The role of FP&A in early-stage companies.
In the very early stages of a company, the focus is largely on product development and building the sales funnel. The finance function can often be the last to be addressed, with financial planning and analysis (FP&A) being near the end of the hiring priorities. However, early-stage companies gain a competitive advantage when they recognize the role FP&A can play in their growth.
The rising value of FP&A.
The quick pivots and tumultuous business landscape that characterized the last 18 months created a stronger demand for FP&A skills in general. Airbase’s Annual Benchmark Survey of Finance Professionals found that increasing focus on FP&A was a priority for over 30% of respondents. In the current uncertain economic climate, established companies’ FP&A function helps to navigate uncertainty and adjust existing budgets and forecasts in response to unexpected events. Those functions are, of course, important in an early-stage company, but FP&A also shapes policies, procedures, and systems at crucial times in a company’s growth.
What is FP&A’s focus in the early stages?
Accounting practice looks in a rear-view mirror to create data on what happened in the past. FP&A looks ahead to map a path to reaching a company’s goals. At the early stages, that path is largely uncharted. Some of the functions to create it include:
- Expanding financial reporting.
- Creating a framework for evaluating performance vs goals.
- Building financial models for strategic planning.
- Gaging the need for future funding rounds to facilitate growth.
- Managing working capital to mitigate cash flow problems.
- Providing information to investors and banks.
- Supporting better decision-making by ensuring visibility into operations and sales performance.
The overarching goal is to create a realistic plan to make the company’s goals and vision transpire by determining how much money is needed and how long it can last. Then, with appropriate KPIs in place, management has a clear path to pursue these goals. The results of this forward-thinking approach can be seen in the high valuations of companies without correspondingly high revenues. Those valuations are largely derived from the projected earnings compiled by FP&A teams. Through analysis of past performance, they project financial results into the future. They then must analyze those results and account for gaps, and carry that knowledge into planning activities.
The evolution of FP&A in a growing company.
FP&A functions are often handled by the founder or CEO at the very early stages, then shift to a CFO as a company scales. Certain events can trigger the need for FP&A, such as:
- Funding rounds.
- Switching to a new ERP, which often prompts a reevaluation of existing financial processes, particularly with regards to the general ledger setup.
- Increased revenue or headcount, or a more complex organizational structure.
Airbase’s Benchmark Survey reflects this. No companies with fewer than 50 employees had inhouse FP&A, although about 20% outsourced it, and about 28% of companies with between 101 to 500 employees said the FP&A function was inhouse. Eight percent of overall respondents plan to hire for FP&A.
But, whether or not a formal FP&A team is in place, FP&A is vital to support growth. Imran Rahman, Strategic Finance at Uber, has been the first finance hire at three different companies. He notes the importance of this work: “When you serve as CFO, you learn to rely on FP&A to ensure that the company can achieve its strategic objectives. This applies whether a company has a formal FP&A team or not — planning and analysis still need to get done and are critical components to a company’s longevity.”
Build a strong foundation with the right systems.
Although the FP&A function may develop over time, it’s important to set up systems and processes with the end goals in mind as much as possible. When evaluating software, always consider where you want to be, not the status quo, and build in FP&A functions. Early-stage startup consultant Lisa Slater emphasized this point in her 20-minute Tales from the Frontlines of Finance session, Setting up for success: How to establish finance and operations to support your company’s growth. “It’s so much easier to grow from that stronger foundation,” she said, “particularly when it comes to setting up a robust chart of accounts.” In her experience, companies begin to appreciate this foresight as they approach their Series B funding round.
As a company grows, it’s important to audit the financial tech stack to ensure that systems will scale with them. Modern finance teams automate as many of their workflows as possible so they have more time to do more impactful work. Switching out time spent on accounts payable to FP&A is a good idea for companies at any stage.
Let us show you how Airbase can free up time at your company for more FP&A work. Schedule a demo today.
Airbase offers a one platform solution to manage all non-payroll spend. It provides oversight and control over spending with real-time reporting and automatic syncing directly to your general ledger. Control all payments – physical cards, virtual cards, ACH, and checks – from one place. Close faster. Empower employees. Control spend.
Finance & Accounting Slack Group.
Join to connect with other finance professionals building great companies. Ask questions, provide your perspective, join the conversation, find resources.