A Pragmatic Guide Into Financial Planning & Analysis and Why You Need It.

In today’s edition

After a short break, we are back with a new series to Keep Finance Simple! In this series, we will dive deep into the wonderful world of Financial Planning and Analysis!

• We start our deep dive into FP&A for Startups

• 🛠 recommendation: Motion

Introduction to Financial Planning & Analysis (FP&A)

In most startups that I’ve seen there isn’t a solid FP&A Circle in place yet. This shouldn’t be a full “corporate” FP&A cycle but some FP&A cycle is advised to see if you are on the right track.

First, what is the FP&A Circle?

The FP&A Circle is a systematic approach to financial planning and analysis to make sure that an organisation’s financial strategies are aligned with its objectives and that they’re continuously refined based on performance feedback. It looks a lot like the (maybe more familiar) Plan-Do-Check-Act cycle. Let’s translate the FP&A Circle to the PDCA cycle.

1. Plan (Strategic Financial Planning)

   Same as the PDCA cycle the FP&A Circle starts setting financial objects and building budgets and forecasts.

2. Do (Excuction & Allocation)

   In this phase, you are putting the financial plan into action. It involves:

   1. Allocating resources (capital, manpower, technology) based on the budget.

   2. Executing financial strategies to achieve the set goals. For example: Create a specific budget for marketing campaigns for a new customer group.

   3. Monitoring cash flows and ensuring there is enough cash at hand.

3. Check (Performance Monitoring & Variance Analysis)

   The check part of the FP&A Circle involves:

   1. Continuously monitor financial performance against set benchmarks, like your budget.

   2. Do a regular variance analysis where you analyse the differences between your budget and your actual results.

   3. Regularly check key financial metrics to evaluate the health of your organisation

4. Act (Adjustments & Optimisation)

   In this phase, you are going to refine your strategies.

   1. Adjusting financial strategies based on performance feedback.

   2. Identifying areas of improvement and optimising resource allocation.

   3. Revising forecasts based on new data or changing market conditions.

Second, why would you implement an FP&A cycle into your startup?

1. Strategic Alignment: FP&A aligns financial actions with the strategic goals of an organisation. At the same time, it’s a mirror that shows if you are on the right path to achieving your goals and it’s a guide helping you to steer you in the right direction for achieving your goals.

2. Risk Mitigation: It helps you identify risks early and gives you the time to mitigate them. For instance, if you’re in a SaaS business, even something as operational as changing billing cycles can have significant cash flow risks that need careful consideration and planning. Here’s a detailed look at such risks and some strategies to mitigate them

3. Performance Optimisation: By constantly looking at performance and analysing both financial and non-financial results, FP&A enables startups to refine their strategies, tweak their operational efficiency, and maximise their performance.

In the coming weeks, we will dive deep into Financial Planning & analysis. Here is a short overview of what you can expect for the following editions.

1. 07-11-2023 Strategic Financial Planning & Alignment: Setting financial objectives, building budgets & forecasts, and ensuring they align with business goals. Explore how FP&A ensures alignment with strategic objectives, with real-world examples and best practices.

2. 21-11-2023 Execution and Allocation: Resource allocation, executing financial strategies, and the importance of monitoring cash flows.

3. 05-12-2023 Performance Monitoring & Optimisation with Variance Analysis: Tools and techniques for monitoring financial performance, conducting variance analysis, tracking key financial metrics, and refining strategies based on insights.

4. 19-12-2023 Risk Mitigation in FP&A: Deep dive into identifying and managing financial risks, with a focus on specific risks faced by startups and strategies for mitigation.

5. 09-01-2024 Forecast Revisions & Resource Optimisation with Scenario Analysis: Strategies for refining financial plans, optimising resource allocation, and revising forecasts based on new data or changing market conditions.

6. 23-01-2024 Conclusion & The Future of FP&A for Startups:

   Recap of the series, emerging trends in FP&A, and a look at the tools and methodologies shaping the future of FP&A for startups.

🛠Tools: Motion

Currently, I’m working with five clients and normally that would mean five different accounts = five different calendars and five different ways of keeping track of projects & tasks. Which results in double bookings loss of priorities and a general feeling of stress just to organise my work.

This is why I use usemotion.com it helps me with all these things above by putting everything in one system. However there is a downside, it’s pretty hard to get all the settings right to achieve maximum efficiency.

Closing Meme

Thank you for taking the time to read this. I hope you found it informative and helpful. If you have any feedback or suggestions, I would love to hear from you. Your input is valuable in helping me improve and provide better content in the future.