10 FP&A Skills Every Finance Leader Should Have
FP&A (financial planning and analysis) is one of the most critical pieces for scaling a startup and ensuring sustainable revenue growth.
It is, by nature, a highly-technical role, and FP&A professionals require a particular set of skills to succeed in this arena.
Founders and CFOs looking to hire for this position will need a strong understanding of FP&A skills to find the right fit.
Similarly, those looking to carve out a career in FP&A need to know what hiring managers are looking for and what skills and expertise they should develop to perform well in this role.
This article will look at the 10 top FP&A skills every finance leader must possess to succeed.
Budgeting is a critical financial planning and analysis skill. It’s all about planning the metrics (revenue, burn rate, runway, cash flow, expenses, etc.) that your company expects to hit during the upcoming year.
It’s essentially the process of creating target numbers against which you can measure actual performance during the year (or a different timeframe — budgets can be quarterly or even monthly).
Budgeting is an important FP&A skill because, without a well-thought-out budget, your company doesn’t have a map for financial success, performance, and measurement.
Without a budget, you won’t know whether that $1m in revenue you’ve generated this year was impressive or not or whether your $50,000 cloud computing bill is more or less than expected.
More than that, skilled FP&A professionals must be adept at creating realistic budgets based on past performance, reasonable growth forecasts, and an analysis of current market conditions.
Forecasting is the process of projecting the numbers (in whatever area you may be measuring) your company will hit based on your current performance.
While budgeting is about setting targets, forecasting looks at your actual performance and asks, “Are we on track to hit our budgeted figures?”
As such, forecasting is an ongoing process, and skilled FP&A professionals will be able to monitor and take action if things start to go off track.
For example, let’s say you have a budgeted hiring expense of $25,000 for the year.
After month three, you’ve spent $8,000, which forecasted to the end of the financial year amounts to $32,000.
FP&A professionals skilled in forecasting will identify this trend early on and make appropriate recommendations to the leadership team (which may involve tightening spending or adjusting the budget).
Forecasting is a crucial FP&A skill as it allows your company to identify early whether you’re on track to meet budgeted figures or not. Then, you can take appropriate action.
3. Communication & Collaboration
FP&A professionals don’t work in a vacuum. At least not the great ones.
They must collaborate with others in the finance department (accounting, accounts payable, etc.) and the senior leadership team.
Important, then, is the ability to work effectively with others and communicate well.
One of the key responsibilities of the FP&A professional is to act as an advisor to the leadership team and board.
For instance, an FP&A leader might identify that the revenue model the business is currently using is unsustainable at high volume because infrastructure costs increase exponentially as new users sign up.
This is a critical finding and must be communicated with tact and diplomacy (those you’re advising must feel that you aren’t attacking their skill or ability to identify a suitable revenue model).
Communication skills extend to an understanding of the best way to communicate ideas.
For example, should this finding be communicated via email, phone, in-person, or through a formal written report illustrated with graphs and financial models?
4. Financial Analysis
It probably doesn’t come as a huge surprise that you’ve got to be good at financial analysis to be successful in financial planning and analysis.
Aspects of the job, such as budgeting and forecasting, fall under the planning umbrella.
However, analysis takes a retrospective look at your company’s financial performance (often including reports and statements prepared by accounting) and asks, “Why did this happen?”
For instance, an FP&A professional might be asked to review the expenses accrued by a particular project that has just wrapped up and analyze these figures in conjunction with the expected benefits of that project to understand ROI (return on investment).
Financial analysis skills are crucial here as they are the difference between understanding what happened and why it happened.
Understanding and communicating the root causes behind a given phenomenon (whether positive or negative) helps your leadership team make informed decisions and take appropriate action, such as altering operating procedures to cut costs or doubling down on what’s already working well.
5. Capital Planning
Capital planning is about budgeting financial resources for long-term growth plans.
While budgeting is more about operational expenses for the current or upcoming financial year, capital planning looks at capital expenses, expansion, and growth for several years in advance.
Capital planning uses historical financial analysis, forecasting, revenue growth plans, and scenario planning and modeling to understand a company’s ability to achieve its expansion goals in the future.
It’s a vital FP&A skill as it allows you to understand where there might be holes in your organization’s growth plans.
For example, many SaaS companies look to follow a Triple/Triple/Double/Double/Double revenue growth model.
But, if you’re in year two, and you’ve only doubled revenue in the last financial year, it’s probably not realistic to expect 3x revenue this year.
The historical analysis aspect of capital planning helps identify gaps such as this.
6. Financial Modeling
Financial modeling is a process that involves taking real-life performance (e.g., revenue and expense figures) and then building a representation of those figures to inform decision-making processes.
For instance, an FP&A professional might build a model for cash flow analysis every month on behalf of their leadership team.
Suppose cash flow is trending upwards over the last quarter.
In that case, the leadership team may choose to allocate additional resources to marketing and advertising to increase brand presence and drive new revenue.
Financial modeling is a critical FP&A ability because, without these hard figures, leadership teams can’t make accurate, informed decisions.
7. Problem Solving
Since FP&A professionals act as advisors for the leadership team, part of their role is to solve financial problems so they can provide actionable advice.
The board doesn’t just want to hear, “We’ve identified a problem.”, but, “We’ve identified a problem, and here are three suitable solutions.”
As such, problem-solving is an important soft skill for FP&A leaders to master.
The inverse is also true, where leadership teams may task FP&A team members with solving a particular financial problem.
For instance, finding an additional $500,000 in the budget to support the expansion of the sales team into a new territory.
8. Report Preparation
While the accounting department is typically responsible for preparing financial reports like income statements and balance sheets, report preparation is still an important aspect of the FP&A role.
Financial planning and analysis leaders may be responsible for preparing reports such as:
The best FP&A professionals are skilled at preparing reports that communicate key ideas easily.
Your leadership team doesn’t want to wade through pages and pages of analysis (that’s what they’ve hired you for).
Instead, they want to see high-level numbers, easily-comprehensible graphs, and key data presented in digestible formats.
Understanding how to put together an informative and coherent report is key here.
9. Variance Analysis
Variance analysis compares budgeted figures (e.g., expense figures) against actual figures.
Put simply; it’s about asking, “Did our actual revenue and expenses match our budget? And if not, why not?”
Negative variance (when revenue is lower or expenses are higher than expected) is important to identify early, so the leadership team can sign off on budget adjustments or make other internal changes to counteract that variance.
Positive variance (where the opposite is true) is also important to understand.
If expenses in a particular area are consistently lower than budgeted, your company can reallocate this budget to another department.
Budget variance is not uncommon (certain expenses are difficult to estimate correctly, and revenue often fluctuates), so this is a task that FP&A professionals must become intimately familiar with.
Research is a broad skill set to develop, but it’s important.
FP&A professionals need to report not only on internal performance but on market changes, industry trends, and competitor analyses.
Understanding the state of the environment within which your business operates allows you to make financial recommendations that make sense in both contexts (internally and externally).
Understanding the most important FP&A skills is critical for professional development and identifying the areas where you need to put more energy into improvement.
The best FP&A professionals not only possess the above skills but have a capable financial modeling and forecasting platform to help them work efficiently and create accurate, effective reports.
Don’t have one yet?
Or better yet, book a demo with our team to discover how we can help level up your financial planning and analysis.