What is FP&A Consulting, and What Do FP&A Advisory Firms Do?
A solid grasp of financials is essential for every business, whether that business is a one-person operation or a major enterprise.
However, many companies, especially small businesses, may lack someone with the experience and expertise necessary to effectively execute the company’s financial strategy. This directly impacts the ability to make informed decisions that will impact the company’s future.
In other cases, an in-house FP&A team may be struggling to build effective, repeatable, and scalable processes for analytics and reporting. The team may need augmented support tackling problems that fall outside their experience and collective skill sets.
In still other cases, there may be no FP&A team which means analysis, analytics, forecasting, planning, and reporting fall to a mix of accounting associates or a single Controller.
These are examples of times when it can be beneficial to bring in an FP&A consultant from an FP&A advisory firm or a fractional CFO.
What is an FP&A Advisory Firm?
An FP&A advisory firm specializes in managing multiple businesses' financial planning and analysis operations. These firms typically have a team of FP&A consultants available to work, on an as-needed and fractional basis, with companies that need support in this area.
Because their focus is entirely in the realm of business management and financial services, FP&A advisory firms aspire to stay current on the latest economic trends and technology in business. They are acutely aware of what is going on in the entrepreneurial space and financial world that could impact businesses in the near-term and long-term, making these outsourced teams valuable partners to companies struggling with different aspects of FP&A.
FP&A consultants at advisory firms are a flexible solution for businesses. They can step into a company, provide short- or long-term support, and offer various services that help a business make sense of its current and future financial situation. Because these firms provide outsourced talent necessary at every stage of growth and development, businesses may avoid hiring expensive executives too or getting locked into long-term employment contracts.
What FP&A Consultants Do
Here are a few services FP&A consultants can offer when working with a company.
Offer ongoing analysis of processes and suggest areas for improvement
An FP&A consultant can examine and monitor every aspect of a company’s finances, including: working capital, cash flow, short-term line of credit debt, procurement, inventory management, and profitability. A consultant can offer a determination as to the clear wins and areas for investment. Advice may be offered alongside the internal finance team or independently if there is no official financial team (for example, in small companies and startups).
In addition to evaluating the company’s advantages and challenges, the consultant can develop consistent reporting packages and KPI (“key performance indicator”) tracking mechanisms to illustrate how the business can better utilize assets, hire and develop people, finance growth, and restructure operations to improve results.
Evaluate a company’s financial performance and health
Many small and mid-sized companies are tactically focused on everyday accounting and financial transactions. While critical to the functioning of the business, too much focus on immediate financial duties without greater consideration for the overall financial performance and health of the business, may give way to an aimless financial strategy. A lack of awareness of how the company is performing according to its strategic financial plan often leads to tremendous inefficiency, lost time, and frustrated people.
An FP&A advisory firm can evaluate a company’s financial processes in accordance with the overall financial strategy, and offer recommendations of remedies to improve the company’s overall financial health. This process involves reviewing the business’s financial metrics, not surprisingly: cash forecasts, receivables, and customer collection terms, inventory balances, accounts payable aging and supplier terms, covenant and debt compliance, projected revenue, cost profiles, overhead bloat, and profitability.
While the list of financial metrics the track is seemingly endless, FP&A consultants should be positioned to highlight which financial metrics are most critical to monitor. Advisors should also be able to perform a diligence assessment on systems and help build a process for streamlining better forecasting and planning. If current modeling is taking hours or days to complete, there is likely a significant opportunity for improvement.
Identify areas of recalibration, restructuring, and realignment
It’s common for businesses to follow the signs of momentum and grow organically. However, it’s often worth examining product or service profiles more deeply, including: pricing, cost structure, customer service burden, overstocking and stock out potential, life cycle, and customer profiles. In some cases, the segments of the business that are the fastest growing are the least profitable or most capital intensive. In other cases, overlooked segments of the business that are less exciting may be the most lucrative.
An FP&A consultant can review a company’s sales and cost data to determine which products or service categories are performing best, worst, and why. This may uncover greater intelligence around which are generating the most return and why. Simply because a certain product is demonstrating the highest contribution margin doesn’t mean it’s the most profitable overall when laying in product development costs, customer service time, production errors, and returns. This level of analysis can be time-consuming but often helps businesses decide where to put marketing, sales, service, and quality efforts, to generate greater bottom-line profitability.
Build concise and consistent reporting packages
Many business leaders would likely complain more about too much reporting than not enough. The users of information shouldn’t be smothered in information but starved of insights. Creating meaningful and concise reports that translate a company’s financial data into actionable solutions is an essential responsibility of FP&A.
Whether managed internally, or delegated to an FP&A advisory firm, champions of financial reporting should be able to understand not just how to turn financial data into reports, but be able to do so in a way that is meaningful. Insights should inspire action, offering the executive team and other end-users greater confidence in their decision-making rather than creating excess noise.
