FP&A and accounting are like two sides of a coin. They complement each other but have differences.
On the surface, the question of Financial Planning and Analysis, or FP&A vs accounting, sounds ridiculous. Accounting and finance might as well be the same for a start-up or small business owner. Both deal with money management in the business landscape.
But in truth, these two functions are decidedly distinct. In this blog, we will review the differences between FP&A and accounting.
This includes what sets them apart as business functions and their unique purposes. We also discuss how the two are pivotal pillars of modern finance and help businesses succeed in 2024.
Table of Contents
Financial Planning and Analysis (FP&A)
FP&A is all about planning and decision-making. It centers around key processes like budgeting, financial forecasting, financial performance optimization, and data-driven financial consulting.
An FP&A accountant is supposed to be the business’ crystal ball, showing glimpses and whispers of future possibilities based on history and external trends.
The Responsibilities of FP&A Professionals
Budgeting, Forecasting, and Financial Performance Management
FP&A accounting’s main duty entails budgeting and financial forecasting. They are the people present to see how the business is doing financially and forecast, based on market and historical data, how the business will perform in the future.
They use models like linear regression, scenario planning, and rolling forecasts, among others, for financial forecasting. With these forecasts, they can make a game plan for how funds and resources will be allocated across the business to achieve its goals best.
Budgeting and financial planning are entirely different topics that deserve their blog. Click here to learn more about them.
Advising During Decision Making
Out of everyone on the decision-making table in a board meeting, the financial professional’s voice often holds the most sway. This is because they are there to be the business’s financial pillar.
FP&A analysts know how the business is doing monetarily.
Whether the business has the assets and liquidity to invest in a future project or whether the business’s current operations are financially sustainable, the answers to all these questions lie with the FP&A accountant in the room.
Their job is to help CEOs and senior management make the best possible choice for the business. As the voice of finance, they are often the ones that make or break a project.
Not having an FP&A professional present is tantamount to driving in a race with a blindfold. You won’t see the turn coming and will crash into the wall as everyone else speeds by.
Strategic Planning
Much like decision-making, an FP&A accounting professional is expected to help with planning out the business’s long-term goals.
Aligning the business’ operations with its mission statement and ensuring that goals are financially feasible and conceptually sound all fall into the lap of the FP&A expert. This is, of course, because they are the only ones with the eagle-eye view of what may be coming in the future.
While these data-driven projections and forecasts are not prophetic, they are as close as we can get to having a measure of security when planning out the business’ next moves.
Accounting
Accounting is less about planning and more about doing.
Accounting is all about managing the business’ daily transactions and all the work associated with processing and recording transactions. Accounting is mainly concerned with ensuring the business numbers add up and that payments and collections happen promptly to keep the gears turning.
The Responsibilities of Accounting Professionals
Record Maintenance
The foremost responsibility of an accounting professional is to make sure the ledgers and books of accounts are regularly maintained. The business cannot function properly if there is no consistent and accurate record of income and expenses. It falls to the accountant to ensure everything is up to date and the data is complete.
Ensuring Regulatory Compliance
Accountants are also supposed to be responsible for ensuring the business handles its finances according to the law and the standards expected of businesses. Tax and GAAP compliance are commonly known regulatory standards that accountants are often tasked with ensuring the business is on top of.
Auditing
Accounting professionals also have the duty of auditing on their docket. When a business is internally auditing, it’s up to the accountant to go back and sift through all of the financial documentation. He/She makes sure everything is honest and transparent. This is vital, as auditing assures the business world that the business is playing fairly.
Investors and stakeholders demand audits to ensure there is no funny business behind the scenes. If there is, it is up to the accountant to sniff it out and excise it.
FP&A vs. Accounting
The first major difference between the two is, of course, the fact that they are distinctly different processes, both operating in the accounting function but to different ends.
FP&A is concerned with laying the groundwork for any transactions that will take place, while accounting is concerned with managing business transactions.
In this sense, FP&A is the planning and decision-making portion of the accounting function, while accounting is about implementing plans and managing them as they proceed.
Major Differences in FP&A vs Accounting
Looking Towards the Future vs the Past
FP&A accounting is all about looking toward the future and making preparations for what is coming. Accounting, on the other hand, is concerned with the past. It ensures the business’ financial past is accurately recorded for future reference.
In this way, accounting and FP&A work together to secure the business yesterday and tomorrow, and neither can work without the other for long.
A Proactive vs Reactive Approach
In comparing FP&A vs accounting, perhaps the most glaring difference is the breadth of their scope in the business. FP&A is a key piece to the business’s every move and impacts pretty much the entire business.
Accounting, on the other hand, is narrower in scope and concerned more with recording what has happened for business activities only, making its role more reactive than proactive.
Accounting deals with perceiving and capturing the financial reality of the business as it is, while FP&A takes steps to mold reality toward a favorable outcome for the business.
Internal vs External Stakeholder Concerns
FP&A vs accounting is more concerned with the business’ internal stakeholders. FP&A professionals dine with the board, so to speak, and are there as the bridge builders that connect the internal stakeholder’s business goals to the business’ financial aspirations.
Accountants, meanwhile, are more involved with external stakeholders such as investors. They are there to assure external stakeholders of the business’ legitimacy and endeavor to maintain the business’ market image.
The Tools of the Trade
Accounting professionals require much simpler tools than what FP&A accounting demands. A simple Excel sheet is often enough for small local businesses to manage their accounting obligations. At worst, the business ends up paying for a $10-20 accounting software solution to facilitate accounting.
FP&A accounting, meanwhile, demands highly specialized algorithm-based data-analysis technology. AI finance technology in 2024 is one of the biggest advancements FP&A has made in the last decade. These people are working with terabytes of financial data at a time and need very sophisticated and expensive tools to do what they do best.
Even with basic forecasting and budgeting, the data and tools needed to draw up a passable financial plan are way more advanced than anything regular accounting needs.
Conclusion
The juxtaposition of FP&A and Accounting unveils a dynamic interplay between strategic foresight and meticulous record-keeping within the financial domain. While Accounting lays the groundwork with its steadfast focus on past transactions and regulatory compliance, FP&A emerges as the visionary, sculpting the future through predictive analysis and strategic planning.
FP&A (Planning and Budgeting) services provide insights to companies for effective decision-making and compliance. EA provides resources from a global talent pool that are experts in the field. We help businesses carry out planning and budgeting that helps them make great decisions to succeed.
EA CEO Haroon Jafree provides free consultation to businesses regarding how our services can help them with regard to Planning and Budgeting – FP&A.
Best of luck for 2024!