- FP&A can help small businesses improve their long-term performance by improving forecasting, budgeting, and decision-making.
- Though more common in large corporations, FP&A may be useful for small companies navigating economic uncertainty and searching for new opportunities to grow.
- A business case for FP&A should be well-structured and clearly communicate the expected benefits and company resources that will be required.
Large corporations have long understood the value of FP&A. FP&A is deemed so important to the success of big companies that many have entire departments devoted to it.
What is FP&A? At the most basic level, FP&A is the collection and analysis of data about a company’s performance and sales forecasts. The aim of FP&A is to improve a company’s strategy, investments, and ability to raise capital. Put simply, FP&A provides intelligence company leaders need to run an efficient and profitable business.
Understand the Importance Of FP&A
While FP&A may be a best practice in the corporate world, most small business owners can’t devote the time and resources to create an entire department focused on it. Still, there is a strong business case to be made that FP&A is a worthwhile initiative. The case for small businesses to pursue FP&A is especially compelling in the current economic environment.
For example, inflation and reliable supply chains have been nettlesome challenges for small business owners for several years. Although inflation is well down from its high point of 7.2 percent in 2022, the Federal Reserve recently raised its forecast of inflation in 2025. It projected that it would cut rates twice rather than the previously expected four times over the course of the year. Trade policy is another source of uncertainty for small business owners. Tariffs have the potential to disrupt or increase the price of the supply of goods small business owners source from foreign countries and potentially make it more difficult to sell to customers abroad.
Every small business faces its own unique set of risks and opportunities. However, FP&A is ultimately about arming business owners with the intelligence and insights they need to mitigate potential disruption and maximize the benefits of business opportunities.
Defining Objectives and Goals
Successful FP&A involves several specific steps and is bolstered by following established best practices—many of which will be covered below. But before focusing on the specific mechanics of putting together a company-specific FP&A, it’s important for business owners to clarify their objectives.
Is the primary goal to increase growth and profitability? Is the priority to cut costs? Is the intention to focus on an existing market and set of customers or to expand into new markets? Defining clear objectives is crucial to ensure that the resources and time devoted to FP&A are worthwhile and support a company’s underlying business strategies.
Key Elements of a Business Case
Successful FP&A depends on gaining buy-in that the effort and expense involved in gathering company data necessary for budgeting, monthly sales forecasts, variance analysis, and key performance indicators (KPIs) are worthwhile. Properly building a business case for FP&A, however, means acknowledging that different company stakeholders will have their own unique priorities.
For example, small business owners—who, in many cases, will advocate for the insights, forecasts, and intelligence FP&A can deliver—may want to be confident that the exercise will result in greater profitability. Small business investors will likely prioritize return on investment (ROI), while the company’s employees will often want to know how FP&A enhances their job security.
Structuring an FP&A Business Case
Anyone who has ever written a business plan before launching a company understands how clarifying it can be to communicate in writing what makes your firm unique and how you’ll earn and spend money. The same benefits are true when it comes to formally documenting the business case for FP&A. Here are five elements to include:
- Executive Summary: What’s the point of pursuing FP&A, and how will it benefit the business and its stakeholders? The executive summary should crisply explain the purpose of FP&A, the value it can deliver, and the resources necessary to do it.
- Background: This section can delve more deeply into some of the issues raised in the executive summary. For instance, FP&A is designed to provide data-driven insights to inform decisions about budgets, forecasts, and business strategy. Part of making the business case for a change is explaining why the status quo approach is not delivering valuable insights and information to make good decisions.
- Tools And Solutions: Many small businesses use a bookkeeper, an accountant, spreadsheets, and maybe some software to close their books and file taxes. Securing the benefits of FP&A, however, requires additional resources, such as cloud-based FP&A-specific software. It will also demand the attention of staff members who would otherwise be performing other tasks.
- Financial Analysis and ROI Considerations: A thorough business case for FP&A needs to account for the time and expense of the tools and personnel needed to secure its full value. In some ways, making the business case for FP&A at your company. How much will the necessary FP&A software cost? What are the expenses to train or even hire workers to gather and analyze data? Those expenses must be compared to the expected upsides of FP&A, such as revenue growth and cost savings.
