One of the top priorities of a growing company is to build a finance team that can scale with its business. Given the critical importance of accurately recording and reporting the company’s transactions, building the accounting team is the first step. The controllership organization establishes and sustains the financial infrastructure for everything the company does.
While a solid controllership function will initially be more than adequate to support the company’s operations, as companies grow and become more complex, they inevitably recognize the need to add a different kind of expertise: financial planning and analysis.
How does the controllership function differ from FP&A? Why do finance teams eventually need both disciplines? Let’s make the comparison across the following five areas:
- The past or the future?
- Is close enough good enough?
- From where does the data come?
- Who is the audience for their output?
- How important is business partnership?
The past or the future?
Accounting is primarily a backward-looking discipline, providing a historical lens on the details of what happened. This is aligned with the mandate to provide accurate financial statements based on past periodic, quarterly and annual financial performance.
FP&A is primarily a forward-looking discipline. While FP&A is also frequently involved in historical analysis and trend reporting, its biggest value-add is providing insight into the company’s future financial performance, most commonly by using financial modeling which incorporates a variety of parameters and sources.
Is close enough good enough?
For accounting, the answer is a resounding NO. There are few things that are more critical to a company than the accuracy and integrity of its financial statements. Those financial statements must comply with a long list of laws, rules and professional guidelines. They are expected to be 100% accurate and accounting teams strive to eliminate uncertainty and avoid ambiguity in all they do.
When it comes to FP&A and forecasting future performance, the fact is 100% accuracy is impossible. Forecasts are essentially predictions. By their very nature, they will always be inaccurate to some degree. That’s okay. FP&A professionals deal with a high degree of ambiguity in their work and they understand that “directionally correct” is frequently the best answer.
From where does the data come?
Accounting mainly relies on internal financial data generated by the company’s ERP (Enterprise Resource Planning) system and their accounting system.
FP&A uses a combination of both internal and external data to prepare their analyses. The internal data sources will be the same as used by accounting, potentially supplemented by other sources such as sales and operational planning systems. External data can include market growth and market share, retail sell-through, competitive intelligence, etc.
Who is the audience for their output?
The controllership function has a broad audience for their output, including company management, shareholders, creditors, and regulators. The format for much of their reporting is standardized to comply with set external rules and guidelines.
FP&A’s primary audience is the company’s management. The format for their reporting can vary widely from one project to the next. It may include visualizations and dashboards and is entirely driven by the needs of management.
How important is business partnership?
Given the Controllership’s charter for accuracy and integrity in the company’s financial reporting, they need to maintain a high degree of independence and objectivity in their interactions with other functions. They do build strong working relationships with the business leaders, but they stop well short of a true business partnership.
To achieve their mission of providing insight into the company’s future financial performance, FP&A must first build strong collaborative partnerships with the businesses they support. Delivering quality performance forecasts requires a broad and deep understanding of the key business drivers, which requires frequent and ongoing interaction with business unit leaders and their teams. Through their detailed knowledge of the business, FP&A professionals can provide actionable information, insight, and advice to solve problems and drive the best decisions at both the business unit and total company level.
Complementary not competitive
The accounting team provides accurate financial statements for a variety of important audiences. They tell you whether the company’s results are better or worse and why. But as companies grow, it becomes increasingly challenging for them to provide deep insight as to ‘Why?’.
FP&A can provide the nuanced explanations of ‘Why,’ and, perhaps most importantly, insights into how those results may impact on plans and projections. FP&A can analyze, project changes in profitability or revenue across the business and share that insight with senior leadership, helping to drive resource allocation and alignment with the company’s strategy.
Every company needs a strong accounting team, regardless of size. Adding FP&A resources becomes increasingly important as a company’s sales and complexity grow. The combination of the two functions ultimately results in a flexible, multi-dimensional finance organization that can support the full breadth of the company’s operations.
We’re here to assist if you’re considering adding FP&A capabilities to your team or if you have project specific FP&A needs.