Financial Planning & Analysis

The term "financial planning and analysis" (FP&A) refers to a group of forecasting, budgeting, and analytical tasks that support a company's key strategic choices and overall financial health.

Financial Planning & Analysis

What is FP&A?

The term "financial planning and analysis" (FP&A) refers to a group of forecasting, budgeting, and analytical tasks that support a company's key strategic choices and overall financial health.

Finance teams can bring together financial data, operational data, and external data in one location with the use of a corporate FP&A system. Finance is able to examine it all and reveal the in-depth information required to make more lucrative decisions and plan for the future.

Budgeting, forecasting, and analysis performed by Financial Planning and Analysis (FP&A) teams help the CFO, CEO, and Board of Directors to make important corporate decisions.

Financial planning and analysis are generally a part of a larger financial management system, which also has the capability for accounting, revenue and cash flow management, governance, risk and compliance (GRC), and other fundamental financial operations.

Alternately, FP&A might be a component of a stand-alone analytics solution that connects to other corporate systems like ERP.

FP&A has evolved from simple spreadsheets and manual computations to contemporary cloud-based systems that leverage artificial intelligence (AI), automation, and advanced analytics to address the financial issues of a fast-changing world.

FP&A tools can provide solutions to financial experts to:

  • Assist corporate leaders, quickly and accurately analyze and comment on financial data
  • Identify potential decisions' effects on the bottom line and cash flow.
  • Evaluate and monitor the company's investments and general financial health
  • Construct and keep up-to-date financial estimations and models.
  • Create agile, integrated financial plans that account for multiple scenarios.
  • Work together with departments to create and combine budgets
  • Align corporate strategy with execution and track performance
  • Explore and evaluate potential opportunities for new revenue and potential risk
  • And much more

FP&A Steps

FP&A with 4 Steps

The FP&A process is a continuous cycle of data collection and analysis.  The procedure becomes increasingly difficult as organizations expand into new areas, as well as during periods of market turbulence and rapid change.

There is a greater demand for data collection and analysis, which is why many large and midsize businesses have established specialized FP&A sections inside their financial departments.

But despite growing complexity, the FP&A process fundamentally consists of the same four steps:

1. Data Collection, Consolidation, and Verification

Financial and operational data are gathered from ERP systems, data warehouses, and other business solutions as part of the FP&A process's initial stage.

Additionally, information from outside the company, such as larger demographic, economic, and market information, may be gathered.

Once all the required information has been gathered, it must be combined, standardized, and checked. This stage is crucial because accurate plans, projections, budgets, and analyses all depend on the accuracy and completeness of the data they use.

Businesses are now turning to AI-powered solutions that can automate many of these operations because it takes a lot of time.

2. Forecasting and Planning

In this stage, FP&A analysts use the prepared data to produce financial forecasts that assess the direction and future performance of the company. Sales predictions, cash flow projections, and other financial forecasts are included.

Models for financial forecasting are also used to simulate the effects of many factors, test various hypotheses, and choose the best course of action to achieve the desired results.

The most popular techniques for financial planning include:

Predictive Planning: With predictive planning, FP&A experts build a model using substantial past data sets. Then, future performance is forecasted using this time-series forecasting model.

Planning tools are greatly enhanced by predictive analytics, especially when it is combined with AI and machine learning in a single solution.

Driver-Based Planning: Analysts use driver-based planning to determine a company's primary business drivers, or the factors that are most crucial to its performance, and then develop a series of plans that mathematically illustrate how the business drivers might be impacted by various variables.

Multi-Scenario Planning: Businesses now use scenario planning and analysis more often than ever before. Analysts create predictions about potential future events when performing multi-scenario planning. They forecast the effects and then design a strategy for dealing with each likely eventuality.

3. Budgeting

Based on the revenue from the strategic plan, FP&A experts estimate the costs necessary to carry out the corporate plan during the budgeting stage. They then assign an expenditure budget as well as the anticipated income and cash flow to each business unit or function.

Corporate works closely with every department before combining the pre-agreed budgets into a single master budget.

4. Performance Monitoring and Analytics

The FP&A teams continuously assess financial data and track performance, including sales, expenses, profit, working capital, cash flow, and other KPIs, to advise the business and offer decision assistance.

To assist decision-makers in understanding a situation and taking thoughtful action, they respond to ad hoc questions and transform data into a narrative, or "data tale."

Budget Models

Budget Models

A budget model is a structure for making and maintaining your budget.

Your choice of model affects:

  • Length of time required to prepare a budget
  • How long it takes you to manage your finances
  • How accurate your budget is

Depending on your industry, the stage of your business, and the kinds of expenses you incur, you may choose a different budgeting strategy.

