How a Financial Planning Analyst Can Be An Asset To Your Business
by Michael Burdick, on May 5, 2016
So you’ve heard of bookkeepers and accountants, but what is the role of a financial planner and analysis (FP&A) professional? The crux of the role lies in the “P” in FP&A: planning. This not only involves forecasting how the bottom line will change over the next few years, but also includes contributing to a solution on how to close the gap. You can tell just how important planning is by looking at some of the hot tech companies with no revenue and huge valuations. A huge chunk of a firm’s value comes from it’s projected future earnings. An FP&A helps predict this future income and assists the CFO to plan how to allocate resources so that the company can meet those future projections and keep investors happy. In larger companies, there will be an entire FP&A department that will set targets for the company’s various divisions.
Defining FP&A is notoriously difficult. For a fun guide on how to explain FP&A at a dinner party, check out this post from Pierce the fog.
FP&A vs. Controller
So what is the difference between an FP&A professional and a controller? Whereas the controller is usually in charge of financial accounting, FP&A folks spearhead management accounting. Financial accounting revolves around preparing formal financial statements (e.g. the income statement and balance sheet), which, while helpful to internal management, are often used by external stakeholders to judge the health of the company. Management accounting, on the other hand, is meant to help internal managers make decisions. The reports management accountants compile are not government mandated and don’t need to follow any specific guidelines since they’re never made public. Whereas financial accounting focuses on reporting, management accounting focuses on forecasting.
The difference between the two types of accounting (and therefore between someone in FP&A and a controller) is most often defined in large companies where there is a high degree of specialization and financial statements legally need to be made public.
Do you need an FP&A analyst?
It’s safe to say that no matter what the size of your company is, you are going to need to engage in forecasting. The question then becomes: do you need a dedicated resource to interpret and forecast your financials? If you have under 30 resources, your CFO most likely is going to handle the majority of the financials. It’s only after the CFO starts to get overwhelmed that you need to start thinking about bringing in support. By the time you reach a staff of 60, it’s probably time to start thinking about bringing on an FP&A professional.