Corporate Financial Planning and Analysis for Success in 2020
In today’s competitive world, efficient corporate finance planning and analysis is the need of the hour. No matter how strong your product line or marketing efforts are. But if you fail to manage your corporate finances wisely, your business could step into trouble and shatter sooner or later. For every sustainable business operation, it is crucial to have Corporate Financial Planning right in order. It is the most important and inevitable function to invest the capital wisely to achieve long term business goals and other investment objectives.
To date, Chartered Accountants are only popular financial advisors for the corporate financial decisions for the companies or other high-profile people. However, if we talk about reputed business entities, there is a particular department that takes care of the corporate financial decisions internally. This financial planning department specifically aims to utilize the current capital to make more money in the future, so that the cash inflow can stay consistent throughout the business operations. Undoubtedly, all the decisions relating to cash investment are taken by the apparent bodies of companies like CFOs or CEOs. But there is a professional Corporate Planner and Advisor who is working behind them.
It is the Corporate Financial Planning and Analysis (FP&A) professional that almost every reputed organization has and without whom the whole business can shut down. Let’s have a detailed overview of the corporate financial process by most of the companies, with the help of a capital advisor or corporate financial analyst.
What is Corporate financial analysis and planning or FP&A?
FP&A is an abbreviation for Financial Planning and Analysis (FP&A) in the corporate world. It is an in-house department of a company that takes care of the financial situation in the present. From budgeting to forecasting, reporting to analysis, everything is done by financial planning teams to support the major decisions of CEOs and the Board of Directors. The FP&A department is responsible for understanding the past performances while presenting a forecast of the company income statement and operating performance for the upcoming years. Additionally, the fp analyst is also responsible for determining the capital structure, developing investment policy, raising funds to reduce cost and risk, etc. To achieve the same, the corporate financial planning analyst undertakes both qualitative and quantitative analyses of the company’s operational aspects. Besides, the analyst needs to consider the external business and economic trends to anticipate the potential hurdles that may come in the way of future corporate financial planning processes.
Without careful FP&A, very few businesses can work to grow and be consistently profitable. A proper corporate financial planning facilitates companies to identify new sources of capital to fund their long term financial decisions. So, how does this process of corporate financial planning work? Read further to know more
6 Steps in the Financial Planning & Analysis Process
We will discuss the basic and important steps that involve effective corporate financial planning (fp & a).
The whole financial planning and analysis (FP&A) process revolves around the corporate and its operations professionals. To provide an accurate and effective financial plan for the company, an analyst needs to remain in constant touch with multiple areas like sales, treasury, marketing, operations, and accounting.
Below is a detailed list of strategic Corporate Financial Planning processes that will take you through different steps involved in different phases.
1. Knowing the Business Needs & Objectives
For every fp a professional, it is important to communicate with the management to understand their business needs and financial objectives, and capital management can be better done if we can see the final destination.
Therefore, knowing the business needs and future objectives is the foremost step in every corporate financial planning and analyzing (fp & a) process. And, it can be done only with an open and well-defined conversation with the management and stakeholders.
2. Assessing the Current Financial Situation
Before starting with a financial plan for any company, it is important to assess the present financial situation. Being a corporate financial advisor, one should always understand the need of establishing and defining the relationship with the company. This is the only way to look into the internal processes, strengths, and weaknesses of the company.
The assessment starts with gathering and analyzing past balance sheets, past income statements, and cash flow statements. Plus, the financial ratio analysis stays an important component of any future finance plan. Unlike accountants who just maintain record keeping of income and expenses, the corporate financial advisor examines, analyzes, and evaluates every financial activity while mapping out a future financial plan. The advisors tend to build a comparative chart between the current financial situation and the company’s future needs and objectives.
3. Determine Financial Goals & Strategies
Another key component of the financial planning process is to determine future corporate financial goals, based on the analysis of past financial situations. By analyzing the companies’ past financial information with its new future goals, one can easily provide financial planning recommendations and management to meet the business objectives.
Determining and presenting financial goals and strategies to the client will provide him/her with an opportunity to make well-planned and informed decisions. Also, financial advisors should always be ready with Plan B because of the unwanted hurdles of the future. Here, we are talking about the risks associated with a future financial strategy. Read ahead to find more about it.
4. Anticipating and Managing Risks
As discussed previously, risk management is another important component of the financial planning process. When we aim to develop and implement any strategic plan for business finance, there is a need to keep an eye on the outgoing market trends and potential problems.
By keeping a detailed list of risk factors along with a financial plan will allow the management to choose wisely. After all, the implementation of any corporate financial plan depends upon the risk appetite of the company. Based on that, further steps are taken by the financial analyst. If the company doesn’t wish to put its finance on stake, the analyst may present a new strategy.
5. Implementation of Financial Plan
The role of a financial planning and analysis team (FP&A) is not limited to determining and recommending plans. But the team is also responsible for implementing the suggested capital plan while mapping the business assets adequately. And, this can be done if business professionals agree with the financial planning advisor’s recommendations.
Therefore, financial planning professionals need to present an appropriate and feasible service or product to move ahead with the finalized capital plan. Once accepted by the client, the implementation of the corporate financial plan takes place.
One agreed and implemented, there is a need to ensure the proper execution of a corporate financial planning process. Any corporate financial planning process is often challenged by several external factors like lifestyle, risk profile, and other unpredictable events. Therefore, both the company and analyst FP A need to work jointly while dividing their responsibilities into the review areas.
While monitoring and reviewing the future financial planning process, there always remains a possibility of any revision in the recommendations, depending upon the company situation at that particular time. So, there may be some changes in the original finance plan proposed. Both parties should be ready for the scenario.
Finances are always critical, be it in business or life. Without proper capital management, corporations are certain to face hard times. When we talk about corporate finances, there is more responsibility on the management as they employ several individuals. Therefore, an accurate and effective corporate financial planning and analysis should always be ready from the early days of business. If businesses start early with capital management, they can survive in the long term while expanding in multiple horizons. But, if they haven’t started yet, it is the right time to do so. Investing your time and money in a team of financial planners is always rewarding.
Business is a risky affair, and management needs to take every step wisely. Be it launching a new product or cutting down on an expense, everything should be thoughtful. Being a business owner or a higher-level management professional, there are multiple duties involved at the operational end. No CEO or CFO can allow adequate time in researching and planning with future capital management plans.
In this post, we have tried to make you understand the true essence of corporate financial planning, along with several components that are crucial to building and sustaining a company’s growth in the long-run. Each step is important, and should not be ignored while taking critical decisions like financial planning and management.