Financial Planning & Analysis: “What are they doing back there?”

Financial Planning & Analysis: “What are they doing back there?”

Ever wondered what your Financial Planning & Analysis (FP&A) team does?

At any company, this team generally has direct access to executives and a clear understanding of the company’s direction. The FP&A team thinks strategically, analyzes data, and communicates with leaders across the organization. As a Senior Financial Analyst at Trustpilot, I am responsible for bringing visibility to the organization’s financial position and evaluating different paths of growth.

Here are a few of the key responsibilities for Trustpilot’s FP&A team:

1) Board Presentations

At least once a quarter, the Board of Directors meet to discuss financial results and the direction of the company. The FP&A team typically prepares the presentation for this discussion.

The presentation process begins with a kick-off call between the Executive team and FP&A to craft a story highlighting the company’s performance. Afterward, FP&A follows up with senior leaders across the organization to delegate responsibility for slides and begins drafting the presentation.

The deck often consists of the following content:

  • Quarterly highlights (success drivers/challenges)
  • Technology update (advances in product)
  • Commercial update (performance of the sales & retention teams)
  • Financial overview (financial results/budget approval/forecasts)
  • Miscellaneous analyses requested by the Board

This process is a great opportunity to work closely with senior leadership to understand the Company’s financial and operational performance.

Want some tips on how to make a great presentation?

1) Work with a designer at your business to develop a color scheme, typeface, and style that is aligned with the Company’s brand.

2) Add the color palette in the “Slide Master” to ensure everyone across the organization uses the same formatting.

  • When coloring text & objects, hover the Eyedropper over the palette to select a color.

3) Make it easy for the Board to follow along with a clear table of contents slide.

  • Use the same agenda slide between each section toggling the colors to highlight the current section. In the example below, we used dark blue to signify that the current section we are discussing is the “Commercial Update”.
  • Add page numbers to each section to help readers find what they are looking for quickly.

2) Monthly Reporting

One component of the accounting team’s responsibilities is to prepare journal entries (accounting transactions). At the end of each month, FP&A reviews the aggregate totals of these transactions and digs into any numbers that look out of the ordinary. If there are errors, we send corrections to Accounting. In this sense, FP&A acts as a controller, ensuring accurate data.

After revenue and expenses are classified correctly, we pull the data into a reporting model and prepare global financial statements (balance sheet, income statement, cash flow). These give management a high-level understanding of the company's financial position empowering them to make thoughtful operating decisions. Important distinction: our management reporting slices the data differently than the Accounting team’s statutory reporting which is used for tax purposes.

3) Departmental Financial Reviews

One of the most important qualities of an FP&A analyst is the ability to communicate across the organization. It’s important to build relationships with all teams and grasp an understanding of the day-to-day needs of each department, so we can add value from a reporting standpoint.

Once a quarter, we meet with department heads to review their expenses and discuss any variances to budget. Our goal is to drive fiscal accountability and to keep an open dialogue with our business partners. Department heads will also use this time to ask for additional headcount or spend. FP&A will then have an internal discussion to determine if these requests are financially viable.

4) Budget and Forecast Creation

Operating Expenses:
The budget development process begins in Q4 and takes the finance team approximately 3 months to complete. It begins with FP&A developing high level assumptions on next year’s operating expenses (OPEX) based on year-to-date expenses. We call this analysis “Tops-Down” because it is a high level approach and less detail-oriented.

This analysis is shared with department heads for review. Managers generally counter with requests for an adjusted spend year-over-year and provide their rationale. FP&A then updates the departmental models with this input in an analysis called “Bottoms-Up”.

After these meetings and changes to the individual departmental models, we prepare a consolidation model to see how the next few years are looking in terms of expenses for the whole organization. The process repeats itself until the Company hits its target aggregate budget spend.

Many view FP&A as a group focused on cost cutting, but this isn’t reality. Our focus is to find a model that maximizes the performance of the Company based on the resources that we have available. It’s important that department heads provide reasonable spend expectations. Inflated budgets result in adjustments elsewhere in the organization. We stress to all department heads the importance of thinking of the success of the organization as a whole, and not just the needs of the individual department.

In addition to the expense side of the equation, we build an operating model to forecast revenue. Bookings (new sales) are driven by sales capacity (# of sales reps) and productivity (performance of sales reps). We meet with the Chief Commercial Officer and sales leaders to forecast reasonable productivity assumptions which differ between our 6 offices. In addition, we have capacity planning discussions with HR to ensure that our hiring pipeline is achievable. We take into account the impact of hiring and training someone before they are producing at full capacity.

Another major driver of revenue is retention, the ability to retain customers. Given the nature of our product, Trustpilot’s business model is based on high year-over-year retention. SaaS contracts are generally for one year and are up for renewal at year end. Our Customer Success team works with current customers to demonstrate value of our product, with the goal of capturing this recurring revenue opportunity. FP&A analyzes historical retention rates to forecast our recurring revenue.

Revised Forecasts:
FP&A builds revised forecasts on a quarterly basis because business strategy can change over the course of a year. We modify the budget based on new guidance from management and year-to-date spend and revenue. This ensures we are always presenting the most accurate forecasts to management and the Board of Directors.

5) Commission Controlling

In an organization with hundreds of sales reps and account managers spread across 6 locations, commission calculations can become cumbersome. Our tremendous Sales Operations team works with leadership to develop commission plans that drive specific behavior based on the business strategy. For example, deals that are closed with an upfront annual payment receive greater commission than those with quarterly payments. The structure of the comp plans greatly correlates to what is sold.

Where does FP&A add value?

  • Controlling: FP&A acts as a financial controller ensuring payouts are accurate and posted correctly by Sales Operations.
  • Accrual Calculations: If a sales rep earns commission in January, they will not be paid out until February. However, finance must post expenses when they were incurred rather than when they are paid out. To do this, we post commission “accruals” in January which are payout estimates. We import data from Salesforce into excel models and each month compare the accrual entry to the actual payout. If there are discrepancies we revise the model and bridge the gap for the following month.
  • Payout Reporting: We create reports that highlight the quarterly commission payout to help management understand how much reps are paid relative to their target attainment.

6) HR Reporting

For a company like ours, salaries are the greatest expense. That is why every hiring decision is reviewed by the finance team before HR begins the recruiting process. Trustpilot has a 3-step approval process using Greenhouse which requires the approval of the (1) department head, (2) C-Level executive, and, as final approver, (3) the CFO.

To enable the approvers to make informed decisions, FP&A generates a monthly management report. This presentation displays all internal and external movements on a departmental level of our 500+ FTE's (full-time employees) including:

  • Joiners (on-contract new hires)
  • Leavers (resignations / terminations)
  • Paternity movements (paternity / maternity leave)
  • Internal movements (between departments)
  • Approved pipeline (recruiting in progress)
  • Non-approved pipeline (waiting for approval by management to begin hiring)

This system has greatly improved the way Trustpilot navigates the complexities of recruiting.

7) M&A / Debt / Equity Raising

This responsibility may be happening behind the scenes, but M&A as well as debt/equity raising activities are some of the most exciting responsibilities of the FP&A team. Finance drives any project that results in expansion or new financing opportunities (debt and equity). The team leads presentation development for venture capital investors and banks. If there were M&A opportunities, FP&A would model those out and determine fair valuations and synergies. We would also lead an initial public offering (IPO) process.

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