When It Is Time to Build FP&A

Most companies do not start with a dedicated FP&A function. In the early days, the CEO or a controller handles basic financial planning alongside accounting duties. But there comes a point, usually when the company reaches $10-30 million in revenue, secures significant venture funding, or begins preparing for an IPO, where the complexity of the business outpaces what a generalist can manage.

The signals that you need dedicated FP&A include: the board is asking questions that take days to answer, operating leaders are making resource decisions without financial context, the forecast is consistently off by wide margins, and no one can explain why results differ from the plan.

Building an FP&A function from scratch is a significant undertaking. This guide provides a structured approach to getting it right.

Phase 1: Foundation (Months 1-3)

Hire the Right First FP&A Leader

Your first FP&A hire sets the trajectory for the entire function. Look for someone who combines technical modeling skills with business acumen and communication ability. The ideal candidate has:

  • Experience building models from scratch, not just maintaining existing ones
  • The ability to translate financial data into business narratives
  • Comfort working with ambiguity and incomplete data
  • A collaborative mindset that earns trust with non-finance stakeholders
  • Familiarity with your industry or business model

Seniority depends on your company’s stage. A Series B startup might hire a senior FP&A analyst or manager. A company approaching $100 million in revenue likely needs a Director or VP.

Establish the Data Foundation

Before building any models or reports, you need clean, reliable data. The first priority is understanding what data exists and where it lives:

  • General ledger data: Chart of accounts structure, journal entry completeness, month-end close timeline
  • Revenue data: Billing system, CRM, subscription management platform
  • Headcount data: HRIS system, payroll records, hiring plans
  • Operational data: Product usage, sales pipeline, customer data

Identify the gaps and the reconciliation points. Can you tie CRM revenue data to the general ledger? Do headcount records in HR match what is in the payroll system? Resolve these discrepancies before building models on top of the data.

Build the Core Financial Model

Start with a single integrated model that connects the income statement, balance sheet, and cash flow statement. Keep it driver-based from the beginning, even if the driver set is simple. A basic SaaS model might have 10-15 drivers; a product company might have 8-12.

This model becomes the single source of truth for all financial planning and analysis. It replaces the ad hoc spreadsheets that various people have been maintaining independently.

Phase 2: Core Processes (Months 3-6)

Implement the Monthly Close Package

Create a standard monthly reporting package that the leadership team receives within 10 business days of month-end (with a goal of shortening this to 5 days over time). The package should include:

  • Income statement with budget and prior year comparisons
  • Key operational and financial metrics with trend lines
  • ARR or revenue bridge (for subscription businesses)
  • Cash position and 13-week cash forecast
  • Variance commentary on material items

Launch the Forecast Process

Establish a regular forecasting cadence. For most companies, a quarterly full re-forecast supplemented by monthly flash updates works well as a starting point. The forecast process should:

  1. Begin with updated actuals and current-period signals (pipeline, bookings, hiring progress)
  2. Require business unit input on their specific drivers
  3. Produce updated financial statements and key metrics
  4. Include a brief written narrative explaining material changes from the prior forecast

Create the Budget Process Framework

Design a streamlined annual budgeting process for the upcoming fiscal year. First-time budgets benefit from a top-down approach where finance proposes a framework (revenue targets, operating margin goals, headcount envelope) and business units build their plans within those constraints. This prevents the bottom-up aggregation problem where every department’s wish list adds up to an impossible number.

Phase 3: Business Partnership (Months 6-12)

Embed Finance in Business Decisions

The highest-value activity for FP&A is not producing reports. It is influencing decisions. As the function matures, shift time allocation toward proactive analysis:

  • Pricing analysis: Model the revenue and margin impact of pricing changes
  • Investment cases: Build ROI models for new initiatives, product launches, or market entries
  • Hiring plans: Help leaders understand the financial impact of headcount decisions, including ramp times and fully loaded costs
  • Customer economics: Analyze unit economics by segment, channel, or product to inform go-to-market strategy

Build Relationships with Business Partners

FP&A effectiveness depends on trust. Schedule regular one-on-one meetings with each department leader. Ask about their priorities, challenges, and information needs. Deliver analysis that helps them solve their problems, not just finance’s problems. Over time, the goal is for business leaders to proactively seek out their finance partner before making significant decisions.

