What Is Financial Planning and Analysis (FP&A)?

How often do you really analyze your business’ finances? You probably check in once or twice a month to make sure you have enough in the bank to pay your bills for the next month, but do you really understand your cash flow? Can you give an account of your current financial standing, much less where you can expect to be in six months? A year?

Checking in on your cash flow is a great first step, but if you’re going to make sure your business is financially viable, you first have to understand what is required for your business to be financially viable. Then you need to know how to analyze your financial information so you can determine the financial viability of your company. Let’s take a closer look at what this really means.

What Is FP&A?

When done right, financial planning and analysis should give you a big-picture view of your business finances. This is accomplished by taking a comprehensive look at your company’s past and present financial states in order to get an idea of the best steps to take next for a successful future. More specifically, the steps involved in financial planning and analysis consist of:

Assessment: This is where you take a look at the money coming into your business and the money you spend on your business, both in recent months, and going back to when you started your business. This gives you a sense of your cash flow, as well as how profitable your business has been.

Forecasting: Once you understand where you’ve been and where you are, you can start to make predictions about the financial state of your company for the next month, next quarter, next year, etc.

Budgeting: There’s something to be said for the fact that it takes money to make money, but that’s not an excuse to spend way beyond your means. Once you’ve taken stock of your current financial situation and made predictions for the future, you can outline a budget for your business going forward. Understand what your necessary expenses are going to be, but when it comes to investing in those big projects, make sure you have the money to invest in them before you commit to anything.

Keep in mind that your salary counts as a necessary expense. Many people who own their own businesses pay themselves whenever they have some money left over in their business account, but that’s not a healthy financial practice for your business or your personal finances.

Need Some Help with Your FP&A?

As important as it is to regularly conduct financial planning and analysis for your business, it’s something that frequently falls by the wayside when you’re running your own business. In the midst of all the plates you have to keep spinning, sometimes it’s all you can do just to check in on your cash flow. At the same time, you might not have the budget (or the need) for a full-time CFO. That’s where our services can help.