Ensure compliance with federal and state regulations
There are a whole host of local, state, and federal financial regulations that businesses must meet. This includes financial reporting and submissions, a variety of tax recordkeeping and payments, legal compliance, and more. However, many business owners are either unaware of the extent of the requirement or lack the time to ensure they are compliant.
In addition to legal counsel, or in cooperation with a law firm, an FP&A consultant can review a company’s S&OPs (“standards and operating procedures”), current practices for managing and reporting regulatory and compliance information, and identify any areas of concern or risk. FP&A advisors can also help business owners create a reviewed plan for gathering, analyzing, reporting, and storing financial data that follow all compliance regulations. Outside professionals are often far more privy to software platforms that alleviate this burden.
Benefits of Hiring an FP&A Consultant
Clearly, the duties of an FP&A consultant can save companies tremendous time, frustration, and inefficiency. There are several other benefits of hiring an external FP&A consultant that companies should consider:
1. Get an outside view
A common refrain among business owners is: “we don’t know what we don’t know”. In an insular environment, where employees and leadership only see what’s within the walls of the business, it’s natural to get caught up in the everyday issues of the business. There is limited exposure to see what other companies are doing right and wrong. Bringing in an outside advisor can help business leaders and staff obtain a bird’s-eye-view of the company's financial health and status in the context of longer-term plans.
Consultants can bring a breadth of knowledge that expands beyond one company and industry, across hundreds of enterprises and dozens of sectors. They can illuminate what companies at the next stage of growth are focusing on which a smaller business may aspire toward. They can provide objective insights based upon exposure to a large population of different companies. Thus, advisors can shine some light on universal challenges and provide innovative solutions that those within the company may not have considered.
2. Save on overhead
Mid-sized and small companies, in particular, are often looking for cost-effective ways to scale. They may desire the expertise of a seasoned professional without the pricetag or long-term employment commitment. A consultant can bring the knowledge and experience of an in-house staff member without the additional costs of overhead expenses, such as semi-monthly pay, benefits, and bonuses.
In some cases, a consultant can serve as a sort of test run before a company hires an FP&A professional full-time. Hiring a full-time FP&A professional or building a robust FP&A function and team prematurely can be expensive and wasteful. Upon the conclusion of a project-based engagement with an FP&A consultant, or after a foundation is built, companies may then decide they want to develop an in-house FP&A team. On the flip side, the company’s leadership might realize they don’t need a full-time FP&A team at all and might prefer to continue working with a consultant on an as-needed basis.
3. Consultants have specialized skills
Some projects and initiatives require a specific skill set that can be difficult to find in an in-house employee. That’s why many companies hire FP&A consultants for specific projects, even if they have an in-house FP&A team. This may be referred to as FP&A augmentation – temporarily flexing the in-house FP&A team to accommodate new needs without engaging in a full-time hiring spree.
These consultants can help the company for a limited number of hours per day, days per week, or days per month. Frequently done on retainer, projects can be executed effectively and efficiently without wasting time looking for a new hire or training the existing team for a one-off initiative. Augmentation offers flexibility for ramping up or pulling back hours and turns compensation into a variable cost instead of a fixed one.
4. Streamline processes and establish team cohesiveness
FP&A consultants tend to come from deep technical backgrounds, with expertise in software, business modeling, and process development. Because of their time in team building and collaboration, they’re often well positioned to build financial functions and assist in the development of company culture.
Some FP&A consultants have served clients on dozens of engagements and could write a lengthy novel about the experiences, successes, and issues they’ve encountered. Though it may be colorful reading, the experiences serve a more important role by offering data points and wisdom to future challenges. When it comes to gathering, analyzing, and interpreting financial intelligence, these experiences have provided great awareness of what does and doesn’t work. FP&A consultants are uniquely qualified to recommend how to streamline a company’s FP&A processes and refine a company’s financial culture.
5. Offer training to in-house teams
While not all consultants have training or coaching backgrounds, it’s desirable to retain those advisors who do. Too much reliance on an advisor may mean not enough in-house ownership and accountability. The fate of the company should stay with the company, not outside parties. When the advisor concludes the engagement, should have the safeguards in place to ensure inadequacies don’t become fissures, larger cracks or worse.
An FP&A advisor should have the willingness and ability to offer in-house training and coaching to FP&A teams to set up processes, transition financial and business models, and take ownership of all financial reporting. This type of training can be invaluable to companies looking to build and grow their in-house FP&A team, especially if accountants at the firm are transitioning to an FP&A role.
Bring in an FP&A Consultant to Help Your Company
Whether you have an in-house FP&A team or are working on building one, bringing in an FP&A consultant can provide immense value.
We take on a limited number of FP&A advisory and augmentation projects at a time and refer inquiries to the best professionals and firms in our global network.
Contact me to learn more about how an FP&A consultant can help your company discover new opportunities and improve processes, so you don’t waste your time and resources on areas that aren’t working for your business.