In Pursuit of Profit
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A guest post from our partners at CFO Selections.
With an increased focus on financial planning and analysis (FP&A) in recent years, many companies have begun asking, “Do accountants do financial planning?”
For cash-strapped startups and small businesses the temptation to simply add to their accountant’s workload is strong. However, this is not a wise decision. While overloading any one role presents problems on its own, entrusting accountants with FP&A poses its own unique risks.
The differences between accounting and FP&A necessitate that it be handled by separate personnel with unique skillsets and performance objectives. Understanding what FP&A entails and what is at stake can help organizations make smart decisions about who should handle this critical responsibility.
Let’s look at how accounting and FP&A differ as well as who should be responsible for this function.
Accounting vs. FP&A
This chart illustrates the essential differences between accounting and FP&A according to the Association for Financial Professionals:
Simply put, an accountant handles the day-to-day financial activities for the business, while FP&A professionals are concerned with figuring out the meaning behind the numbers and what is happening tomorrow.
Accounting is the hands-on work that needs to be done to ensure that money comes into and goes out of the business correctly to “keep the trains running on schedule.” FP&A is much more than that, encompassing budgeting, forecasting, and financial analysis to manage cash flow as well as set the long-term strategic direction for the company. Furthermore, accounting ensures that financial transactions are accurate while FP&A provides analysis of those transactions to hep the company plan and make smart financial decisions.
Both are crucial to the financial success of the business.
An Accountant’s Role
What should an accountant be doing? Broadly speaking, accountants will likely oversee:
Accounting is primarily concerned with the company’s financial transactions and financial reporting. However, FP&A tells the story behind the numbers and aims to anticipate what will happen next to provide leadership with the information they need to make strategic decisions. As such, FP&A is outside of an accountant’s wheelhouse.
The Corporate Finance Institute elaborates on why an accountant should not be responsible for FP&A:
Corporate financial planning and financial analyst professionals utilize both quantitative and qualitative analysis of all operational aspects of a company in order to evaluate the company’s progress toward achieving its goals and to map out future goals and plans. FP&A Analysts consider economic and business trends, review past company performance, and attempt to anticipate obstacles and potential problems, all with an eye toward forecasting a company’s future financial results. FP&A professionals oversee a broad array of financial affairs, including income, expenses, taxes, capital expenditures, investments, and financial statements. Unlike accountants who are in charge of recordkeeping, financial analysts are charged with examining, analyzing, and evaluating the entirety of a corporation’s financial activities, and mapping out the company’s financial future.”
Therefore, companies looking for FP&A will need to hire a higher level financial professional to manage these efforts.
Who Should Handle FP&A?
A CFO should oversee FP&A. As our team explained in an expert article on how a CFO can improve financial planning and analysis,
FP&A is crucial in setting and executing on strategic vision and, as such, falls under the umbrella of a CFO’s responsibilities. Therefore, it should not be entrusted to non-executive level employees, nor should it necessarily require creating and hiring into a separate role for small to mid-market companies. In these size organizations, a CFO’s skillset includes FP&A because these activities are vital for strong financial leadership, which is their primary concern.
The right executive-level financial personnel can improve FP&A by:
If you are looking to improve your FP&A efforts, do not try to low ball the role by hiring someone like an accountant who is not qualified to provide this type of sophisticated financial analysis. Instead, hire a CFO to manage this kind of overarching strategic vision.
Looking for help with FP&A? Look no further than CFO Selections – your top source for full-time, fractional, and interim financial leadership. Contact us today to find out more.