Distinguishing FP&A From Strategic Finance: Key Differences Explained

Early-stage startup finance can grow to be complex and multifaceted, with various specializations and roles. Two of the most critical finance functions in a startup are Financial Planning and Analysis (FP&A) and Strategic Finance. While these two functions may seem similar, they serve different purposes and require distinct skill sets.

What Is FP&A?

Financial Planning and Analysis, or FP&A, is a subset of accounting and finance that focuses on forecasting, budgeting, and analyzing financial data to inform business decisions. FP&A professionals work with cross-functional stakeholders to gather data, create financial models, and provide insights into the startup’s financial health.

The main functions of FP&A include:

  1. Month-end Reporting & Variance Analysis: FP&A professionals analyze financial statements, key performance indicators (KPIs), and other metrics to identify trends, opportunities, and risks. This includes performing Budget vs Actuals variance analysis.
  2. Budgeting and Forecasting: FP&A professionals use historical financial data and market trends to create budgets and financial forecasts for the company that generally focus on a shorter-term horizon.

What Is Strategic Finance?

Strategic Finance encompasses various finance functions focused on providing strategic insights to an organization. It involves analyzing financial data, identifying trends, and using that information to inform business strategy and decision-making.

The main functions of Strategic Finance include:

  1. Financial Modeling: Strategic Finance professionals create financial models to evaluate the financial impact of different business decisions and scenarios on a longer-term horizon.
  2. Long-Range Business Planning: Strategic Finance professionals are responsible for managing an organization’s capital, including determining the appropriate amount of debt or equity to raise, and helping drive decisions on how to allocate funds to new and existing products and projects.
  3. Corporate Development & Investor Relations: Strategic Finance professionals identify M&A opportunities and build and manage relationships with external investors, financial institutions, and strategic partners to support an organization’s long-term business needs.

The Key Differences Between FP&A and Strategic Finance

While both FP&A and Strategic Finance focus on analyzing financial data and providing insights to decision-makers, they serve different purposes within an organization. The main differences between FP&A and Strategic Finance are as follows:

  1. Scope of Responsibilities

FP&A professionals focus on forecasting and analyzing an organization’s financial performance, while Strategic Finance professionals take a broader view, including strategic planning, capital allocation, and risk management.

  1. Level of Detail

FP&A professionals typically work with detailed financial data and KPIs to provide insights into the organization’s financial health, while Strategic Finance professionals use this information to create high-level strategic plans.

  1. Time Horizon

FP&A professionals generally focus on short-term financial forecasting and budgeting, while Strategic Finance professionals look at longer-term financial trends and opportunities.

  1. Skill Set

FP&A professionals require strong analytical and financial modeling skills, as well as the ability to communicate financial insights to non-financial stakeholders. Strategic Finance professionals need to be strategic thinkers with a deep understanding of financial markets and business strategy.

My Final Thoughts

The differences between the FP&A and Strategic Finance functions are very subtle, especially at early-stage startups. Finance leaders and team members hired early on will likely have skills that overlap across these functions, but as the company and finance team grows, specializations will start to develop in these two areas.

What is important to understand is that both functions are key for high growth companies as they try to understand their historical performance to support high quality strategic decisions.

Leave a Comment