Types of Budget Models

A company develops a budget when it wants to compare its actual future performance to a best-case scenario that takes into account its best projections of sales, expenses, asset replacements, cash flows, and other considerations. Various different budgeting models are available.

The main benefits and drawbacks of each sort of budgeting strategy are listed below.

Static Budgeting

A static budget is the traditional method of budgeting, in which a company models its anticipated financial condition and operating performance for the following year and then makes an effort to force actual results to match the model as closely as possible. This budget structure is often centered on a single anticipated result, which can be very challenging to realize.

Additionally, it prevents an organization from responding swiftly to continuous changes in its environment and instead tends to put a tremendous lot of rigidity into it.

Zero-Base Budgeting

A zero-base budget entails identifying the results management desires and creating a package of expenditures that will support each outcome. A budget is created by merging the numerous outcome-expenditure packages, and it should produce a predetermined set of outcomes for the entire firm.

This strategy works well in organizations that focus on providing services, like governments, when doing so is crucial. Nevertheless, compared to the static budget, it also takes a long time to develop.

Flexible Budgeting

Different sales levels can be entered into a flexible budget model, which will then alter anticipated spending levels to correspond to the sales levels entered. When sales levels are difficult to predict and a sizable share of expenses fluctuate with sales, this strategy can be helpful.

Though more challenging to construct than a static budget model, this kind of model typically produces a budget that is roughly comparable to actual results.

Incremental Budgeting

Because it is predicated on the idea that previous events can be carried over into the future, incremental budgeting makes updating a budget model simple.

Although this method produces streamlined budget updates, it does not prompt a thorough analysis of business expenses and efficiencies, and as a result, it does not help to build a lean and efficient corporation.

Rolling Budget

A rolling budget necessitates the addition of a new budget period as soon as the most recent one is over. By doing this, the budget always moves forward by the same amount of time.

To create the next incremental update, however, demands a sizable amount of budgeting work each accounting month. It is therefore the least effective option for budgeting, even though it keeps the budget in the forefront of everyone's mind.

Rolling Forecast

A rolling forecast, which is typically updated monthly, is not actually a budget but rather a continual update to the sales projection. The company then bases its short-term investment on the anticipated amount of sales. This strategy benefits from being extremely simple to update and requiring no budgeting infrastructure.

From the illustrated budget models, the static model is by far the most popular despite being cumbersome and infrequently accomplished. Using a rolling forecast and allowing managers to adjust spending "on the fly" to reflect short-term sales predictions is a noticeably different solution. Given its high degree of flexibility, organizations may discover that the rolling forecast is a more effective type of budget model.

What Is A Financial Projection?

A financial projection is a forecast of a company's anticipated revenues, expenses, and cash flows over a specified timeframe. This projection may be provided to other parties or used internally as the foundation for a more comprehensive budget.

Other than that, a financial forecast might be used to persuade a bank to lend money to a company or investors to purchase shares in the company.

A financial projection is based on past performance, anticipated shifts in the relevant market, and other modifications in the business's environment, like an investment in a new product category.

Generally speaking, a firm requires to create both short- and medium-term financial projections. A short-term estimate often includes a month-by-month breakdown of the first year of a new company.

A typical mid-term financial projection covers the next three years of operation, divided into yearly projections. Particularly for start-ups and small- to medium-sized firms looking to attract investment, both sorts are crucial.

Why Is The Financial Projection So Important?

  • A simple financial model is a financial projection. A financial projection assists in determining and planning the amount of working capital needed for the successful functioning of the business.

  • One of the crucial components used in the formulation of the Strengths, Weaknesses, Opportunities, and Threat analysis is the projection. It works as a supporting document for industry analysis.

  • The business can present projections to its stakeholders and creditors in the absence of actual financial accounts.

  • By doing this, businesses may maintain investor confidence and increase the availability of capital for their most recent projects. The company must achieve its financial goals in order to succeed and survive in the tough environment and sector.

  • The senior executives can spot early warning indications for company performance and can catch future deviations thanks to the financial projections.

  • Financial projection aids in the budget preparation process for many departments and business units operating under a more comprehensive corporation.

What Are Financial Projections used For?

Although financial predictions can be applied in many different contexts, they are most frequently used to impress investors or when requesting a bank loan or line of credit.

Determining your business plan: Even if your business isn't yet operational, a financial projection is one of the first things potential investors or banks want to see.

Attracting investors: Investors frequently consider a business's financial viability before investing. Without a financial projection that details elements like expenses, revenue, and growth trends, no one will invest in a company.

