FP&A is a process of thinking and learning about how companies earn income and generate cash flows.  In order for this process to be effective a bridge between planning and analysis is necessary.  I learned about the importance of this bridge early in my professional life.

Many years ago I worked for a retail company that had over 250 stores in the United States.  During my employment I received a number of requests for information and one request to this day stands out to me.  That request was to determine the reasons for a store’s decline in profitability.  One’s reaction to this request is a simple review of the store’s income statement.  During my review however I found a problem.  The problem was the contents within the income statement, i.e. transactions were recorded incorrectly or transactions were not recorded at all.  The discovery of this problem developed a rule: one must understand what before understanding why.

The ability of FP&A practitioners to understand what comes from financial reporting.  Financial reporting can help people understand what by describing transactions through financial statements.  What FP&A practitioners may not realize is they can contribute to the quality of financial statements through the financial planning process.  Financial planning can stimulate thinking about how revenues can be earned.  Financial planning also can stimulate thinking about how expenses can be incurred.  In addition financial planning can stimulate thinking about how cash flows can be generated.  FP&A practitioners, therefore, can add value to their work by linking the process of financial planning to the process of financial reporting.

After a solid foundation for understanding what is established FP&A practitioners can focus on learning about the financial activities within areas under review.  FP&A practitioners can focus on elements within financial statements to assess profitability.  FP&A practitioners can focus on elements within financial statements to assess liquidity.  FP&A practitioners can focus on elements within financial statements to assess solvency.  Assessing profitability, liquidity, and solvency cannot be hindered by inadequate financial statements.  Inadequate financial statements are the result of flaws in the financial reporting process.  FP&A practitioners, therefore, can add value to their work by linking the process of financial reporting to the process of financial analysis.

People within the production, selling, and administrative functions perform tasks that affect the profitability, liquidity, and solvency of businesses.  Tasks that improve profitability, liquidity, and solvency can be influenced by FP&A however FP&A must have a bridge between the tasks of planning and analysis.  The bridge between these tasks is financial reporting.