&A team is especially important because management teams need to provide growth guidance to shareholders and analysts based on the forecast projections prepared by the FP&A team. Creating the infrastructure for more meaningful and accurate reporting and analysis enables the leadership team to better manage the company’s resources, make better decisions faster, and optimize future financial results.
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