You're requesting a loan: Banks and other financial institutions are once again concerned with your company's financial health. In order to do this, you must give them more information than just the most recent financial statements that show how your company is performing right now.

Managing your company more effectively: Even while you might not be looking to find investors or apply for a bank loan, you still want to be able to plan for potential development and create budgets that will help your firm expand and prosper. This is also another aspect that financial projections can help.

Types Of Financial Projections

Cash Flow Projections

These are financial outlines that describe the company's anticipated future costs and revenues. They demonstrate to businesses how much money might be available in the future to cover their expenses.

Operating Budget Predictions

Helps to illustrate how much cash a company would require in the future to carry out operations. They can assist companies in deciding whether to adjust their price strategy, invest in product development or marketing, or both.

Cost Projections

Companies also utilize projections to foresee future expenses such as those associated with marketing, product development, and investments in new methods or technology. All of these are crucial in figuring out how much money might be made available in the future to invest in the business or generate a surplus.

Capital Budgeting Predictions

The resources that a company would require for a project are shown by capital budgeting predictions. This kind of prediction is used by businesses to analyze if an investment will be profitable in the long run.

Treasury Projections

They demonstrate how much cash a company would require in the future to finance operations and investments.

Components of a Financial Projection

The income statement, balance sheet, and cash flow projections are the major components of a financial projection.

Income statement

The revenue, expenses, and profit are all displayed on an income statement for a specific time period. The majority of your forecasting should be done here if you're creating these projections before launching your company. An income statement's important sections are revenue, expenses, and income.

Cash flow projection

You can use a cash flow projection to determine when it would be wise to invest in your company's cash flow and when it would be better to start saving. Cash flow can also show a loan officer or investor that you are a good credit risk and that, if granted, you will be able to repay a loan.

Balance sheet

The balance sheet will show the net worth of your company at a specific point in time. It is a list of all the financial information about your company divided into three categories: assets, liabilities, and equity.

Benefits of using software for your financial projections

If you already own a business, it's probable that you are probably thinking about getting accounting software to keep track of your financial transactions. If this is the case, having access to financial reports like a balance sheet, income statement, and cash flow statement is helpful when making financial estimates.

The following are a few advantages of using accounting software:


Unless you're still in the planning stages, being able to generate different financial reports and transactional histories from your software application help to guarantee that your financial estimates are founded on reliable data.

Data accessibility

Having access to financial reports can be quite helpful when creating financial estimates. The data for your projections is available for you and others to access and examine while you are using accounting software.


Your business gains credibility and conveys a sense of professionalism if you can provide supporting financial statements produced by your accounting software with your financial estimates.

If you are searching for an accounting tool that will help you to prepare your financial projections, you can look at Finsmart!

Financial Forecast vs Financial Projection

Financial Forecast vs Financial Projection

Financial forecasts and financial projections can be quite similar, which is why many people get them mixed up. However, there are a few minor variations between the two, and it's critical to recognize these if you want to make accurate financial projections.

Financial Forecast

A financial forecast is a prospective financial statement that, to the best of the forecaster's knowledge and belief, outlines the anticipated financial position, operational performance, and cash flows of your company.

Based on the economic conditions that are most likely to succeed over the specified period, it is based on assumptions about the most likely courses of action you anticipate your organization will take.

Since a financial projection deals with the most probable possibilities, this is the information that is frequently provided to outside stakeholders, like potential investors, as this is thought to be the most crucial information when valuing your company.

Financial Projection

A financial projection is also a prospective financial statement that, to the best of the preparer's knowledge, depicts the anticipated financial condition, operational outcomes, and cash flows of your company.

However, a financial projection will incorporate one or more hypothetical assumptions that might be less likely to occur, rather than only being based on the most likely actions of your organization and the most likely market conditions.

Due to their ability to foresee what might happen to your firm in a range of different specific situations, financial projections are utilized more frequently internally to assist you in making business decisions.

The difference matters because…

Financial forecasts and projections are produced using different techniques, which might result in completely different numbers, which can have a big influence on your organization if you don't realize the difference.

Since projections are more speculative than forecasts, which are based on the most probable scenario, their results are typically less accurate.

If you, for instance, obtain a business loan based on a financial projection rather than a forecast, you can have trouble making your repayments if you overestimated the value of your company.

But as we've seen, both kinds of reports serve an important purpose for your company and can make it easier for you to deal with the various issues that lie ahead.

What is Financial Modeling?

Financial modeling is the system that represents a company's past, future, and current ongoing activities. Financial models enable us to obtain information by analyzing activities, past and future projects, income and expenses, and making inferences by interpreting this information.

