What is FP&A?

The statement of what the business earned and spent over a period: revenue, cost of sales, gross profit, operating expenses, operating income, interest and tax, net income.

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A snapshot at one moment of what the business owns (assets), owes (liabilities), and what is left for the owners (equity). Assets always equal liabilities plus equity.

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Accrual records revenue when earned and costs when incurred, regardless of when cash moves; cash basis records them when cash moves. Accrual gives the right period picture; cash basis gives the bank balance.

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Revenue less cost of sales, as a share of revenue. What is left to cover everything else after the direct cost of delivering what was sold.

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Operating income (revenue less cost of sales and operating expenses) as a share of revenue. Profitability before interest and tax — the margin management actually controls.

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The bottom line: what is left after every cost, interest, and tax. What flows to retained earnings.

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Where cash came from and went during a period, split into operating, investing, and financing activities. It reconciles net income to the change in cash.

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Earnings before interest, tax, depreciation, and amortisation. Operating income with the non-cash depreciation and amortisation added back — a rough proxy for operating cash generation.

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Spreading the cost of a long-lived asset over the years it is used, as a non-cash expense. Depreciation for tangible assets, amortisation for intangibles.

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Cash collected for goods or services not yet delivered, held as a liability until the revenue is earned.

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Capital expenditure buys an asset that lasts more than a year and is depreciated; operating expenditure is consumed in the period and expensed immediately.

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Cumulative net income the business has kept rather than paid out as dividends. The link from the income statement to equity.

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Net income flows to retained earnings on the balance sheet and is the first line of the cash flow statement; the change in cash on the cash flow statement is the change in cash on the balance sheet; depreciation reduces income and fixed assets and is added back to cash.

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Recording revenue when the performance obligation is satisfied — when the customer gets the good or service — not when the cash arrives or the contract is signed. Cash received first is deferred revenue; work done first is unbilled revenue.

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The monthly comparison of what was planned to what happened, line by line, with the variance and the reason.

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Planning from the operational quantities that cause revenue and cost — customers, price, headcount, units — rather than growing last year's lines by a percentage.

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Planning people by role, start date, and fully loaded cost — salary, employer taxes, benefits, equipment — since people are most businesses' largest cost.

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The year's plan by month: revenue, costs, headcount, capex, and cash, built from drivers and agreed with the leaders who own each line. The baseline every month's actuals are compared to.

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A forecast that always looks a fixed distance ahead — usually twelve months — and is re-cut every month or quarter, so it never shortens to a few weeks by year end.

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Running the plan under different assumptions — base, upside, downside — so the response to each is decided before it happens.

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Changing one assumption at a time to see how much the output moves — which drivers the result is most sensitive to.

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Building each budget line from zero and justifying every dollar, rather than adjusting last year's figure.

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Planning purchases of long-lived assets — equipment, vehicles, software builds, fit-outs — with timing, payback, and the depreciation they will add to the P&L.

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Extrapolating a recent period to a full year: a month's revenue times twelve, a quarter's times four. The simplest forecast there is.

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The change in a metric over a period as a share of the starting value: month over month, quarter over quarter, year over year.

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Updating the forecast for the rest of the year with actuals to date and what has been learned, while keeping the original budget as the fixed comparison.

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The single constant annual growth rate that would take a starting value to an ending value over a number of years. Smooths out lumpy years into one comparable rate.

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Regular within-year patterns — a December peak, a summer trough — that repeat every year and should be forecast, not explained away as variance.

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Forecasting revenue from the sales pipeline: each opportunity's value weighted by its stage probability, plus what is already booked and scheduled to be recognised.

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Grouping customers by when they started and tracking each group's revenue or retention over time, so growth in new customers does not hide churn in old ones.

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How close forecasts have been to actuals, measured consistently — mean absolute percentage error is the usual — so the forecast process itself can improve.

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A favorable variance improves profit versus plan (revenue above, cost below); an unfavorable one reduces it. The sign of the raw difference depends on the line, so the label says what it means.

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Explaining the difference between actual and plan by breaking it into causes — price, volume, mix, cost, timing — rather than just reporting the gap.

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A timing variance reverses in a later period (a delayed invoice, an early payment); a permanent one does not (a lost customer, a price cut). Only permanent variances change the full-year forecast.

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For a cost line, splitting the variance into how much came from paying a different rate (price per unit, salary per head) and how much from using a different quantity (hours, heads, units).

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Splitting a change in revenue (or margin) into how much came from selling at different prices, selling different quantities, and selling a different blend of products.

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The budget re-stated at the actual level of activity, so cost variances are judged against what the costs should have been at that volume, not at the planned volume.

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How many months the business can keep operating at its current net burn before cash reaches zero.

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Gross burn is total monthly cash out; net burn is cash out less cash in — the amount the cash balance actually falls each month.

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Receivables bucketed by how overdue they are — current, 30, 60, 90+ days — to see collection risk and where to chase.

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A weekly forecast of receipts and disbursements for the next quarter, starting from the bank balance, that shows the cash low point and the week it lands.

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Current assets less current liabilities — the cash tied up in running the business day to day: receivables and inventory, less the payables that fund them.

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The average number of days between invoicing a customer and collecting the cash — how long receivables sit.

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Profit is revenue earned less costs incurred; cash is what arrived less what left. They differ by working capital changes, capex, debt movements, and non-cash charges like depreciation.

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The average number of days the business takes to pay its suppliers — how long payables are used as free financing.

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The average number of days inventory sits before it is sold.

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Operating cash flow less capital expenditure — the cash the business generates after maintaining and growing its assets, available to repay debt, pay owners, or build reserves.

