Untapped Potential of Financial Planning & Analysis to Drive Business Value

Untapped Potential of Financial Planning & Analysis to Drive Business Value-min

Aside from being a legal requirement in most countries, financial planning and analysis (FP&A) is critical, especially for modern businesses. When leveraged properly, it could play a strategic role across your enterprise by supporting your company’s financial health.

Without strategic and operational planning brought by FP&A, your company will struggle to reach its full potential. According to the 2019 Statement on Management Accounting by the Institute of Management Accountants, “Few processes within the purview of a CFO have so much potential to create or destroy business value than FP&A.” 

Furthermore, today’s dynamic business environment demands CFOs and finance professionals to continuously adapt their FP&A framework. The massive challenges and obstacles brought by the pandemic in 2020 also forced companies to quickly evaluate their liquidity and ensure that they could ride out the disruption while remaining intact.

FP&A has untapped potential that can be leveraged by expanding its role to drive continuous financial and operational planning for your business.

Making accurate forecasting

After the pandemic has shifted the paradigm, traditional financial planning no longer makes the cut. Legacy methods, like having massive independant spreadsheets that anyone can access and edit, give your management reports a shaky foundation. With tools such as Essatto, FP&A departments are able to produce secure and accurate forecasts in significantly more detail to make insightful, data-driven decisions.

CFOs know that “great” forecasting means it is fast, accurate, secure, and comprehensive. Forecasts influence cost containment initiatives, resource allocation, and even market strategies.

Scenario Planning

Modern FP&A involves a more agile and strategic planning approach involving scenario-based planning. On top of leading the budgeting process, you have to analyse variances and be forward thinking by preparing multiple versions of projections that identify opportunities and threats and consequently accelerate appropriate decisions. 

While it’s not a new approach, scenario modeling is evolving and becoming more effective in modern FP&A. It enables FP&A to be proactive by providing business decision-makers with a rich data set of multiple scenarios.

Scenario modeling is multidimensional, showing you the numerous uncertainties that exist in your business environment. It reduces the limitations of traditional forecasting where the longer the forecast period is, the more uncertainties there are that reduces your abilities to make predictions.

For example, you can change some variables (like forecast sales volume and mix) in your sensitivity analysis to calculate projected profits. With this data, regardless of potential pitfalls in the future, businesses are informed and can adapt their operations in light of this additional knowledge.

Guiding operational decision-making

Having a strategy and long-term mission is important. But it’s just as crucial to know how to execute that strategy into action through your daily operations. While strategic planning gives you a destination, operational planning provides you with a road map to get there. By unifying your operational planning with your FP&A strategy, you can outperform competitors and meet, or even exceed, your long-term, high-level goals.

Successful companies have their financial and operational planning tightly integrated. To align your operational planning with your FP&A, you must:

  • Match your plan with your budget – To prevent a lack of resources, determine the help you need to execute the operational initiatives and include them in the budget.
  • Monitor progress – Conduct regular reviews to assess your financial performance and gain insights on how your operations can impact your financial results.
  • Be agile and proactive – Beyond forecasting, FP&A gives you actionable information to steer your operations back on track when things don’t go according to plan.

Raising and managing funds

In today’s competitive world, raising capital and debt is essential for organisations large and small to ensure ongoing commercial success. FP&A helps you grow your business by supporting capital and debt raising activities. 

An appropriate financial forecast can provide your business with financial statements comprising profit and loss, balance sheet and cash flow which can be used for business valuation. This helps you prove to investors that your business is profitable (or you will be in the future) so you can gain required funding. Additionally, accurate Budgeting & Forecasting is crucial for potential investors to build trust. Investors look at your balance sheet, profit & loss, cash flow, and retained earnings to evaluate your company’s performance.

Reducing frauds and risks

Access to in-depth data and predictive capabilities empowers you to significantly mitigate financial risks. FP&A provides you with the opportunity to recognise potential dips in performance and discover negative patterns. In turn, you can quickly take action to prevent critical financial tragedies across the board.

As per PwC’s Global Economic Crime and Fraud Survey 2020, 46% of companies from different sectors have become victims of financial fraud in the last two years. This calls for you to protect your business from fraudulent financial activity, both internal and external.

With FP&A and leveraging tools like Essatto, you can frequently conduct analysis and benchmarking. It gives you a quick response approach to detect any abnormalities and investigate them immediately. As a result, you can tackle the issue and decrease or even eliminate financial damage.

Integrated ERP and Planning

FP&A drives transformation initiatives for your organisation. It increases business agility, simplifies processes, and supports data-driven decision-making. Furthermore, today’s modern cloud solutions equip FP&A teams to analyse and monitor data and ensure smarter and faster business decisions.

Hence, it’s unsurprising for many businesses to deploy integrated ERP such as Odoo and Enterprise Performance Management (EPM) solutions such as Essatto to remove disparate systems, produce accurate budgets and multi-scenario forecasts and ensure confidence in the numbers both past and future all from a single source of truth.

Untapped Potential of Financial Planning & Analysis to Drive Business Value
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