As a business grows, understanding its finances means two things:
Tracking performance
Planning for the next stage
A decision to hire more people or open another site, for example, affects what the business can afford elsewhere. Management needs a clear view of the figures before giving the green light.
Choices can’t be made on the fly without a proper understanding of the current financial state of the business, as well as where it’s heading.
But who’s to say what will happen next quarter? Who knows if current capital reserves can fund the next phase of growth, after running costs and expensive curveballs are factored in? Whose job is it to sit down with the numbers and dedicate weeks to figuring everything out, when every staff member already has enough on their plate?
Getting clear on the current and predicted future state of the business isn’t an easy task - especially when a team is already spinning many plates.
This is where FP&A comes in.
What is FP&A?
Let’s start with the short version before we dive deeper into the ins and outs of FP&A.
FP&A, or Financial Planning and Analysis, is the reporting and forecasting work that helps a business make decisions:
Reporting compares actual performance with the plan.
Forecasting projects future revenue, costs and cash flow using driver-based assumptions.
FP&A sits alongside accounting within the finance function. But it serves a distinct function, hence why accounting and FP&A aren’t the same thing.
This article breaks down what the work involves, how the roles differ, and when a business might need dedicated support.
What does FP&A actually involve?
Budgets set out the financial plan, while FP&A uses reporting to track progress against it. Forecasts and financial models help assess decisions before the business commits to them.
In a business doing £10m to £50m revenue, FP&A typically covers five connected areas:
Budgeting and forecasting turn business goals into financial targets. FP&A works with department heads to establish what those plans will cost and how they will be funded. A rolling forecast can show the next 12 months month by month, with later years shown at a less detailed level.
Performance reporting compares actual results with the budget or forecast. Monthly reporting gives the Board a consistent view of performance and the variances that need attention.
Analysis investigates those variances. If profit falls despite higher sales, FP&A examines whether the change came from pricing, volume, costs, product mix, or something else.
Decision support helps commercial and operational teams assess choices before money is committed. FP&A might build a pricing model for a customer bid or work with operations to assess the staffing and delivery costs of a new contract. It also supports larger decisions, such as assessing whether the business can fund a new site or comparing the expected returns and cash requirements of an acquisition.
Data and models makes that work repeatable. A driver-based model links revenue and cost assumptions to cash flow. Consistent data and checks help keep reports and forecasts in agreement.
Two colleagues reviewing charts on a laptop and a printed report.
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FP&A is sometimes mistaken for data processing, statutory reporting, or other functions. Here’s how they differ:
It is not bookkeeping. Bookkeeping records transactions and supports the preparation of accounts. FP&A uses those records, as well as other data, for reporting and planning. Bookkeeping focuses on organising historical data. FP&A uses this information, but goes a step further: analysis and forecasting that help the business decide what to do next.
It is not a reporting pack on its own. A pack or dashboard is a tool, but it’s not the work itself - someone still needs to interpret it. FP&A is what turns budgets, dashboards and forecasts into actions that further the growth of the business.
It is not only forward-looking work. FP&A is more than forecasting; current performance needs attention too. FP&A work includes presenting today's numbers clearly enough for a Board or investor to understand and act on them, as well as looking ahead at what those numbers might look like in the future.
It’s worth noting here that FP&A isn’t limited to companies with large finance teams. A business can need this support long before it’s large enough to warrant a fully fledged finance team.
As a business grows, its reporting and forecasting needs can become more complex. FP&A takes responsibility for this work, helping the leadership team understand current performance, update forecasts and assess upcoming decisions.
FP&A vs accounting: what's the difference?
A question we often hear is whether FP&A is something an accountant already covers. That depends on their role and the scope of the work.
Accounting covers financial records, controls and statutory reporting. Those records give FP&A a reliable starting point. From there, FP&A can report on business performance and prepare forecasts.
FP&A uses that information to explain results against plan. It also helps answer questions such as:
How much cash will we have in six months?
What happens to our covenants if Q3 comes in soft?
Can we fund the new site without investment or debt?
An accountant may already provide some of this support. If their remit is statutory accounts and tax, detailed management reporting and forecasting may need separate time and expertise.
