As businesses scale past $25M in annual revenue, financial decisions become increasingly interconnected. Without robust financial planning and analysis (FP&A) capabilities, leaders can quickly find themselves making reactive decisions that create inefficiency or instability.
In this guide, you’ll learn how FP&A supports strategic decision-making for mid-market companies. We’ll also explore what an effective FP&A function looks like, when it makes sense to build one in-house versus outsource it, and how AI is likely to shape the future of FP&A.
What Is Financial Planning and Analysis?
Financial planning and analysis (FP&A) is fundamentally about helping business leaders make better-informed decisions. This primarily involves extracting actionable operational and strategic insights from financial reporting data.
For example, common FP&A responsibilities for mid-market companies include:
- Forecasting and budgeting: FP&A forecasts cash flows and financial performance, then builds budgets based on those expectations. Leaders use budgets to allocate resources and measure progress throughout the year.
- Scenario planning: When making major decisions, FP&A models a range of outcomes using various assumptions. This helps leaders understand potential risks and compare strategic options before committing capital.
- KPI reporting: FP&A tracks the financial and operational metrics that matter most to the business. Regular reporting helps leadership identify trends early and determine whether strategic initiatives are producing the desired results.
- Variance analysis: FP&A compares actual and expected results to understand why they differ. Those insights help leaders respond more quickly when the business moves off plan and improve future forecasts.
- Board and leadership reporting: FP&A translates financial data into meaningful insights for key stakeholders. Instead of presenting raw numbers, reports focus on what changed, why it changed and what leaders should do next.
Other finance functions, such as accounting and bookkeeping, are primarily backward looking. In contrast, FP&A is a forward-looking function that leverages the historical data those reporting processes create.
According to an Association for Financial Professionals (AFP) benchmarking survey, FP&A teams spend 24% of their time on budgeting and forecasting, 22% on performance metrics and management reporting, and 19% on financial analysis.
FP&A Example: Product or Service Expansion
Launching a new product or service brings opportunities for financial growth, but it also carries risks. Before leaders commit resources to the project, FP&A can help them understand the potential financial implications.
For example, that might involve modeling a range of revenue results assuming various degrees of market adoption. This helps clarify the potential upside if sales are strong, as well as what revenue might look like if they fall short of expectations.
In a similar vein, FP&A analysts might also forecast how the new offering is likely to impact overall profitability. By estimating the effect on costs and profit margins, they can help leaders determine whether the expected return justifies the investment.
Why Companies Scaling Past $25M Need FP&A
Many companies don’t have an FP&A function from day one. Early-stage businesses often have relatively simple operations and limited historical data, so finance teams focus primarily on closing the books and managing cash.
However, as companies grow in size and sophistication, decisions become increasingly interconnected. By the time you’re scaling past $25 million in revenue, leaders are typically managing:
- Significant operational complexity
- Multiple stakeholders expecting data-driven decisions
- Substantial risk exposure around hiring, pricing and expansion decisions
At this stage, static budgets begin to break down. The assumptions they were built on can become outdated within months or even weeks, leaving leaders to base choices on stale information while the business continues to evolve.
As a result, FP&A becomes increasingly necessary. By consistently performing planning and analysis procedures that incorporate fresh financial and operational data, it can give leaders the visibility they need to make tactical adjustments in real time.
Effective FP&A for Mid-Market Companies
For mid-market companies, reactive decision-making usually isn’t sustainable. Without an effective FP&A function, leaders can easily make suboptimal choices that have negative financial consequences, such as cash flow gaps and under- or over-hiring.
If your business is doing $25M or more in annual revenue, here’s what you should likely expect from your FP&A function:
- Rolling forecasts: Forecasts update as new information becomes available instead of remaining fixed for an entire fiscal year. This gives leaders a current view of future performance instead of relying on outdated assumptions.
- Actionable scenario analysis: FP&A models the financial impact of major decisions before they happen. Leaders can compare potential outcomes and understand the tradeoffs before committing capital.
- Resolution of forecast variance drivers: FP&A identifies why actual results differ from forecasts and budgets, then uses that knowledge to refine future assumptions and improve predictive accuracy.
- Connected financial and operational planning: Forecasts reflect what’s happening across the business. This creates a clear connection between day-to-day activities and financial performance.
On the other hand, if finance is too preoccupied with historical reporting to engage in FP&A, that’s a sign something needs to change. For example, it could be that your team lacks capacity or expertise, or that manual workflows are creating bottlenecks.
Similarly, FP&A can only create value when leaders trust its output. If stakeholders have stopped relying on forecasts because they consistently miss the mark, that’s another signal there’s weakness in the function.
Building In-House vs Outsourced FP&A Services
If your mid-market company’s FP&A function isn’t as well-developed as it probably should be, you have two primary options for expanding it: building out the department in-house or engaging outsourced FP&A services.
Generally, an internal FP&A analyst can offer more dedicated support and gain deep familiarity with your business, potentially improving the quality of long-term planning. However, hiring one represents a sizable upfront and ongoing investment.
Outsourced FP&A services provide greater flexibility with less overhead. They may not be as deeply embedded in your organization, but they often give you access to financial expertise at a fraction of the cost of an equivalent full-time hire.
In many cases, mid-market companies can benefit from supplementing an existing internal FP&A team with outsourced services. This allows you to scale your financial capacity without scaling your headcount.
The Future of FP&A for Scaling Companies
AI is rapidly automating traditional FP&A workflows. As a result, complex processes that once required significant manual work now happen faster, more accurately and with less effort.
One of the most likely consequences is that FP&A solutions will continue to shift toward real-time planning. For example, instead of updating rolling forecasts monthly or quarterly, companies may increasingly adopt systems that can incorporate live data.
AI is also likely to continue strengthening the connection between finance and operations. As these systems become more integrated, FP&A teams should spend less time reconciling data and more time interpreting it.
Despite this shift, finance leaders will remain essential. FP&A tools can generate forecasts and model scenarios, but human judgment will still be necessary to evaluate risks, prioritize opportunities, and decide how financial insights should influence strategy.
Strengthen Your FP&A Function With Paro
As businesses scale, strategic decisions become more complex and higher stakes. An effective FP&A function gives leaders the financial insights they need to make informed choices that align with long-term goals.
If your planning capabilities are lagging behind your company’s scale, Paro can connect you with expert FP&A services. Schedule a free consultation to get help with everything from KPI dashboards to rolling forecasts.
FAQs
FP&A services provide outsourced assistance with forward-looking finance processes, rather than historical reporting. Generally, their purpose is to help business leaders make better-informed operational and strategic decisions.
While other finance teams handle accounting and bookkeeping, FP&A teams transform that data into actionable insights through various analytical procedures. For example, that often includes budgeting, forecasting and scenario planning.
A rolling forecast is a financial planning technique that involves continuously updating future performance estimates using the most recent historical data. For example, when one month ends, FP&A would replace the estimated data with actual results, drop the oldest month in the model, and extend the forecast by another month.
Financial planning generally refers to setting long-term financial goals and developing a strategy to achieve them. Meanwhile, budgeting involves creating a spending plan for a specific period, and forecasting is the process of estimating future financial performance using historical data and research-backed assumptions.
