FP&A vs accounting: Why accounting alone is not enough for financial planning

Financial, Planning, and Analysis Accounting or FP&A Accounting isn't ordinary Accounting. Still, it is a much broader concept that includes financial decisions, planning, and analysis FP&A in addition to financial accounting.

It doesn't have only "record-keeping" of the financial statements, but it also checks the reasons and context too, whether small business startups or large companies. FP&A Accounting also forecasts the future based on records.

What is FP&A?

FP&A refers to any company's three crucial financial objectives, namely Financial, Planning, and Analysis. It is comprised of four main parts.

  1. Planning and Budgeting
  2. Financial Planning
  3. Management and Performance Reporting
  4. Forecasting and Modeling 

FP&A helps plan and perform budgeting, forecasting, and analysis of different companies. It helps retain the financial health of a company. Mostly the critical financial decisions of the company are then based on them.

The professionals working in FP&A observe, collect, and analyze the corporate financial data and then create reports to answer different financial questions, match their understanding and take action accordingly by the CFO, CEO, and Board Directors of the company, respectively. 

Growing a company with profitable margins requires much more than just "Accounting." Careful corporate financial planning, understanding the economic environment, keeping a check on the cashflows, and managing the company's finance all come under the field of FP&A. To understand FP&A, it must be distinguished first from Accounting.

What is the difference between FP&A and accounting?

Accounting and FP&A are not too different from each other. They work in the same domain, but their work fashion is different from each other. The "Accounting Department manages all the financial transactions of a company" while the "Financial Planning & Analysis Department" works on the reasons behind those transactions.

In simpler words Accounting team manages the "what" of the company's financial transactions, and the FP&A Teams work all the "why" of those transactions. 

Following economic and business trends

For sure, various patterns have changed the battleground, particularly for specialty units or products offering FP&A experts. The rising recurrence and extent of financial instability (for instance, production network disturbances, work deficiencies, etcetera) have placed more tension on customary FP&A cycles and groups, designed for quarterly and yearly cycles instead of constant difficulties.

Furthermore, FP&A groups should manage a steadily expanding measure of business information that, this way, requires more compromise and combination before the significant business experiences can be considered into financial plans, figures, and marketable strategies.

Instead of clasp under the heaviness of these patterns, some driving edge FP&A groups involve them as an impetus to develop further how they work and support technique improvement.

They are putting in new advances, tapping new wellsprings of information and kinds of ability, and sending off new detailing processes so they can work quicker and more astute — with greater responsibility and adaptability.

We have likewise seen such groups reexamine how they create essential business experiences — and how they present those bits of knowledge to authority groups and engage them to take intense actions.

Building an Effective FP&A Team

All businesses employ accountants, but some don't have anyone dedicated exclusively to FPP and AP. FP&A teams can be divided up a great deal. It may be a part of just the controller's job in a small company, but a more prominent firm may be staffed by several hundred FP & A employees. The role of FP&A typically consists in adding new staff if the organization becomes increasingly complicated by the number of operations, subsidiaries, departments, and international operations. It's also why some firms just started developing resources for FP&A, while many have a highly efficient team that regularly provides strategic reports to the C-suite.

Roles of Accounting Managers and FP&A Managers:

Accounting Managers:

Accounting managers have a bunch of different responsibilities. It includes keeping the record of the company's invoices, such as sales and purchases, bills, orders, cash flow, receipts, balance sheets, different invoices, and other disbursements.

Accounting Managers check and analyze key financial metrics on the company's reports and take action to improve business procedures. Their role also includes of keep checking on the long-term and short-term financial models, tracking financial planning, and preparing annual budgets for the company.

FP&A Manager:

FP&A Managers or a corporation's financial analyst professionals utilize the company's financial future by analyzing and examining the corporation's financial activities. They evaluate the whole corporate activities and map out all the critical outcomes for the future.

Another main job of FP&A Managers includes forecasting. They also review past company performance-based analyses. They have to see the global market's current economic and business trends, compare them with the company, and then predict and forecast the company's future.

FP&A Skills with financial data and financial statements:

The primary skill required in FP&A is to be good at math and numbers. That's the same reason why this field comprises many former accountants. Other skills needed in this area are sales, marketing, human resources, and operation. The manager working as FP&A Manager must be comfortable in using his skills accordingly. 

Since FP&A isn't a "record-keeping" practice, the corporate financial analyst must have the know-how of MS Excel and work with Spreadsheets or any similar software. They need to know about different formulas and strategies required to produce a set of informative results from the raw data.

FP&A financial Analysts must see how the Enterprise Resource Planning or ERP system works to function and report different types of complex data and analysis.

FP&A team members should have good communication skills to easily connect with others. Their good partnership skills will help them in conveying their messages to others.

Their problem-solving technique will play a key role in making decisions related to the company's future and business progress and development. It will also help other business partners share and collaborate in a business-friendly environment.

FP&A Responsibilities:

Profit and Loss:

The FP&A team and manager is responsible for keeping a record of Profit and Loss (P/L) statements, board reports, variance reports, and statement of cash flow.

They are also responsible for finalizing these reports by calculating the data from different departments. There is software available also to manage these (P/L) queries; to know more about their features and functions of them, visit SaasHub.

Profit Distribution:

FP&A team can also see what departments are making a profit and how much. They are also responsible for checking the contribution of different departments in generating net profit.

Budgeting:

Budgeting is one of the primary responsibilities the FP&A team holds. It includes financial planning and analysis of the budget and forecasting the company's future financial performance.

Budgeting requires going through financial reports and allocating money accordingly. At the same time, forecasting means creating financial models within the business and industry and comparing them with the economy that impacts revenue and profit.

Scenario Planning:

Scenario Planning is a process in which FP&A employees view the best and worst cases of the company by entering different volumes and sales to see the expected result of financial position.

Based on those expected company's future financial results, a company can predict the steps to be taken and precautions to make with the help of any financial analysts. FP&A Financial Analysts are also responsible for the Scenario Planning of the company.

Ad-hoc Reporting:

Ad-hoc Reporting are regular reports generated upon the request of the Chief Financial Officer (CFO) or Controller. These on-demand reports provide a more comprehensive view of a business department or a particular KPI. The FP&A professionals are also responsible for the Ad-hoc Reporting and its recommendations.

FP&A and Accounting are two sides of a coin, and each requires a different skill set to excel. The company that manages FP&A wells seems to have more chances of being a profitable company than the one which takes it lightly. To know more about the accounting departments in detail, Visit AFPONLINE.

Do you need a CPA for FP&A?

Most current staff in the FP&A team are finance or accounting undergrad majors with various qualifications (CPA, GCMS, CFP) or MBAs. They most likely already had experience in accounting or audit before moving on to finance and operations.

Is FP&A part of managerial accounting?

The financial analysts use analysis platform includes reporting and analyses planning, budgeting, forecasting, and financial modeling and is essential parts of the management accounting literature.

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