In the not-too-distant past, Financial Planning & Analysis (FP&A) was very backward-focused. However, technology and shifting expectations have changed all that. Now, it needs to focus on the future and help businesses make better decisions through forecasting and projections.
How FP&A is changing
FP&A is generally comprised of four areas of focus:
- Planning and budgeting
- Integrated financial planning
- Management and performance reporting
- Forecasting and modeling
This modern conception of FP&A is a far cry from the traditional approach.
Better data collection and analysis tools have changed the role of CFO. Where once FP&A was about understanding what had happened in the past, now it is equally concerned about what will happen in the future.
The CFO has become a strategic partner. Their evolved duties consist of scenario modeling and projections. The services that CFOs offer have become more proactive and business-focused. It's about identifying trends and opportunities.
A large part of this analysis comes down to technology. High-speed internet, ERP systems, and cloud computing allow us to collect an incredible amount of data. We can also do a lot more with this information.
Modern analytics, run by powerful machines, provides valuable insights. CFOs can forecast business health with more accuracy. Additionally, services like scenario modeling can provide projections that help make better decisions.
Additionally, automation has changed financial planning too. These tools can do a lot of the backward-looking manual work. This situation has freed-up CFOs' time and allowed them to pivot into a more strategic and advisory role.
For businesses, this is a great opportunity. Reporting and reconciling finances is still an essential aspect of accounting. But having someone who can make sense of that data and forecast what it means for the future of your business has many advantages.
The world of business is ever-changing. Competition, micro and macroeconomic factors, and technological advances have made projections essential. Professional financial advice helps companies navigate these choppy waters and chart a course towards more stable and predictable revenues.
Why forward-looking activity is more important than past reporting
Put simply, forward-looking activity is more important because it is data-driven, adaptable, and agile. It's not good enough to guess or use gut feeling to chart the direction of a business. Additionally, because a forward-looking approach takes a long-term view, it can forecast what actions will help the company achieve its goals.
While traditional FP&A had a lot to say about the past, its projections about the future often hinged on things staying the same. However, as we've all learned over recent years, even the best-laid plans can go awry.
A pandemic, a war, rampant inflation, or the tightening of monetary policy can occur at any time and cause havoc. Although a good CFO can't predict the future, they can help you plan for it and mitigate risk. For example, comprehensive scenario modeling can help you design business continuity plans and even account for unlikely scenarios.
How outsourced or fractional CFOs became accessible to SMEs
Traditionally, many SMEs have viewed the role of CFO as a luxury they couldn't afford. It used to be something that only large, enterprise-sized firms could attain. However, technology has changed this thinking.
Now, the rise of fractional CFOs — Chief Financial Officers who work for several businesses at once — means that SMEs can take advantage of the advice and expertise of a financial professional. Without the burden of a full-time salary plus benefits, these specialists have become a realistic option for smaller businesses.
Advances in technology and communication tools have also made this shift possible. Smartphone apps, digital banking, and APIs mean that finances can be tracked at all times, often automatically. Cloud-based computing allows secure remote access, meaning company accounts can be up-to-date and accurate at all time.
These situations mean fractional CFOs can do their work from any location, making these professionals more accessible to a broader range of businesses.
Now, let's look at what an outsourced or fractional CFO can do for your business.
Benefits of a CFO for SMEs
Fractional CFOs typically work with startups and SMEs. Their role is to support the financial health of a company. On a practical level, this can mean one of several different things.
For example, startups or SMEs can employ the services of a fractional CFO to:
- Provide advice and strategy
- Accelerate growth
- Resolve financial challenges
- Raise capital
- Perform audits
How a fractional CFO can help your business
Businesses use the services of fractional CFOs to help them manage a wide range of financial issues. Quite often, companies lack the expertise, skills, or workforce to resolve complex or specialist problems themselves. CFOs help bridge that gap in a similar way that a consultant can.
Many startups or small businesses begin life simply. At the start of their venture, tracking income and expenses is straightforward. Many entrepreneurs do this task themselves or, in some cases, hire a bookkeeper.
However, growth brings added complexity. And that requires an upgrade in capabilities. Of course, that's just one piece of the puzzle. Because as a business grows, it becomes more difficult to push on and compete. Then, the need for strategic advice, scenario modeling, and other projections becomes a significant part of progression.
Here are a few things that a CFO can do for a business to maintain or accelerate growth.
Sometimes businesses need to make data-driven decisions. A CFO can lend their financial expertise to help analyze different situations and recommend the correct course of action. This forward-looking approach is an invaluable aspect of strategic management.
Help businesses set and achieve their goals
Businesses can outsource or employ a fractional CFO on a regular basis or to help them achieve a specific short-term goal. For example, a company might need help with a sale, assistance raising capital, advice during times of accelerated growth, restructuring, or even guidance through a challenging time for the business.
Having a professional who can look at the books and forecast what the right path towards a goal looks like is essential.
Plan and manage growth
A fractional CFO can help businesses both plan and manage growth. Often, accelerated growth is new territory for a business owner. Having a trusted financial expert to map out the trajectory and forecast promising opportunities is just the start. A good CFO can also perform scenario modeling that can provide answers to complex questions.
Lots of businesses experience growing pains. Forward-looking FP&A helps them stay profitable as they expand their operation, launch new products, or enter new territories.
Manage unique situations
Even businesses with full-time CFOs might hire a fractional CFO when they need particular or specialist expertise. For example, periods of adjustment or business downturns can create a situation outside the remit of management and existing staff.
An outsourced specialist can help shepherd businesses through upheaval and emerge stronger. Additionally, they can assist with audits, expansion, or accessing funding or capital.
Help with strategy
A CFO understands a company's financial health by analyzing the data. However, the modern, forward-focused CFO extrapolates strategic advice from this data that can help inform goals or targets.
Strategic advice can take many forms. For example, it might relate to business investments, like equipment or personnel. Additionally, it could be about document review, tax, staff coaching, expansion plans, and more.
In short, a good CFO is more than just an accountant. They can be a part of the strategic management of a business, ready to use projections or scenario modeling to produce data-driven advice to help the company thrive.
Staff development and mentoring
Of the less celebrated but perhaps most valuable functions of a fractional CFO is helping mentor and develop in-house staff. Because CFOs work with a wide range of businesses, they can easily share their knowledge of practices, financial infrastructure, and cutting-edge development.
This expertise can help sharpen up your current team and prepare them for specific scenarios.
How to facilitate great forward-focused FP&A
Now that you understand the benefits of making projections and using scenario modeling, you're probably eager to hear how you can unlock these advantages.
One of the most vital elements of moving FP&A from reactive to proactive is having the right tools. As we said, automation and communication tools have changed finance. Cloud-based applications, like Dryrun, can be used to help you move from painstakingly recording your financial accounts on spreadsheets to a slick, modern, automated system.
Dryrun can analyze and forecast based on imputed or automatically added data. From there, you can generate reports, risk analysis, and scenario modeling that you can use to power business decisions.
Having modern, connected software is critical if you want to unlock the benefits of a fractional CFO. When they have the correct analytic tools in their hands, they can gain a deeper understanding of your business.
If you need general financial assistance or help to get through a challenging period or want advice on how to accelerate growth, an outsourced or fractional CFO — backed up by great scenario modeling tools — can provide the projections or advice that you need to ensure you make decisions that are in the best interest of your business.
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