Financial planning and analysis (FP&A) and accounting are two essential business functions. Both focus on the finances of a company or organization. But what’s the difference between FP&A vs. accounting? How do their functions differ?
One integral difference is the time horizon. Accounting is the process of financial recording and reporting. Every single transaction is documented by accounting. These separate transactions then roll up into financial reports – think the balance sheet, income statement, and more. Heard the term “closing the books?” That’s the job of accounting.
Thus, accounting focuses on the past and the present day. It’s all about accuracy, transparency, and legal compliance. No firm – big or small – can survive without a robust accounting function. Accounting is generally responsible for tax management and filing as well.
Finance FP&A takes things to the next level. It’s the forward-looking part of the finance process. What FP&A really does is analyze an organization’s available financial data. From this analysis comes tactical and strategic planning. The job of FP&A is ultimately decision support. The mission is fueling smarter business decisions and driving more accurate forecasts.
While accounting records transactions and keeps the books, FP&A offers insights and strategies for the future. These come in the form of strategic plans and forecasts. FP&A reports to senior leadership, and also produces the all-important budget.
The Partnership of FP&A and Accounting
It’s easy to see that finance FP&A and accounting are very different functions. But don’t think that means they don’t work together! In fact, one ultimately relies on the other for long-term success. Healthy, well-organized companies rely on a strong partnership between FP&A and accounting. These synergies fuel better and more sustainable results.
Consider these key elements. In these areas, FP&A and accounting rely on each other for success, contributing to the success of the business as a whole:
- Tactical adjustments based on strategic plans. A main job of finance FP&A, as mentioned, is to generate financial strategic plans for a company. Accounting often must take steps to execute these plans. Imagine, for example, that FP&A leaders recommend a merger, acquisition, or divestment. Much of the tactical work for activities like these falls in the accounting function.
- Timely, complete, and accurate data. FP&A makes data-driven decisions. It follows that these decisions are only as good as the underlying data. Thus, FP&A relies on accounting for full, accurate, and complete financial data. Timeliness is also crucial. Business today is fast-moving and ever-evolving. The sooner strategic decisions are made, the quicker they can be brought to life.
- Analyzing the gaps of budgets vs. results. FP&A is responsible for creating a company’s budgets. Budgets are an evolving process. They must be followed, and future budgets should adapt lessons learned from the past. But how is this measured? Financial data from accounting, of course! This data vividly shows exactly where a company is under, over, or right on track.
- The foundations of scenario planning. Scenario planning is a core FP&A activity. In essence, it maps out potential courses of action. It’s used to weigh the merits and risks of a business strategy. Once the planning is completed, those all-important strategic plans come into being. Again, FP&A relies on accounting here for past and present data. This data is used to build financial models. And it’s a crucial input to evaluate past results to help forecast future outcomes.
- Cash flow management. A primary output of accounting is the cash flow statement. A company’s cash position is vitally important for survival – let alone success! FP&A depends on complete cash flow information to make smart liquidity decisions.
These are just some of many ways that FP&A and accounting work together. While the functions vary in scope and activities, they share a common goal. The goal is to use financial information to record past results and plan future actions.
How Do Roles Differ? (What Would You Be Better At?)
Thinking about a career in FP&A or accounting? Both are great fields with ample room for growth. But part of being successful is choosing a role that plays to your strengths. You’ll be happier, and generally, happier people do better work.
Consider accounting first. Accounting, as you learned, is all about recording and reporting transactions. A meticulous attention to detail is essential to be a good accounting professional. Even a tiny miss can create big problems! The work can be quite tedious – it definitely takes a lot of patience.
And financial reporting operates on tight deadlines. Accounting professionals often find themselves working long hours to meet them. Finally, accounting requires a willingness to learn. Financial regulations and tax laws often change. It’s imperative that a company’s accountants stay up to date. Accounting is a good career for diligent, focused people with top-notch attention to detail. Art or science? Think of accounting as more science.
Prefer thinking strategically? Comfortable with uncertainty, and willing to adapt your ideas to new information? FP&A requires all of this and more for success. Again, the focus often expands to long-term thinking and planning. Think of FP&A as both art and science. Of course, huge volumes of data are studied. But ultimately, robust forecasts include an element of creativity. FP&A merges analytics and vision to form smart plans.
As I mentioned earlier, FP&A professionals often work with upper-level management. Confidence, combined with an ability to incorporate feedback, is a fundamental skill. You’ll also need good communication skills. That’s true both in written and verbal form. Don’t like public speaking? You might be more comfortable in a behind-the-scenes role in the accounting function.
FP&A, accounting….which sounds more like you? Both are winning career paths, and you can be assured of playing a vital role at your company. FP&A, accounting, and other core functions are foundational.
As you can see, it’s very useful to know the differences between FP&A and accounting. It helps you become a more well-rounded professional! Accounting is data-based, recording transactions and communicating financial results. FP&A looks ahead, creating budgets, plans, and forecasts. Both functions work together! The overall objective is creating a finance function poised for continual success.