Why FP&A is So Important for SMBs

Financial Planning and Analysis, or FP&A for short, is a common term used to describe the activities and associated tools and resources employed to help companies make data-driven business decisions by using accurate and timely financial information. This information can be used to create budgets and forecasts, identify trends, measure performance, and make adjustments to business strategies as needed in near real-time. FP&A also helps companies identify potential risks and opportunities, and can be used to make strategic decisions related to investments, financing, and other financial matters. Unfortunately, FP&A is often written-off by SMB company leaders as something that only big, publicly-traded companies or IPO-destined startups need; however, that's not actually the case. FP&A is incredibly important for SMBs that are looking to scale, improve efficiency, and enjoy more financial success.

FP&A for SMBs

Now that we know that FP&A isn't just for the big guys and venture capital-fueled startups, let's take a closer look at what FP&A looks like for SMBs. At finairo, we feel that there are four core pillars for FP&A for small businesses:

  1. Strategy & Objectives - aligning strategy to short- and long-term business objectives.
  2. Annual Budgeting - the process of comprehensive and strategic budget creation on both a macro and micro-level.
  3. Short-term Forecasting - shorter, "sprint-like" forecasting and measurement to ensure objectives are met
  4. Comprehensive Analysis - in-depth review and analysis of performance, trends, and opportunities.

Having an over-arching strategy or methodology that you employ for FP&A at your SMB is key to achieving success, and will also drive other FP&A-related decisions that you make. For example, if you're looking for rapid, short-term growth, you'll likely need an FP&A strategy and toolkit that analyzes the sales pipeline, funnel performance, and customer acquisition cost, and ultimately supports near real-time decision making. This would likely require FP&A software that integrates with your CRM and other financial systems, as well as a real-time reporting suite. If you're looking for more profitability at your SMB, the FP&A strategy and toolkit might focus more on cost of goods sold, gross margin enhancement, and aligning operating expenses at better than industry benchmark ratios. 

FP&A Reporting for SMBs

One of the main reasons SMBs need to leverage FP&A is for performance monitoring, which is the process of identifying, measuring, and analyzing the operating performance of an organization. Performance monitoring aids in decision-making by providing information about how well an organization is performing against its goals, and core to performance monitoring is a strong FP&A reporting foundation.

FP&A reporting tools can range from spreadsheets to elaborate cloud-based software suites, and cover the entire cost spectrum from free to hundreds of thousands of dollars a year, or more. For most SMBs, the proper FP&A reporting suite can include a combination of spreadsheets, an accounting tool like Quickbooks Online or NetSuite, and a visualization tool. There are myriad market-available tools to assist SMBs with FP&A reporting visualizations, but before selecting a tool please ensure that it seamlessly integrates with your accounting tools, and potentially even some of your sales tools, like your CRM. For example, at finairo we have a financial reporting platform and service that integrates with accounting systems, and allows for performance monitoring, budget variance tracking, and other analysis on core FP&A objectives. Here are some examples:

finairo FP&A app for SMBs

An example of a dashboard for an SMB whose primary FP&A objectives centered around treasury management and working capital.

DSO & DPO detail report

A detailed DSO & DPO report for an SMB trying to improve cash conversion cycle and vendor relationships. The negatives indicate a negative cash conversion cycle.

P&L variance detail

Although simple, a period or budget variance view on a P&L is core to FP&A for SMBs.

Outsourcing FP&A

By now, we hope you agree that FP&A is core to financial success for SMBs, but that doesn't mean it needs to be a core competency of your organization. In fact, you'll likely achieve better results by outsourcing FP&A to a consultant or an organization that specializes in FP&A. Outsourcing to a consultant or FP&A service provider will allow your SMB to leverage an expanded perspective, skillset, experience, and toolkit. Rather than a narrow, singular focus on your business or your industry, outsourcing FP&A to a service provider will expose your business to a broader team that experience across many SMBs, and in-turn should be able to advise on benchmark achievement, tactics and strategies they've seen work, and much more.

Regardless of how you choose to conduct FP&A activities (in-house or outsource), it's imperative that your SMB prioritize FP&A and ensure you're properly, and continuously, planning, measuring, and analyzing in order to reach and exceed your business objectives.

* * * * 

Request a consultation to learn more about how finairo's outsourced FP&A services can empower your SMB to greater financial performance and operating efficiency.