Did you know that 35% of organizations identify data quality and timeliness as significant barriers to effective financial planning and analysis (FP&A)? This issue hampers forecasting accuracy, risk management, and resource allocation.
Bad data, inaccessible information, and outdated processes make FP&A more difficult. Without accurate insights, businesses struggle with forecasting, risk management, and resource allocation.
Strong FP&A practices help finance teams improve data accuracy, use technology effectively, and make well-informed financial decisions. This leads to better budgeting, more reliable forecasting, and stronger financial stability.
10 Best Practices for FP&A
These 10 best practices will help businesses improve their FP&A processes and achieve better results.
1. Measure the Financial Impact of Business Goals
Tracking financial outcomes ensures strategic goals lead to measurable results. According to Gartner, 53% of organizations do not fully achieve their strategic objectives, often due to poor planning.
Setting clear targets and monitoring progress improves decision-making. Businesses that integrate analytics into their planning can align operations with financial goals.
For example, if a company aims to expand online sales, FP&A teams analyze marketing costs and expected revenue to determine budget allocations. Financial tracking also helps adjust investments, such as identifying underperforming products and reallocating resources accordingly.
Improve steps by doing this:
Monitor real-time financial performance to stay on track.
Adjust strategies based on ongoing evaluations for continuous progress.
2. Secure Budget Approval for Necessary Resources
Before investing in a project, finance teams must assess the resources required and gain approval.
For instance, a technology company planning new software development follows these steps:
Identify Needs - Determine staffing and tool requirements.
Create a Budget - Estimate costs for hiring, training, and licenses.
Gain Approval - Present the plan to management with expected benefits.
Budget approval ensures financial stability, prevents unnecessary expenses, and keeps projects on schedule.
How to boost efficiency:
Use cloud-based FP&A software to simplify budget reviews and approvals.
Present financial data with clear charts for faster decision-making.
Provide business context to support data-driven discussions.
3. Integrate FP&A with Other Departments
Each financial transaction should include important details, such as vendor names, to provide better insight into company spending.
Why this matters:
Improves expense tracking and financial forecasting.
Reduces financial closing times by ensuring transaction transparency.
How to improve with data:
Connect FP&A tools with accounting systems for automated, error-free data transfers.
Encourage collaboration between finance, sales, and operations to align financial strategies.
4. Implement a Rolling Forecast
Rolling forecasts help businesses stay flexible by updating financial plans regularly, unlike static budgets. Research shows companies using rolling forecasts experience higher revenue growth.
Steps to implement:
Define a forecast period (12-24 months).
Track key metrics like revenue, expenses, and cash flow.
Use past data to predict future performance.
Adjust forecasts regularly to reflect market conditions.
Rolling forecasts also help businesses spot potential risks early, such as declining sales in specific regions.
5. Conduct Variance Analysis
Variance analysis compares actual financial performance to budgeted expectations. If results differ, finance teams must identify the reason.
For example, if a manufacturer expects a 10% production increase but only reaches 5%, investigating delays in raw materials or equipment issues helps resolve the problem.
6. Focus on Business Drivers
Instead of tracking excessive details, focus on the main factors influencing financial performance.
For example, if customer retention impacts profitability, companies can invest in loyalty programs or customer service improvements.
Use driver-based planning to monitor important business metrics.
Leverage FP&A software for real-time tracking and forecasting.
7. Align HR and Capital Allocation Plans
Integrating workforce planning with financial goals ensures efficient resource allocation.
For example, if a company launches a new product, finance teams must budget for hiring and training employees while evaluating the return on investment.
8. Use Scenario Modeling
Basic scenario modeling relies on manual inputs, limiting accuracy. Advanced tools provide deeper insights by analyzing historical data and market trends.
Use FP&A software to model different financial scenarios.
Continuously refine models with updated data.
9. Manage Risk and Uncertainty
Identifying risks early helps businesses prevent financial losses and adjust strategies effectively. A structured approach to risk management ensures financial stability and supports better decision-making.
Consolidate Data – Gather internal financial data and external market trends for a complete risk assessment.
Use Analytics – Leverage predictive tools to identify potential financial threats before they escalate.
Run Scenario Models – Simulate best- and worst-case scenarios to refine financial strategies.
Monitor Risk Indicators – Track cash flow trends, credit exposure, and market fluctuations to detect risks early.
Automate Reporting – Use FP&A software for real-time risk monitoring and compliance tracking.
A proactive risk management strategy enhances financial stability, improves stakeholder confidence, and provides a competitive edge.
10. Prepare for Reporting Changes
Adapting to new reporting requirements ensures accurate financial insights and better decision-making.
Automate data collection for consistent reporting.
Use integrated FP&A systems to generate detailed financial reports.
By following these best practices, businesses can improve financial planning, streamline decision-making, and drive long-term success.
Turn Data into Decisions, Not Just Numbers
Financial planning is more than crunching numbers—it’s about making smart moves. Too many businesses drown in data but struggle to find real insights. When bad data clogs decision-making, even the best plans fall apart.
FP&A is the foundation of financial stability. Companies that refine their financial planning make better decisions and stay competitive. Every number tells a story, but only those who listen gain an advantage. Take action, sharpen your strategy, and turn numbers into real opportunities.