Becoming CFO of SalesLoft in 2018 gave Chad Gold the opportunity to build the financial planning and analysis (FP&A) function from scratch. To make the most of it, even before he hired his team, he built a model that connected the operational metrics that company executives rely on to run the business to a wider selection of financials than is typically done in planning.
“Not just the P&L but the income statement, the balance sheet and cash,” said Gold, whose comments were included in an FP&A podcast called Planning Aces. “So, we built that model and then that allowed us to have conversations with the business to say, Hey, look, I need your operating metric in three years to be here so that my income statement can be here and my cashflow can be here. The model connects it all back, because if you’re an operator in the business, you’re not close enough to the financials [to see the connections].”
Chance to retool
Few CFOs get the opportunity to build their FP&A function from scratch, but the pandemic gave finance leaders something almost as good: a chance to retool their planning process.
The goal wasn’t just to get through the downturn but to rethink planning as a tool. For many finance leaders, that meant making two big changes: newly focusing on non-financial metrics, especially for companies that pivoted to online commerce and recurring revenue sources, and helping FP&A analysts better understand the business operationally so their analyses can become more relevant.
“So, the FP&A team is a group now that is focused on things that are beyond the basic numbers,” Harmit Singh, CFO of Levi Strauss & Co., said in the podcast.
The well-known apparel company responded to the pandemic by taking a big leap into direct sales, which required his team to understand previously unfamiliar metrics like the quality of online customer experience.
“The best FP&A teams, in my view, are folks who actually understand the business,” he said.
It helped that he hired people over the years with operational experience alongside a finance background.
“My group is largely made up of people who’ve actually worked in the field in different businesses,” he said. “I think that makes a huge difference.”
Some CFOs have gone so far as to embed their FP&A staff in operational divisions, rather than keep them walled off in corporate. But it’s not the physical separation that’s important; it’s the operational knowledge and the connections on the business side that enable analysts to make their forecasts more relevant and consequential.
At Scouler, an agriculture supply-chain management company, CFO Andrew Kenny brought in a global head of FP&A who in turn brought in analysts that are each embedded in a business function.
“The way we ultimately structured it was FP&A reports directly to my finance director for each division, with a dotted line into our global head of FP&A,” he said. “And then we put in an FP&A lead in each of the divisions.”
The changes sound complicated but the goal is simple: to arm CFOs with more relevant and actionable analyses so they can be better partners to the other executives.
“You’ve got to get all these other elements in place, because what makes you a better business partner is having all those metrics and tools and forecasts in front of you,” Gold said. “You have to have a forecasting process, no matter how good it is. You have to be able to see where you’re going. You have to be able to understand what happened in the past. And basically if you can’t do those things, you don’t do anything else.”