The two aren’t entirely separate. Rather, FP&A sits alongside accounting within the finance function, meaning that both need to work together. That way, reports and forecasts use consistent, reliable figures. Having distinctive roles gives people the space to own specific functions, rather than overloading a single role with work that requires multiple people.
What does FP&A look like in practice?
To show what FP&A looks like in practice, here are some examples of the ongoing work we've carried out for clients at Alessian:
We prepare reporting packs that show overall financial performance and compare actual results with the budget, so management can see where performance differs from the plan.
We analyse customer and project profitability, including the gross profit contributed by individual customers. This helps management understand which work is making money and which work isn’t.
We provide departmental reports so budget owners can monitor spending in the areas they're responsible for.
We prepare 13-week cash flow forecasts to help a business plan for upcoming payments and spot potential cash shortfalls.
We reduce manual data preparation. For one client, entering data from a 300-page monthly invoice had taken days of manual keying. We automated that step with a Python script that runs in 10-15 seconds.
We handle one-off questions alongside the recurring work, including analysing historical profit and loss figures and reconciling them to the financial statements.
The exact work varies with each business's needs, but these examples give a sense of what ongoing FP&A support can involve.
Who is FP&A for, and who can skip it?
Not every business needs dedicated FP&A support (and we say that as a business that sells it).
If a small business has clear targets, predictable cash flows and a comfortable cash position, existing bookkeeping and management's judgement may be enough for some time.
You may need more support when:
Investors or the Board start asking forward-looking questions the books can't answer.
The business is PE-backed, has bank debt, is raising investment or is heading towards a sale. In those cases, investors, lenders or buyers need a model they can test.
Cash is tight enough that timing matters. That is when a weekly cash flow view earns its place.
Decisions about hires, sites, pricing or funding are being made on gut feel because the financial information isn't there.
If two or more of those sound familiar, it's worth checking where gaps in reporting or forecasting are affecting your decisions.
Some businesses hire an in-house analyst or team. Others use a specialist partner to get the support they need without committing to a full-time salary. Either way, someone needs to be responsible for the work.
Not sure if your business needs dedicated FP&A?Get in touch for an initial conversation - we’ll help you work out whether the gaps are in reporting, forecasting, or both.
What does good FP&A look like?
There are four things that usually define ‘good’ FP&A:
One place to maintain each input. Whether it’s data from the accounting system, an assumption in a financial model or the mapping of general ledger accounts into management reports, each input should only need updating in one place. Repeating the same change across several places makes updates easier to miss and can leave reports and forecasts using conflicting figures.
Scenarios you can actually run. FP&A helps the business assess how a change in plans would affect its finances. If revenue falls below target, the team should be able to estimate the effect on costs and cash, then compare possible responses, such as delaying recruitment or reducing planned spending.
Reporting that drives decisions. The management reporting helps the Board make decisions. Someone should be able to explain why each number is included, and what they would do differently if it changed. If a line doesn’t change how people act, it probably doesn’t belong there.
Numbers that stand up to scrutiny. Reports and forecasts should be traceable to their source data and assumptions. When the Board or a department head questions a figure, the finance team should be able to explain where it came from and how it was calculated. Figures used across different reports should agree, with any differences in timing or scope clearly explained.
FP&A FAQs
What is FP&A?
FP&A stands for financial planning and analysis. It covers reporting on current performance. It also covers understanding the reasons behind the results, and forecasting what comes next.
Is FP&A part of accounting?
FP&A sits alongside accounting within the finance function. It uses accounting data to report on performance, analyse results and prepare forecasts. The two work closely together. Some finance roles cover both.
Why do PE-backed businesses need FP&A?
PE-backed businesses need clear reporting on performance against plan. They also need forecasts that help the Board and investors assess future cash needs and growth plans. Where the business has debt, FP&A can also help meet lenders’ reporting requirements and assess whether the business is forecast to remain within the terms of its borrowing.
Where does your business stand?
If your reporting leaves questions unanswered, or your forecast is difficult to update, review whether your FP&A function gives you the information you need.
At Alessian, we build financial models and provide ongoing FP&A support. Get in touch to discuss a diagnostic review of your FP&A function. Discuss an FP&A diagnostic.
