What is Financial Planning & Analysis?
Financial planning & analysis (FP&A) is the process of creating a company's long-term financial strategy by evaluating and analysing the current assets, liabilities, expenses, and income.
Financial planning and analysis managers are in charge of running the annual budgeting process and producing a regular forecast that shows a company's expected future performance.
In addition to that, effective financial planning and analysis involves the following:
- Studying the market and analysing the business environment and financial trends.
- Allocating the necessary costs and resources to meet the company’s objectives.
- Analysing the business cash flow.
Once the factors are evaluated, a business gets a clear forecast of its future based on a specific time frame. It can be quarterly, yearly, or two years, depending on the goals. Financial planning and analysis show the future of a business relative to the current situation.
The importance of Financial Planning & Analysis
Before starting any business, it is important to outline a clear plan for execution and management. The process helps the business attain purpose and objective. Therefore, financial planning is essential for business operation, and companies should make it the core of their business strategy.
Here are the reasons why every business owner should have a clear financial plan:
It helps map out the goals for a business
Financial planning is the starting point of any business. It helps business owners know what a company is supposed to achieve in a particular time frame. Before the planning phase, startups go through the product/market fit phase. It is a stage that occurs during the first year and is dedicated to building a product for the target market.
Good financial planning provides relevant information on the capital you can invest in sales and marketing to reach your business' consumers.
It is essential for effective budgeting
Every business has a goal to make profit, which relies on creating and executing against a budget. The finance department or business owners can properly allocate resources based on needs through financial planning and analysis. Once you evaluate your business performance, it is easy to compare the expenses and income then develop an effective budget.
Based on the data, businesses can use the information to make growth and expansion decisions that can help the company survive in the long run.
Reduces the risk level
Financial planning and analysis help a company to formulate the right strategies to deal with unforeseen financial risks. Business is all about investing and penetrating a new market; with financial planning, business owners perform quality-control tests and understand the market before offering their products on a wide scale.
On the other hand, it is hard to predict when risks will occur, but companies can insure themselves through producing resilient financial plans. Therefore, if the risk occurs, your business will manage to outstand some of the losses compared to a business without a financial plan.
Helps in cost reduction
Aside from allocating the amount to spend on the business, financial planning and analysis can help managers know how to save resources. Building a financial plan for an already operational business involves comparing the costs and expenses incurred in relation to the business growth rate.
Therefore, when creating the budget for the next year, professional managers can look at unnecessary spending and adjust accordingly. In the long run, this will help the company reduce costs while increasing savings and investments.
Attracts investors and funding
Many businesses will reach a time when they need cash for expansion. To get a capital injection from banks or investors, they will need to produce a business plan which shows how they intend to use the capital.
A good financial plan and analysis of the business will attract funding because investors or banks can tell whether the business will be worth their investment. Therefore, every business needs to adopt an efficient financial planning and analysis system.
To make it easier for managers and team members, businesses can use Causal.
How Causal can help with financial planning and analysis
Causal simplifies financial planning by making it automated, collaborative, and easy to understand. For organizations that struggle with analysing data and variables, Causal is the best option. It enables users to build financial models easily and share a visual dashboard that everybody can understand.
It also offers an interactive dashboard for reporting where team members and shareholders can communicate. For comparison and analysis, businesses can connect their live data seamlessly. Causal allows easy linking with external sources of data such as Quickbooks, Shopify, and Google Sheets, among others.
Causal is simple and convenient to use and allows managers to model the business how they want. Once your model is built, you can create charts and reports in minutes and then share them with your team.
Causal also makes budgeting easier within the entire organization. Different departments can create the budgets independently, and instead of copy and pasting, the individual in charge can link them together. It puts every team on the same page and ensures that core financial information is always up to date.
Financial planning and analysis work is fundamental to business success. However, for a startup or a small business, hiring the right staff can be expensive. Therefore, Causal provides an easier way for companies to carry out financial planning and analysis. It's fully automated, and helps businesses build financial models effortlessly.