- Success Plan: Even great ideas are of limited value if they aren’t carefully implemented and refined. A business case for FP&A should clearly delineate the roles and responsibilities of staff, an implementation timeline and milestones, and how resources to make FP&A a reality will be allocated. The success plan provides visibility to all the stakeholders in a business and can establish the metrics by which the value of FP&A will be measured.
Developing Strategic Benefits
A business case for FP&A can be strengthened by communicating some of the specific benefits you expect. These include:
Enhancing Financial Agility
Running a small business means getting comfortable with the unknown and the unexpected. Many changes, such as consumer tastes and interest rate changes, are far outside the control of small companies. However, what business owners can control is how they monitor, plan for, and adapt to inevitable changes.
FP&A can inject data-driven agility and adaptability into a company’s strategies and decisions. For example, the regular collection and analysis of company financial data can detect market trends and changes in customer demand, prompting investments in new products and services or cost-cutting.
Scenario analysis is a common FP&A exercise that involves modeling the financial impact of ‘what if’ scenarios, such as an economic recession or supply chain disruptions. By anticipating potential scenarios that could negatively or positively impact a company, small businesses may develop contingency plans that can be implemented quickly to mitigate risk or seize opportunities. FP&A may also enhance financial agility by moving the budgeting process from yearly to a more regular cadence. By doing this, revenue forecasts and expenses can be adjusted based on real-time data.
Quantifying Benefits and Value Proposition
Small business owners and their employees have to closely guard their time and resources. That’s why it’s so important for an FP&A business case to spell out the value it will deliver – and why it’s a better use of time and resources than other activities. Financial and non-financial metrics to propose as part of an FP&A business case include:
Reduced Costs
FP&A identifies what a business is spending and where, which provides the transparency needed to cut waste.
Higher Revenues
By continuously tracking sales – including which products and customers purchase the most – FP&A may help small businesses focus their sales and marketing efforts on growth opportunities.
Cash Flow Optimization
Managing cash flow is among one of the most important and challenging tasks for a small business owner. Not having sufficient cash to run payroll or to pay vendors keeps owners up at night. The accurate forecasting and expense visibility FP&A may reduce the risk of ever facing a cash shortage.
Improved Risk Management
Improved forecasting and budget transparency help small businesses identify potential problems – including a revenue drop – and provide time to develop a strategy to respond.
Best Practices and Templates for Implementation
Once you get buy-in from employees and investors, you’ll need to focus on implementation to get the full value from FP&A. Here are four best practices:
- Standardize data collection Data is the fuel that makes FP&A run. Ensure that systems are in place to collect and aggregate accurate data from across the business.
- Continuously update forecasts The pace of change in markets and customer taste is rapid. Rolling forecasts using updated sales and expense data provides flexibility and insights to respond quickly and effectively.
- Facilitate collaboration Even if a handful of people are responsible for FP&A, be sure everyone at the company knows it is a priority and their role in making it a success. This is especially true when it comes to sharing data.
- Use advanced tools FP&A software can make data analysis faster and more readily available to inform decisions.
Templates can make FP&A easier to implement. A web search will reveal a wide variety of companies offering a range of planning templates.
Taking the Next Step Toward FP&A Success
If you’re ready to explore the potential benefits FP&A can provide to your company, here's what to do first.
Review the Business Case with Stakeholders
The importance of gaining support from employees, investors, and other company stakeholders can’t be overemphasized. After you complete the initial data gathering and analysis, present your findings. Highlight the value of higher revenue, improved decisions, and other FP&A benefits. But it’s important to also be clear about the resources that will be required to secure that value. Solicit feedback about any concerns and incorporate it into your formal business plan.
Secure Budget and Support For FP&A Initiatives
A compelling business case for FP&A must translate into a budget for the people and technology to implement it.
FP&A may provide small businesses with the insights necessary to navigate challenging economic times and take full advantage of new opportunities. The first step in pursuing those benefits is to build a strong business case for FP&A.
