Leveraging FP&A to Drive Value in Your Portfolio Company
Over the years, I’ve had the privilege of witnessing the transformative power of financial planning and analysis (FP&A) in portfolio companies. When used effectively, FP&A can serve as a strategic compass, guiding decision-making and identifying key business drivers and key performance indicators (KPIs), enhancing resources, and driving sustainable growth.
Strategic decision support
FP&A serves as the backbone for strategic decision-making. By leveraging historical data, market trends, and operational insights, FP&A equips leadership with necessary tools to make informed decisions by evaluating the expected financial impact of these decisions along with economic conditions. Through robust forecasting and scenario planning, FP&A empowers management to assess the potential impact of various strategies, providing a course aligning with the company’s long-term objectives.
In this case study, a manufacturer of water treatment systems wanted a better way to predict which customers were at risk of not renewing their subscription. By using artificial intelligence on their existing customer data to predict flight risk and focus customer service teams, the company avoids $1 – $1.5M in lost revenues per year.
Resource enhancement
In a portfolio company, efficient resource allocation is paramount. FP&A provides the analytical framework to improve resource allocation, whether it’s capital, talent, or operational assets. Through trend and variance analysis and cost-benefit evaluations, FP&A enables companies to identify inefficiencies, streamline processes, and redirect resources to high-impact areas, improving returns and operational effectiveness.
In this case study, a manufacturer of industrial metal products lost its largest customer and required significant changes in inventory management to avoid a plunge in profits. Using their existing data and inventory analysis techniques, the company made key operational changes and increased turns 50%.
Improved communication between operations and finance
Involving operations in developing assumptions and tracking results is key for building an effective FP&A process. This not only allows budgets and projections to capture the correct KPIs, it also allows operations to proactively notify management when they expect significant changes in these assumptions.
Identifying these changes early will allow management more time to quantify the financial impact and take action to mitigate negative changes. Keeping operations involved in monthly variance analyses and explanations will also improve their buy-in and ownership of KPIs and financial results.
Performance measurement and KPI tracking
KPIs are essential for tracking the company’s performance and identifying improvement areas. FP&A facilitates identification and monitoring of relevant KPIs, providing real-time insights into the company’s financial and operational health. By establishing dashboards and regular reporting structures, FP&A enables management to proactively address performance gaps and capitalize on opportunities, fostering a culture of continuous improvement. To see how a dashboard works, check out this demo.
Risk management and mitigation
In today’s dynamic business environment, risk management is indispensable. FP&A plays a pivotal role in risk assessment and mitigation by conducting sensitivity analysis, stress testing, and scenario modeling. Through these efforts, FP&A empowers companies to anticipate and prepare for potential risks, providing resilience and adaptability in the face of market fluctuations and unforeseen challenges.
In this case study, this maker of automotive parts leaned on CLA to help cleanup tax issues and avoid $200,000 in penalties and other fines.
Investor relations and stakeholder confidence
For portfolio companies, maintaining investor confidence is crucial. FP&A provides the analytical rigor and transparency necessary to build trust with investors and stakeholders. By delivering accurate and insightful financial forecasts, performance updates, and scenario analyses, FP&A instills confidence in the company’s trajectory and strategic direction, fostering stronger investor relations and stakeholder engagement.
How we can help
At CLA we help deliver FP&A that goes beyond merely a financial function— it’s a strategic imperative for portfolio companies seeking to drive value and achieve sustained growth. By harnessing the power of FP&A, portfolio companies can make informed decisions, better manage resources, align operations with finance, measure performance, mitigate risks, and instill confidence in stakeholders. At CLA we have seen firsthand the transformative impact of FP&A, and we encourage portfolio companies to embrace FP&A as a catalyst for success in today’s competitive landscape.
Craig Arends is a principal at CLA and is the managing principal of CLA's private equity practice. Craig brings a concentration of experience in providing accounting and transaction structuring advice for leveraged recapitalizations, purchase accounting and SEC reporting, assessing quality of earnings, and GAAP accounting. He has far-reaching experience with critiquing financial models and reviewing target companies' financial performance to identify cost reductions and/or operating efficiencies Craig has more than 30 years of experience in public accounting serving public companies, private equity groups, and companies, including a term as principal in charge of a Big Four Capital Markets Group in Moscow, Russia. He has led financial accounting due diligence projects for private equity investor groups and venture capital funds, primarily in the technology, communications, and manufacturing industries, as well as assisting with Foreign Corrupt Practice Act matters ranging from investigation of payments made, validation of compliance with corporate policies, and review of proposed transactions to ensure compliance. When not working, Craig enjoys watching any sports, but his most favorite are baseball, football and soccer.
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