For leaders of growing companies, managing the financials is challenging while developing a product, building a sales funnel and finding the team. The finance function is often the last on the list, with the value of FP&A from the get-go overlooked.
This article explores how FP&A (financial planning and analysis) support embraced early in a company’s lifecycle can preserve cash, accelerate growth, help navigate risks, and ensure the business is well-prepared for the next funding round.
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What is FP&A?
Essentially, accounting records the day-to-day financial transactions, confirms the current financial position and is backwards-looking, whereas FP&A (financial planning and analysis) is forward-looking; it helps companies understand how they achieved their current financial position, identifies what may lie ahead and allows stakeholders to map a course to meet their growth goals.
In an early-stage company, FP&A involves the processes and activities related to planning, budgeting, forecasting, and analysing the business’ financial performance.
For example, a detailed financial plan is required to initiate preliminary discussions with investors. FP&A expertise will help the management team to develop this financial plan, which is an overview of the business’ financial situation and a forward-looking projection for growth, and help them obtain the funding needed to grow.
How can FP&A help early-stage companies?
FP&A links accounting and the rest of the business so that stakeholders can understand the impact of their decisions on the company’s financial health and ensure the company stays on a path to profitability and growth.
- Revenue forecasting: Estimating future sales and revenue based on market research, sales projections and other relevant factors.
- Expense planning: Identifying and planning for various operating expenses and overheads.
- Financial modelling: Creating models to simulate different scenarios to understand the potential impact on financial performance.
- Cash flow management: Monitoring and managing the company’s cash flow to ensure enough cash to cover operation needs and developing cash flow forecasts to anticipate potential shortages.
- KPI tracking: Identifying and tracking key performance indicators, e.g., customer acquisition, retention and conversation rates, and operational and financial metrics.
- Variance analysis: Analysing the differences between budgeted and actual financial results to understand the reason behind any variations and adjusting plans accordingly.
- Scenario analysis: Conducting scenario analyses to understand how changes in market conditions and other variables may impact the company’s financial performance. For example:
- Inflation fluctuations
- Interest rates changes
- Debt versus equity funding rounds
- Lease versus buy of offices/equipment/vehicles etc.
- Impact of headcount flexing
- Margin percentage changes
- What would happen if certain customers were lost
- Investor communication: Providing financial insights and updates to investors that effectively communicate the company’s financial health and plans.
- Decision support: Assisting the leadership team in making informed financial decisions using data-driven insights and analysis.
- Risk management: Identifying financial risks impacting the business and developing strategies to address potential challenges and uncertainties.
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How can an early-stage company access FP&A support?
Most early-stage companies will not have a full-time need for an FP&A analyst. Professional financial consultancies like Isosceles Finance with ireport can provide this type of expertise flexibly and cost-effectively. They have vast experience in supporting companies at all stages of growth and will understand what type of models are required for a particular need.
They will also have access to advanced tools and software, which, together with their experience, will create a stronger forecast and more accurate models.