What is financial planning and analysis (FP&A)?

Financial planning and analysis includes a range of activities, such as preparing budgets, forecasting future revenue and expenditures, analyzing financial data, and creating financial models to guide business strategies and decisions.

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What is FP&A?

FP&A, short for financial planning and analysis, refers to the process of planning, forecasting, budgeting, and analyzing financial data to inform business decisions. FP&A is critical for minimizing risk, identifying growth opportunities, and ensuring your company’s financial health.

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The FP&A process plays a key role in your business’s success because it helps your leadership team ensure the company is moving in the right direction to meet its financial goals. FP&A teams help leadership:

• Analyze the results of strategic plans and investments, and predict what might need to change within the entire business unit
• Build strategic budgets, whether at the business or department level
• Create and update forecasts of the business’s future financial performance

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Core functions of FP&A

The FP&A process consists of three main functions: budgeting and forecasting, financial modeling, and performance monitoring. Here’s a breakdown of what each function entails:

1. Budgeting and forecasting

Budgeting and forecasting involves creating a detailed financial plan (i.e., budget) that outlines expected revenues, expenses, and resource allocation over a specific period, typically a fiscal year. Forecasting complements the budgeting process by providing updated projections based on actual performance, market trends, and changing business conditions.

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Together, these processes help your organization anticipate financial outcomes, track performance against goals, and adapt to changes. They form the foundation for informed decision-making and ensure alignment with your business goals.

2. Financial modeling

Within the context of FP&A, financial modeling means building quantitative models to estimate your business’s financial performance in different scenarios. These models incorporate key variables like revenue, costs and expenses, capital expenditures, and market trends to project your future results.

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Financial modeling is essential for predicting the impact of your financial decisions on profitability, cash flow, valuation, and more. Overall, it helps your business make data-driven decisions and prepare for different financial outcomes.

3. Performance monitoring

Lastly, performance monitoring in FP&A involves tracking and analyzing your business’s financial performance against the budgets and forecasts you initially produced. It involves reviewing and interpreting results to address gaps and capitalize on strengths.

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This function ensures business leaders stay informed about progress toward goals and helps you change course as needed. By continuously monitoring performance, the FP&A team helps drive accountability and improve results.

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The FP&A process in a nutshell

Now that we’ve reviewed the core functions that make up FP&A, let’s take a look at how the process works from front to back:

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1. Data collection and preparation: Gather financial and operational data from various sources, including your ERP, accounting tools, and expense management software, ensuring it’s accurate and up to date. Clean and organize the data as necessary so it’s ready for analysis.
2. Data analysis and modeling: Dive into the collected data and analyze it for trends, patterns, and anomalies. Then, use it to build financial models that project future outcomes across different scenarios. This step gives you a deeper understanding of your financial performance and helps guide decision-making.
3. Presentation and recommendations: Organize your findings into easy-to-read reports or dashboards, using visuals like charts and graphs to make the data easier to digest. Summarize your key findings and what they mean for the business, then present actionable recommendations, their expected impact, and how they support your goals.
4. Iteration and review: Incorporate feedback from the presentation, refine your models, and update your findings as new data becomes available. The FP&A process is never truly done; this step ensures it remains dynamic and relevant to changing needs or market conditions.

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FP&A professionals: Roles and responsibilities

FP&A teams can look very different from one company to the next, typically based on the size and maturity of the business. At new startups or small businesses, the head of finance may take on most FP&A responsibilities. In larger companies with established finance teams, there’s usually a full FP&A team that reports to the CFO.

While the exact titles may vary, these are the major roles on an FP&A team:

• FP&A analyst: This junior-level role is mostly focused on the day-to-day work of collecting and analyzing data, building financial models, and preparing reports
• Senior FP&A analyst: At a senior level, an analyst is responsible for more complex analyses and models. They typically work more closely with managers and may also mentor junior analysts.
• FP&A manager: The manager oversees the team, aligns FP&A with overall business strategy, works cross-functionally with other stakeholders, and presents key insights to leadership. They’re responsible for ensuring forecasts and budgets meet business goals and support decision-making.
• Director or VP of FP&A: The head of the FP&A team sets the vision for the FP&A function and aligns it with corporate strategy. Typically reporting directly to the CFO, this senior finance leader collaborates with other executives across the company to provide strategic guidance and support long-term financial planning.