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The number of days between paying for inputs and collecting from customers: inventory days plus receivable days, less payable days.

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The revenue (or units) at which contribution margin exactly covers fixed costs and profit is zero.

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Revenue less all variable costs — what each additional sale contributes toward fixed costs and profit.

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The profit per unit — per customer, per order, per job — after every cost that belongs to it. Whether the core transaction makes money before overhead.

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Total sales and marketing spend in a period divided by the new customers won in it. What it costs to buy a customer.

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Monthly recurring revenue is the subscription revenue normalised to a month; annual recurring revenue is twelve times that. The run rate of the subscription base, excluding one-time fees.

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Churn is the share of customers (or revenue) lost in a period; retention is what is kept. Logo churn counts customers; revenue churn counts dollars.

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The gross profit a customer generates over their whole relationship: average revenue per period, times gross margin, divided by the churn rate.

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Lifetime value divided by acquisition cost — how many dollars of gross profit each dollar of acquisition spend buys. Three is the usual healthy benchmark.

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How many months of a customer's gross profit it takes to earn back the cost of acquiring them.

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Revenue from the customers you had a year ago, as a share of what they paid then — after churn, downgrades, and expansion. Above 100% means the existing base grows on its own.

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A software benchmark: revenue growth rate plus profit margin should add to at least 40%. Fast growth excuses losses; slow growth requires profit.

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New ARR added in a quarter, annualised, divided by the prior quarter's sales and marketing spend. How efficiently growth spend turns into recurring revenue.

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Variable costs move with volume (materials, transaction fees, commissions); fixed costs do not, within a range (rent, salaries, software). The split decides operating leverage.

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A discount comes straight off the margin, not the revenue: a 10% discount on a 30%-margin sale gives away a third of the profit, and needs about 50% more volume just to break even.

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Setting price on value to the customer and competitive position, checked against cost and margin — not cost-plus by default. The highest-leverage lever in most businesses.

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How much profit changes for a given change in revenue, driven by the share of costs that are fixed. High fixed costs mean profit swings harder than sales in both directions.

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Assigning shared costs — rent, IT, finance — to products, departments, or customers on a driver like headcount or revenue, so their full cost can be seen.

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Setting an expected cost per unit (materials, labour, overhead) and reporting actuals as variances from it, so a factory or delivery team can be managed by exception.

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Allocating overhead by the activities that actually consume it — orders processed, setups run, tickets handled — instead of a single blanket rate.

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The price one part of a business charges another for goods or services, which moves profit between units, entities, and tax jurisdictions.

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How long until a project's cumulative cash inflows equal the initial investment. The simplest capital-budgeting test and the one owners understand first.

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A dollar today is worth more than a dollar next year, because it can be invested. Future cash is discounted back to today at a rate that reflects that and the risk.

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The sum of a project's future cash flows discounted to today, less the upfront investment. Positive means the project earns more than the discount rate.

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The discount rate at which a project's NPV is zero — the annualised return the cash flows imply. Compare it to the cost of capital.

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The blended rate the business pays for its money: the cost of debt (after tax) and the cost of equity, weighted by how much of each funds the business. The hurdle a project must clear.

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Conditions in a loan agreement — a minimum coverage ratio, a maximum leverage ratio, a minimum liquidity — that, if breached, let the lender demand repayment or reprice the loan.

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Leverage measures debt against earnings (net debt to EBITDA); coverage measures earnings against the interest bill (interest coverage). The two ratios lenders watch.

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Valuing a business as a multiple of a metric — EBITDA, revenue, ARR — taken from what comparable businesses sold for.

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Enterprise value is what the whole business is worth to all capital providers; equity value is what the owners get after net debt is paid off.

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The mix of debt and equity that funds the business. Debt is cheaper and keeps ownership but must be serviced; equity is expensive and permanent but survives a bad year.

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The three-statement forecast, use of funds, and runway a lender or investor expects — showing how much is needed, when, what it buys, and how it is repaid or returned.

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Selling new shares reduces every existing owner's percentage. Raising $2M at an $8M pre-money valuation gives the investor 20% and leaves existing holders with 80% of a bigger company.

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Valuing a business as the present value of its forecast free cash flows plus a terminal value for everything after the forecast, discounted at the cost of capital.

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The handful of metrics that actually drive the business's profit and cash, chosen so each has an owner and a target. Three to five, not twenty.

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The process that turns a month's transactions into trusted statements: reconciliations, accruals, deferrals, reviews, and the sign-off — on a calendar, in days.

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Accruals record costs incurred but not yet invoiced; prepayments spread costs paid in advance over the periods they cover. Both put costs in the right month.

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Making sure the numbers in the report tie to the source — the ledger to the bank, the sub-ledgers to the balance sheet, the model to the statements — before anyone reads them.

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The month-end report for leadership: the P&L versus budget and prior year, the balance sheet and cash, the KPIs, the variances explained, and the forecast for the year.

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FP&A working with department leaders as their finance counterpart: translating plans into numbers, numbers into decisions, and pushing back with data.

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The approvals, separations of duty, and reconciliations that stop errors and fraud, and the documentation that lets an auditor or acquirer trust the numbers.

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Deciding where the business's cash goes — reinvestment, debt repayment, reserves, distributions — by comparing the return on each use against the cost of capital and the risk.

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The quarterly view for a board: performance against plan, cash and runway, the risks, the decisions needed, and the forecast — at the level of decisions, not transactions.

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Identifying what could hurt the business financially — customer concentration, FX, interest rates, a covenant, a key supplier — and deciding what to hedge, insure, diversify, or accept.

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