Establish the Business Review Cadence

Implement a structured monthly or quarterly business review where each functional leader presents their performance against plan. FP&A facilitates these reviews by providing the data, highlighting trends, and framing the discussion around the most important variances and forward-looking risks.

Phase 4: Advanced Capabilities (Months 12-18)

Scenario and Sensitivity Analysis

Build scenario planning into the regular cadence. Maintain at least three scenarios (base, upside, downside) and refresh them quarterly. Use sensitivity analysis to identify the variables that most impact key outcomes and ensure management is focused on the right levers.

Long-Range Planning

Develop a 3-5 year strategic financial plan that models the path to key milestones: profitability, revenue targets, IPO readiness. This plan should be updated annually and used to inform major capital allocation decisions.

Board Reporting

Create a board-quality financial package that goes beyond the numbers to tell the story of the business. Include market context, strategic progress, key risks and opportunities, and a clear articulation of how financial resources are being deployed against strategic priorities.

Team Structure and Scaling

When to Add Headcount

As the function matures, you will need to add team members. Common triggers include:

  • The first hire is spending more than 50 percent of their time on recurring reporting rather than analysis
  • Business partners are requesting more support than one person can provide
  • The complexity of the business (multiple products, geographies, or business units) exceeds what one analyst can cover

Organizational Models

As the team grows, two organizational models are common:

Centralized Model: All FP&A analysts report to the FP&A leader and are assigned to cover specific business areas. This preserves consistency in methodology and creates a strong team identity.

Embedded Model: FP&A analysts report to (or are matrixed to) business unit leaders with a dotted line to the FP&A leader. This deepens business knowledge but can create inconsistency in tools and approaches.

Hybrid Model: A small central team handles corporate-level planning, reporting, and methodology, while embedded analysts sit within business units. This is the most common approach for companies with $100 million or more in revenue.

Key Roles as the Team Expands

Role Focus Area Typical Timing
FP&A Leader Strategy, process, executive communication First hire
Revenue Analyst ARR/revenue modeling, pipeline analysis 2nd-3rd hire
Operational FP&A Analyst Cost structure, headcount planning, departmental support 3rd-4th hire
Data/Systems Analyst Automation, tool administration, data integrity 4th-5th hire

Technology Considerations

Start Simple, Scale Intentionally

Do not buy an enterprise planning tool before you have a clear understanding of your data, processes, and requirements. Many companies build their initial FP&A function on well-structured spreadsheets and graduate to dedicated tools once the volume and complexity justify the investment.

When to Invest in a Planning Platform

The right time to move beyond spreadsheets is when:

  • Multiple people need to collaborate on the model simultaneously
  • Data collection from business units is consuming excessive time
  • Version control and audit trails are becoming difficult to maintain
  • The model has grown too large for spreadsheets to handle reliably

Essential Tool Categories

  • Planning and forecasting: The core model and scenario engine
  • Reporting and visualization: Dashboards for leadership and self-service analytics for business partners
  • Data integration: Connectors to ERP, CRM, HRIS, and billing systems

Measuring FP&A Effectiveness

Track these indicators to assess whether your FP&A function is delivering value:

  • Forecast accuracy: MAPE for revenue and key expense lines
  • Cycle time: Days to close the monthly reporting package and deliver the forecast
  • Stakeholder satisfaction: Periodic surveys or feedback from business partners and executives
  • Decision influence: Number of significant business decisions where FP&A analysis was a material input
  • Time allocation: Percentage of team time spent on analysis and business partnering versus data gathering and report production (target: at least 50 percent on the former)

Building an FP&A function is a journey that unfolds over 12-18 months. The key is to sequence the work correctly: establish data and model foundations first, then layer on processes and reporting, and finally shift toward strategic partnership and advanced analytics. Each phase builds on the one before it, and skipping steps invariably creates problems that are harder to fix later.