How does FP&A compare to other financial roles?

While many financial roles are built on a similar foundation, they have a very different organizational focus and often require different skill sets. Here’s how FP&A compares to other roles on the finance team:

FP&A vs. accounting

FP&A and accounting play complementary roles in financial management. Accounting roles are responsible for recording, classifying, and reporting financial data to ensure accurate and compliant financial records. In this way, they’re focused on historical data.

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In contrast, FP&A is forward-looking, using past financial data to create budgets, forecasts, and analyses that support decision-making. Put simply, accounting focuses on “what happened,” while FP&A focuses on “what could happen” and “what should we do.”

FP&A vs. financial analyst

The main difference between financial analysts and FP&A analysts lies in their core focus: As we covered above, FP&A analysts are responsible for your company’s internal planning and forecasting, while financial analysts use historical data to evaluate investment opportunities.

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Financial analysts often work in investment banking, private equity, or corporate finance roles. FP&A analysts can work across industries, focusing instead on business operations and financial strategy by planning and forecasting for different scenarios.

FP&A vs. controller

Controllers are primarily responsible for your business’s accounting operations, so the differences between FP&A professionals and controllers are similar to the comparison above where we discussed accounting vs. FP&A.

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Controllers ensure accurate financial reporting, compliance, and establishing and enforcing internal controls. FP&A professionals focus on the future of your business’s finances, analyzing financial performance to support decision-making.

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3 primary financial statements for FP&A

FP&A teams rely on three key financial statements to accomplish their goals:

1. Profit and loss (P&L) statement
2. Balance sheet
3. Cash flow statement

Each serves a unique purpose on its own, but together, they enable FP&A teams to perform financial modeling and forecasting.  

P&L statement

The P&L statement is a critical tool for aligning financial planning with the company’s strategic goals. Also known as an income statement, this document summarizes your company’s profitability. It highlights key metrics like revenue, expenses, and net income (or loss), enabling FP&A professionals to assess your business’s financial performance.

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The simplest formula for a P&L statement is:

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Net Income (or Net Loss) = Revenue - Expenses

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This information serves as a foundation for creating budgets and forecasts, helping FP&A professionals identify areas for cost optimization, revenue growth, or investment. For example, an FP&A analyst could use the information on your P&L statement to project how your business might perform if you strategically reduced certain operating expenses (OpEx).

Balance sheet

While income statements show financial results over a specific accounting period, the balance sheet provides a snapshot of what your company owns and what it owes at the end of a reporting period. The balance sheet lists your company’s assets, liabilities, and equity—in other words, it tells you how much your business is worth at a given time. 

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FP&A professionals use this information to evaluate the company’s financial stability and resource allocation. For example, FP&A could use the balance sheet to model the impact of a different cash flow management strategy.

Cash flow statement 

Your cash flow statement tells you how much money is flowing in and out of your business, as well as how much cash you have on hand in a specific period. It provides insights into your business’s liquidity, operational efficiency, and changes in assets, liabilities, and equity.

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FP&A professionals use the cash flow statement to assess your business’s ability to meet your short-term obligations, fund long-term operations, and invest in growth. For example, FP&A can forecast future cash needs based on how quickly your business ramps up operations.

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Strengthen your FP&A function with Ramp

FP&A teams are only as good as the data they have available. If your financial data is outdated, inaccurate, or spread across disconnected tools, it’s a lot harder to produce useful results.

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That’s where Ramp can help. Ramp’s modern corporate cards come with expense management software and financial reporting tools built in, giving you real-time access to every business transaction. And with Ramp’s accounting automation features, you can sync transactions to your ERP or accounting tools automatically, ensuring your books are always accurate and up to date.

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Learn more about how Ramp’s accounting automation software and extensive integrations empower your FP&A team.

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