Companies’ finance departments use financial models to make easier predictions in situations such as valuation of the company, tracking the progress of processes, possible strategy changes, and identifying external financial effects.

The results of the models are involved in the determination of stock values and comparisons with other companies.

Financial modeling helps to simplify and examine the complex structure of finance more deeply by transferring it to a systematic structure.

Moreover, since financial modeling brings together all financial data and presents it on a single screen, it allows a holistic view of all factors affecting the financial side of the company.

In financial modeling, it is possible to make up-to-date work by making data changes without affecting the whole system, reflecting variable situations, and providing sensitive analysis.

Since financial modeling affects investments, stock purchases, company valuations, and the strategies of current and future projects, care should be taken in entering data into financial modeling.

Incorrect data entry or modeling errors can cause great financial losses and create distrust between companies.

What Are The Uses Of Financial Modeling?

Risk Management

Using financial modeling, companies carefully examine the risks that may arise during the activity and take the necessary precautions to minimize the possibility of the occurrence of the risk.


With financial modeling, all assets and activities of companies are brought together, and price determination studies are carried out to measure the material value of the company. Financial modeling plays a key role in many situations, such as the company's growth, valuations, and future operations.

Valuations made with financial modeling are highly effective in company change, expansion, merger, acquisition, and share purchase.

With financial modeling, not only the valuation of the company is made, but also the valuation of the assets.


With the financial statement that comes out with financial models, companies evaluate their economic situation and determine the prices of the products and services they will sell as well as the shares of their companies.


With financial modeling, companies can easily calculate and analyze their budgets and keep this data up-to-date with new data that may come later, making it easier to plan for further processes.


Thanks to the fact that companies can analyze the data they obtain with financial modeling more easily, they can make their forecasts for the future more realistically and then compare these forecasts with the actual results easily.

Capital Allocation

With financial modeling data, companies can plan their capital allocation in more detail.

What Parts Should Be Included in A Financial Model?

For a financial model to be understood more easily and to contain different factors, it is divided into different sections within itself.

Financial models usually have the following sections:

- Income statement

The income statement shows the revenues of the company in a certain period, the expenses spent while generating the revenues, and the profit or loss situation as a result of these factors.

- Balance sheet

The balance sheet is the statement that the company publishes at the end of these periods, showing the income and expenses as a result of the activities carried out in a certain period.

- Cash Flow Statement

Companies also include cash flow statements in financial modeling. The cash flow statement provides a detailed view of the cash flow by including the sources of the cash on hand and the places where it is used.

- Sensitivity Analysis

Sensitivity analysis is used to determine the risks that may affect the organization and projects and to compare the potential losses of these risks among themselves. The magnitude of the risks and the degree of impact are examined by sensitivity analysis.

- Valuations

Valuations are indispensable in financial modeling. They are usually placed at the end of the modeling and are found as the results obtained as a result of the combination of all the data.

- Supporting schedules and graphs

In financial modeling, there are many graphs and charts to understand the modeling more easily and to support it with visuals. The process can be analyzed in more detail by comparing certain periods with these charts and graphs.

Financial Modeling Software

Financial modeling software is a program that examines, evaluates, analyzes in detail the processes of the company in many areas and the factors that make up these processes, and comes to conclusions for the most positive progress of the process.

Features of a Financial Modeling Software

- Accurate and Fast Calculation

Financial modeling software usually performs the necessary calculations accurately and quickly. It presents the complex structure of these calculations with a simple face that people can understand and makes it easy for the user to analyze.

- Planning and Scenario Evaluation

The software provides insight to the user in planning for future situations and projects and helps them to progress more systematically than their competitors. In addition, the software presents possible scenarios to the user, allowing them to have an idea about the future and to prepare in advance.

- Virtual Accessibility

Financial modeling software can be easily accessed by all users from any point in the world, and the modeling can be shared with the desired person. Many people can simultaneously review the modeling and directly inform their clients and investors about their financial situation.

- Database and storability

Financial modeling software prevents your data from being lost by storing it in a virtual environment. It can store any amount of data, allowing you to prepare as many models and create as many plans as you want.

- Security

Financial modeling software eliminates the possibility of stealing financial data that is available. Most financial modeling software is advanced in terms of security and keeps your data safe by preventing cyber-attacks.

- Saving on Time

Financial modeling software saves time by processing your data much faster than traditional methods. Interpreting and analyzing the data it processes, allows you to notice possible errors and allows you to correct and facilitate your work in a short time.

At Finsmart, we create a positive and welcoming atmosphere to foster collaboration and creativity. Our team is treated with respect, kindness, and professionalism, leading to increased productivity, innovation, and success.

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