One of the biggest challenges of building a venture-backed startup is navigating the tightrope of growth and profitability. For a startup’s finance function, having strong FP&A (financial planning and analysis) capabilities can bring this balance to the company.
But how exactly does FP&A help with startup growth and management decision making? Let’s explore five ways in which FP&A shapes a company’s growth strategy.
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You can also check out more articles on building and managing a startup’s finance function and operations
Finance Planning & Analysis (FP&A) Roles
1: Bridging Accounting to Business Strategy
FP&A deals with more than just numbers; it’s also all about using the data they have to craft budgets, monitor KPIs, evaluate unit economics, and scrutinise product and customer profitability. FP&A serves as a bridge between accounting and the rest of the business, allowing stakeholders to understand the impact of their decisions on the startup’s financial health.
FP&A’s insights ensure a company remains on the path to profitability and, once achieved, maintains an acceptable level of profitability. This ability is important for venture-backed startups as they navigate the challenging path from finding product-market fit to profitability, all while maintaining growth.
2: Capital Allocation and Prioritization
Capital allocation plays a pivotal role in the growth of a startup. The priority is to maximise returns with minimal capital expenditure. This entails careful considerations of where investments will yield the most significant returns.
However, just as knowing when to prioritize a business activity is important, adaptability is equally crucial. Recognizing when a particular business activity isn’t yielding the expected results and having the agility to de-prioritise that activity and pivot is essential. This flexibility ensures that the startup can allocate resources more effectively, optimising its chances of achieving higher returns on investment.
3: Harmonizing Treasury, Compliance and Leadership
Treasury management and cash flows are the lifeblood of startups, especially those venturing into international markets. Aligning treasury with FP&A involves creating accurate cash flow forecasts and managing foreign exchange risks. Compliance is also crucial, with FP&A playing a pivotal role in managing regulatory relationships. They would have to navigate the intricacies of tax authorities, regulatory reporting, and government approvals.
4: Expansion and Managing Cross-Border Teams
Expanding into new markets is not a decision to be taken lightly. It’s essential to thoroughly understand the profitability model in your initial market before branching out. Here’s where FP&A plays a role – it equips you with the financial insights needed to make informed decisions about market expansion.
To handle these expansions, building a team that’s not only insightful but also adaptable is key for a successful expansion strategy. FP&A provides the financial context required to create a team capable of aligning strategies while maintaining a focus on profitability. Cross-border teams require regular team meetings to ensure that everyone understands their priorities and how their contribution aligns with the overall objectives and how they impact each other in the pursuit of common goals.
5: Fundraising and Stakeholder Relation
Fundraising is a pivotal moment in startups. The CEO and CFO often play the starring roles. Being well-versed in financial data driven by FP&A insights, understanding investor concerns, and offering support to the CEO in investor meetings are critical.
When managing stakeholders, which includes board members to investors, transparency, honesty, and a willingness to share information cannot be understated. FP&A equips the CFO with industry-specific KPIs and thus relaying that information to stakeholders and managing their expectations regarding financial forecasts.
With that, the CFO role of a venture-backed startup wears many hats, from financial strategists to compliance manager and stakeholder relations expert. Navigating the journey from product-market fit to profitability is a challenging but rewarding journey. With the right approach, guided by FP&A principles, startups can position themselves in the right way for success in the competitive market landscape.
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