ESG finance guide: Unlock the value of your sustainability reporting
Click here to view details
By Laryssa Reifel, FP&A Professional and Founder at FP&A Expertise
To provide the best support to the business leaders, FP&A needs to quickly leverage the accounting information at hand. Especially during hard times, business is hungry for insights from financial results and the pressure on FP&A increases tremendously.
This article covers three critical aspects of telling the business story behind the numbers:
Financial results without context not only leave room to interpretation but can also result in poor business decisions. Before providing any recommendations, FP&A leaders are expected to do their homework by analyzing the current business situation i.e. comparing plans and forecasts with the previous year, assessing changes in the accounting regulations, competitive positioning of the organization and etc.
For example, when a product line has poor top-line performance but promising margins there can be multiple explanations such as:
It is also possible to have a combination of several reasons listed above.
The context can be very different and if it is not taken into account, the financial results alone will not be very helpful to the business.
Accounting and finance are often described as two different activities. One is backwards-looking while another one is forward-looking. The contextualization of the results is possible only if there is a strong partnership between these two functions.
To become successful business partners, FP&A needs to foster mutual respect and a high level of communication. Some useful methods for enhancing the partnership include:
Organizations should strive to not only develop annual operating and long-range plans but also to attempt to operate in alignment with those plans.
With the advent of COVID-19 most 2020 annual operating plans went in the circular file and we all witnessed (i.e. learned) in real-time how to adjust and make new plans quickly.
Here are some ways FP&A communicates important insights in a quickly shifting environment:
The above mentioned three steps become a cycle that repeats itself while the economic environment is uncertain.
FP&A can achieve better results by providing context, collaborating with accounting and creating different scenarios with rich insights.
The COVID-19 crisis has taught us all about the unexpectedness and how to react to unplanned events. We have very quickly moved from theoretically modeling three-year plans based on assumed growth rates and potential investments to completely shifting the paradigm and structure of a given business outlook in the next 18 months.
As FP&A professionals we are executive thought partners and that partnership has never been more critical than it is now.
Knowing your numbers is a good starting point for an FP&A professional. But it is also...
The quality of a decision is a question about what data or lack of data the...
To paraphrase the concept of Occam's razor, simpler explanations are generally better than more complex explanations...
Today’s finance department is a weaved together mix of shared service centres, centres of excellence, outsourcing...
We will regularly update you on the latest trends and developments in FP&A. Take the opportunity to have articles written by finance thought leaders delivered directly to your inbox; watch compelling webinars; connect with like-minded professionals; and become a part of our global community.