A lot of things successful things that happen the world today is as a result of strong financial backup. Money plays a significant role in making something a successful venture. This is the reason as to why it is important that we have some basic knowledge about financial planning and analysis, shortly known as FP&A by the global organisations. Financial planning and analysis is an important factor in almost every single organisation. There are a lot of things that go into financial planning. While most of us ignore to understand the importance of financial planning, without it, the world would simply cease to exist.
Here are some of the things that we have to know about financial planning and analysis:
What is FP&A?
As stated earlier, FP&A stands for Financial Planning and Analysis. Every organisation, be it small or big, requires finance to run its day to day operation. So is money the only criterion? No, that is not right as well. If I have a lot of money in hand that doesn’t guarantee success. Success comes when I have a proper plan as to how I will go about with the funds that I have. This is the reason why FP&A emerged as an important factor.
Financial Planning is the act of preparing a budget with the available information with regard to the expenses and income that we have incurred in a particular period and the expenses that will possibly occur in the determined future. So where does analysis come here? As long as you have financial planning, you will be expected to analyse your data and make judgements out of it. This will help you arrive at conclusions and also use the collected data more effectively.
Why is FP&A important?
So can an organisation survive without FP&A? An organisation obviously cannot survive without FP&A. You know for sure that an organisation needs funds to survive. The moment money is involved, planning and analysis enter automatically.
What if I still resist and never carry out FP&A?
Allocation of resources:
Without Financial Planning and Analysis, it is not possible for an organisation to allocate its resources to the required pockets properly. An organisation will never know what the requirements are and how much is required.
Pooling of Funds:
If the above situation persists, the organisation will soon run short of funds as a result of the improper allocation of resources. It will not be able to gather funds and make money within a short span before making losses.
The management will not be able to make investment decisions as it will never know the fund level it has and the amount it has to invest and the pockets where investment has to be stopped. It can be highly dangerous. Without analysis, you might invest in the non-profitable pockets and leave out areas that could have given you profits.