Do All Companies Have FP&A Functions?
The short answer is, yes, all companies have FP&A functions.
Even single-owner businesses have FP&A functions. After all, FP&A stands for “financial planning and analysis.” Establishing a successful business without performing some degree of financial planning and analysis is nearly impossible.
Despite all companies having FP&A functions, they operate differently based on their size, complexity, and industry.
When considering the differences in FP&A at various companies, it's worth exploring through a matrix. On one hand, there are differences based on company size. On the other hand, there are differences based on the company's industry or sector. Combine them multi-dimensionally to get an idea of what the function may look like at a subject company based on its size and industry.
What Do FP&A Functions Look Like at Companies of Different Sizes?
Regarding company size, there are small businesses, mid-market companies, and large corporations. I frequently refer to small businesses as those that are privately-owned and exhibit less than $25 million of annual revenue; large corporations as those realizing more than $1 billion in annual revenue; and mid-market companies as those in between.
Here are some general guidelines regarding what FP&A functions look like at companies of different sizes.
Startups and small businesses (fewer than 50 employees)
A recent report looked at FP&A functions in companies with up to 1,000 employees. Interestingly, it found no companies with fewer than 50 employees and an in-house FP&A team.
This aligns with what I have seen and experienced.
Small businesses and startups are unlikely to have a truly defined FP&A function.
Often, a senior accountant, bookkeeper, family relative, or even the CEO or founder acts as FP&A for a startup or small business. They are the person looking at the numbers and using the company’s finances to strategize and plan for the future.
The need for a more formalized approach to FP&A could be triggered by increased company growth, a new funding round, a more complex organizational structure, or the need to make capital (capex) improvements.
More established small businesses may have a Head of Finance or a Controller who, along with a small team of support staff, is responsible for all things FP&A. This includes budgeting, forecasting, bookkeeping, financial reporting, liaising with outside parties, and more.
Mid-market companies (up to 500 employees)
Companies of this size are far more likely to have an in-house FP&A team than small businesses and startups. The report cited above found that 28% of companies with up to 500 employees had an in-house FP&A team.
Even in a mid-market company, the FP&A team may be relatively small. These companies will hire specific people to fill identified roles and will likely begin segmenting generalists into financial specialists.
Managers and leaders at mid-market companies are often more interested than their counterparts at small businesses in data science, data analysis, and strategic planning to help support decision making. As a company grows, given the increasing magnitude and complexity of future projects and initiatives, risk management becomes paramount. Companies of this size are also likely to invest in new software and capabilities to evolve from a small business to one that behaves like a larger corporation.
Large Corporations (500 or more employees)
Corporations and larger organizations likely have a defined FP&A function and more extensive FP&A teams of dozens or even hundreds of people. There will be several layers of hierarchy, with the Head of FP&A reporting directly to the CFO.
FP&A job duties will be well-defined and more deeply segmented in a large corporation. Individuals may have specialized experience and business knowledge within a critical area of the organization without touching other parts of FP&A. In other words, an FP&A professional may be responsible for a line-item, within a line-item, within a line-item of the P&L without giving consideration to other activities.
For example, a company may have some FP&As focusing exclusively on marketing while others specialize in industry regulations. FP&A roles can also be divided by geography (especially for multinational corporations) or line of business.
What Do FP&A Functions Look Like at Companies in Different Industries?
As it relates to industry, there are unique dynamics that go beyond company size. For example, a company in construction will have very different focuses and financial strategies than one in financial services, retail, or distribution.
A recent study looked at FP&A functions around the world. It found that the industries most likely to have formal FP&A departments are:
Manufacturing
Software/tech
Banking/financial services
Business services/consulting
Telecommunications
Healthcare/health services
Pharmaceutical/chemical
Energy
Construction
Some FP&A professionals may feel their 15 years of experience in construction can easily translate to other industries; however, it often doesn't. The nature of the technical work may be very similar, but there will still be a steep learning curve when it comes to understanding the industry and gaining institutional knowledge. Additionally, someone with a decade-and-a-half of experience will likely command a far higher compensation package than someone at the earlier stages of their career. Organizations onboarding a highly-experienced, well-compensated Director will likely expect that individual to demonstrate industry and institutional expertise.
Here are some examples of the different ways industries approach FP&A.
Construction
In construction, FP&A tends to be very focused on profitability, cash flow management, and forecasting in the context of significant project-based developments. Even though FP&A is still responsible for planning, analysis, and process at the corporate level, much of FP&A’s focus will be on individual projects. Additionally, FP&A will help with process improvement driven by identifying and monitoring project-specific KPIs.
Health Care
There are several areas of health care that FP&A commonly focuses on, including pharmaceuticals, customer service, affordability, project management, geographic focus, capex, informatics, risk management, underwriting, and forecasting. Due to the size, complexity, and nuance within healthcare and insurance, FP&A may be highly specialized within a particular business function. Some insurance and health care providers may encourage rotational FP&A programs to promote a greater awareness of other parts and how they impact each other. One such Fortune 100 company I have worked with for years, has rotations lasting upwards of 6-8 years.
Financial Services
Many companies in financial services have FP&A professionals entrenched in every aspect of their business, including lending, operations, treasury, credit, credit services, and distressed workouts. FP&A may be less tied to operational units and instead be a more significant part of revenue generation services. Also, because of the increasingly digital nature of financial services, FP&A in this sector will likely have a direct line of sight into data science and analysis, which may not be as prevalent in industries such as construction.
Manufacturing
In manufacturing, FP&A may be assigned at the HQ level as well as within functional support roles, such as procurement, inventory management, plant operations, capacity planning and utilization, sales and marketing, and managerial accounting. Sometimes, FP&A serves in a junior CFO capacity as the global CFO’s responsibilities and focuses get distributed among the rest of the team.
Retail
As in other industries, FP&A may be assigned at both the HQ level and within functional support roles. However, retail is unique because it is a highly data-intensive, predictive industry. Retail FP&A professionals, in contrast to those in other sectors, will likely have a greater connection to data repositories and analytics since data greatly influences procurement, inventory, marketing, pricing, and more within retail strategy and operations.
Finding Your Place in FP&A
When choosing where to start or advance your FP&A career, there are many facets and paths to consider. Company size, industry, sector, and growth stage each play a factor.
If you’re unsure where to start or how to pivot your career, consider signing up for an upcoming learning program that can help you go from where you are now to where you want to be as an FP&A professional.