Best practices for Financial Planning & Analysis

The application of best practices for FP&A in our organization can help us to have a more efficient operation of the finance team. It is a fact that most companies, especially in the small and medium-sized segment, are not completely satisfied with how they currently manage their finances.

In many cases, the activities of Financial Planning and Analysis within a company are considered as an expense factor that is not profitable, or in any case whose usefulness is not clearly visualized, they are hours and hours behind Excel spreadsheets used to that the Management sees only the final result in a financial report.

This is often due to the lack of incorporation of new techniques that are being incorporated into the industry and that do not reach us or we do not know about. Also, it must be said that the same FP&A practice is not as widely installed in our LATAM companies as it is in Europe and the United States, or rather, it is, but based on spreadsheets. A 2020 Plika study found that SMEs that had FP&A software in use were less than 15%. In the United States, where this practice is clearly more advanced, the percentage barely exceeds 20%.

To contribute our grain of sand to deal with this problem, we have decided to make this post about the best practices in FP&A. We hope you find it useful!

#1 Have an annual team meeting to align goals and strategies

Many companies are slowly adopting measures like this. Promoted by a very prestigious financial consultancy, this practice consists of organizing a retreat with the financial team for a reasonable period of time (two or three days are the norm).

There, the team deliberates, reviews data, makes projections, simulates scenarios, draws conclusions, questions them, refines the diagnosis, all collaboratively and stimulating creativity. These meetings are also very useful to coordinate and integrate the different perspectives and eliminate something very common in FP&A teams, which is when the members of the financial team are misaligned with the objectives and strategies of the company, often as a result of poor or erroneous communication

#2 Directly relate corporate objectives to the budget

The budget is a key tool to accompany the achievement of the strategic objectives of an organization. There, all the real estimates of the different areas are made transparent behind closed doors, the resources that we have on the part of the Management are honest and also, of course, what is wanted to be achieved in the period is put on the table. In this way, we can elucidate how.

During the Budget Creation Cycle (in some companies also called the «Annual Plan») we can define if the hiring of personnel for the design of new products is suggested, if the productive capacity is expanded with the acquisition of a new plant or other issues. for the style. So, these decisions will clearly impact the company’s Financial Planning and Analysis.

#3 Incorporate area managers and hold 1-on-1 meetings

We must reduce the gap between Finance and Business Areas. It is inevitable: all companies have to deal with this abysmal space between those of us who carry out the numbers of the organization and those who are in charge of the operational task or production.

More than 80% of the CEOs of Latin American SMEs surveyed by Plika recently have confessed that the finance and operations team do not work together more than once a year. That is, during the preparation of the annual Budget. But the reality is that the finance teams are the ones responsible for following up on a monthly or at least quarterly basis with each person in charge.

One of the best practices of FP&A is to integrate the area heads, managers, project leaders or whatever they are called in your organization to the preparation of the financial plan and projections. In other words, of course, they will not be the ones to simulate scenarios and obtain an estimate of the returns. But they will be the ones who provide the fair word on how much value this or that purchase generates for the company. Or, why an asset is perhaps financially undervalued, or how the staff behaves and what returns it could have if it were invested in one or another tool.

#4 Work in a collaborative environment with a Project Plan

The Project Plan is a map that we configure before starting a new initiative. There we define milestones, dates and actions to take that will take us, at the end of the road, to where we want to be (or as close as possible!).

Working with a Project Plan in Budget stages requires coordinated work between different areas (Operations, Finance, Human Resources, Management), as well as a lot of fluid communication. And, also, clear and reliable records. Doing a Decentralized Budget process in spreadsheets is often difficult when Finance needs to consolidate multiple spreadsheets.

Without FP&A software, how would you know which is the latest version of each Business Area? How much control do you have over changes, comments and discussions before closing amounts? How long would it take you to manually consolidate multiple spreadsheets to create an EERR or a Cash Flow?

For the assembly of an effective Project Plan it is essential to have a suitable software tool. Here the computer program that we use must provide us with fast and easy ways to use it to:

• Upload records.
• Share files and allow multi-user editing.
• Model tables and data with agility and security (that is, controlling and limiting human error).
• Provide variable projection tools and simulation of future scenarios.

At this point we recommend that you try the FP&A software that we have developed, called Plika, through a completely free demo. With Plika you can manage all these activities safely and with a friendly user interface that is easy to learn by non-specialized users.

#5 Automate as many tasks as possible

Undoubtedly, in a manual of best practices in FP&A, process automation could not be missing. This is a prevailing mandate today: staff should no longer spend their time, however minimal, on tasks that are repetitive and do not add value to the business.

Technological development today makes it easier for us to implement automation tools for uploading receipts, monthly billing processes, subscription management, registration of payments to suppliers, settlement of salaries, etc. If you give it some thought, I’m sure there will be many more things happening in your organization that are the same way every month, or every week, or worse, every day!

The world’s leading companies are increasing their bot plant, which now reaches tasks that were always intended for humans, such as Customer Service. It’s time to introspect and discover what things we can automate to free the team from low-value tasks!

#6 Commit to tracking and monitoring

Conscientiously monitoring finances and operations throughout the period is another recommended FP&A best practice. From the time the projections and diagnoses are made until the end of the period, there is a stretch full of uncertainty, obstacles and risks. For this reason, it is a recommended practice for all financial teams to be present in the day-to-day of what happens in the company.

In this sense, an important part of the work is to assist the other areas of the organization. It is to stay close, as an ally, to the daily challenges of the rest of the colleagues whose main activity is part of the operation. Post FP&A follow-up and monitoring does not entail a critical or destructive spirit, quite the contrary. The objective is always to correct the deviation that occurs so that the company has healthier finances each time, without falling on people but on processes.

#7 Seek continuous improvement as a north

Innovation and continuous improvement are two aspects that FP&A has intrinsic in its values. Financial planning and analysis was developed to innovate in the way in which the financial management of companies is done.

Therefore, we assume that there must always be a more efficient or simply better way to capture data, analyze performance or report results to executives.

The literature in Spanish on FP&A is not abundant, it is true. Nor in English, as we have said here before, although we do have enough material in our language. Keeping learning, seeing how the big ones do it, how they innovate and how they improve their processes, is an FP&A habit that must remain in our DNA and that of our entire financial team.

Conclusions

The largest companies in the world use FP&A to have better results, not to predict them.

This phrase, which looks like a slogan, is a good opportunity to reflect on how we are using Financial Planning and Analysis and if we are getting the best out of it.

It is true, this implies a cultural, thought and behavioral change in us and in our financial teams. As we mentioned at the beginning of the article, in Latin America FP&A is not common and we are not familiar with it.

But, at Plika we are convinced of something. If we remain focused on the continuous improvement of our company’s finances and persist in living our profession with an innovative spirit, it is certain that over time the best FP&A practices will become part of our habits. And then we will see the results replicated in the numbers, which after all is what guides us!