In order to make effective business decisions, Financial Planning and Analysis is key. So, why doesn't everyone do it? In fact, why do many small and medium sized businesses ignore FP&A?
There are actually many reasons:
Not enough time, they are doing the daily transactions of the business but not FP&A
Lack of priority - the importance of planning is not seeing as important as taking care of what is on the plan for today.
Not having the skills or technical resources to create the analysis
Not having the skills or acumen to interpret the results into something usable
Lack of focus - the financial team is not focused on financial planning, instead they might be focused on sales or PR or product development
There are some things that we can do to address the above obstacles.
TIME:
Of course, we all strive to be efficient, and sometimes we can create some time by creating more efficiencies. We can also communicate with management about prioritizing some tasks or moving around responsibilities.
We can also create a toolbox of analytical tools accumulated over time, so the time it takes to create new tools is reduced.
Eliminate any analyses that are not being utilized and focus on the most important.
PRIORITY:
One way to increase the importance of FP&A is to ask management what information would be helpful to them. This may take regularly scheduled meetings, so that they can give continual feedback for improvements. They might have various objectives and goals that change what information would be helpful. The information that is helpful in winter might be different than the information that is helpful in spring. The information that was helpful a year ago, might be different than what is helpful this year. The information that was helpful with the last project might be different than the information that is helpful for the next project. By asking them what information would be helpful to them we actually increase the importance of FP&A for the team.
SKILLS AND TECHNICAL RESOURCES TO CREATE REPORTS:
If you don't have the skills and resources to create the financial analysis, consider taking courses to increase those skills. There are many classes you can take, including online courses and university classes.
Technical resources is another area. Your ability to analyze financial information is limited by the amount of financial information that is available to you.
Not all accounting software is created equal. NetSuite and QuickBooks Enterprise tend to have enough information available to export into spreadsheets and create the financial analyses from there. However, other more simplified accounting software such as Xero and QuickBooks Essentials, do not have the drill-down capabilities that are necessary for proper financial analysis.
SKILLS TO INTERPRET AND USE THE DATA:
If your graphs and analysis are great, but the management doesn't have the background to understand it enough to influence their business decisions, then it loses its value.
When you are presenting the information, make sure to meet with the managers to make sure they understand it.
Explain what you mean when you use various financial terms.
Make sure your graphs and tables are easy to follow, intuitive, and cover relevant and useful information
Elaborate on where you got your numbers and how you calculated various Key Performance Indicators.
Listen to their responses to assess understanding.
Link various outcomes to data driven decisions.
Ask for their feedback - what did they find useful? What are other information would they like to have? How was the presentation of the information - was it understandable? Was it at the right level of detail? Should it have been more summarized, or conversely, would they like to drill down more? What are some of their most urgent concerns and what information could you provide to help with those concerns?
LACK OF FOCUS/FOCUS IS MAINLY ON OTHER AREAS OF THE BUSINESS:
Sometimes the company might be much more focused on sales, or maybe much more focused on cutting costs, and Financial Planning is assumed to be less important.
All areas of the business are important. We wouldn't have a business at all if we don't have some focus on sales. We will lose all profits if we don't have some focus on cutting costs. Those areas are important. Equally important is viewing the map to see where we've been and where we are going. FP&A is about getting a bigger picture - not to replace the other objectives, but instead to add to the other objectives.
For example, if you were to explain the importance of FP&A and management replies that they are more focused on sales and they'll deal with FP&A later, you can respond by asking what information would be helpful in their focus on sales? Maybe a Revenue Business Model listing various products with their correlating cost, prices, discounts, unit sales, revenue, and margins? Helping others understand the importance of FP&A has a lot to do with informing them how it can help them with their goals that they already have.
In Summary, Financial Planning and Analysis will be given high priority when:
It is understood that it is key to business success
It is presented in a way that is understandable
It is continually adjusted to the needs of the users
written by Cynthia Bassett Hartwig, CPA