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Train wreck

“Sorry. Did you say $20m?”

I couldn’t believe my ears.

I was in my first week of a new finance manager role. Only a few years out of college, but excited to have joined this global mega corp. One with a reputation for only hiring the very best finance talent.

It made what I had heard even more surprising. I was coming in to run reporting and FP&A for a part of the Income Statement for the business. It was only a sub-category of opex, but this business was so large that it was still near $1bn of spend.

And the margins were narrow. The pennies mattered.

The guy who was handing over to me explained there was a $20m black hole in the current year's budget. Let’s call him “Matt” (because his name was actually Matt).

He told me that it started with the strategic planning process. They had a stretch target forced down on them from corporate. $20m of cost reductions were built into year 1 of the plan, which went on to become the budget expectation.

But when Matt had done the bottom-up budget, he hadn’t been able to find those $20m of savings. So he started the year with a $20m difference between the corporate target and the bottom-up budget build.

I asked the obvious question: “Who else knows about this?”

Matt: “No one. They don’t need to, I have a plan to fix it.”

Forgive me for having no faith in Matt’s plan.

It was about to get worse. A lot worse…

Turns out, Matt had been posting a credit to the Income Statement to offset the budget task each month. He was confident that changes in the operations would yield cost savings later in the year. When they did, he could reverse the credit.

I’d never seen anything like it before. To be fair, I didn’t know much about anything. But I did know this: Matt was an idiot.

I did the mental math…

We were in the fifth month of the year. “Hang on… if you have already reported four periods like that, we are a third of the way through the year. One third of that $20m must have crystallized already? You must already have $7m of sh*t on your balance sheet?”

“That’s right, you’ve got it.”

Casual…

Matt had checked the box on his handover sheet. Doofus.

“That’s a big f*cking problem, Matt. You have a corporate team that thinks your area is spending $20m (per year) less than you are. Meanwhile, your locations are working to an aggregate number $20m higher, without a care in the world. And all the sh*t is stacking up on your balance sheet, at a rate of $2m a month? Good job, you are f*cking leaving.”

“Oh… I hadn’t thought of it like that.”

The incompetence flabbergasted me. None of this happened because the models were wrong. It happened because the controls and governance were weak.

But for me, it had shortcut my learning process. Matt had managed to f*ck it up so badly, I was about to get a baptism by fire. Thanks, Matt. I raised it up the chain immediately, and before long, the VP of Finance for my area was now leading the charge.

And I immediately got court-side seats to how a finance leader reacts to a crisis.

I’d see firsthand how to resolve a gap between top-down corporate expectations and the bottom-up budget.

The principles I would learn in the next few weeks would underpin my approach to FP&A throughout the rest of my career.

In this series, I will share them.

When FP&A Goes Wrong in a $100bn Business

Welcome to the start of a 9-week MEGA series. Yes… we capitalize MEGA, especially when we are about to dive into one of my favorite topics: Financial Planning & Analysis (FP&A).

If you are a long-time reader, you’ll remember we covered this back in 2023. And it blew up… it was the first-ever series, and the one that put this newsletter on the map.

So why are we heading back there?

A ton of reasons:

1. Last time we only ran for 6 weeks, meaning there were things I wanted to cover but couldn’t. This time we have 9 weeks, and will cover all the bases.

2. The world has moved on. We thought 2023 was tough for finance. Turns out it was a cakewalk compared to 2025. Good FP&A is more important now than ever.

3. The tools available have changed. We are moving into a new era of FP&A software (things that actually solve the problems CFOs have). AI is changing the game.

4. There are some areas where my thinking on the fundamentals has changed (especially around forecasting). Enough so that it warrants a revisit.

Over the next 9 weeks, we will build up the definitive CFO’s guide to FP&A. And, there will even be a special surprise for you at the end of the series. But you’ll have to stay tuned for that.

But before any of that, let’s start with a philosophical question…

Why does FP&A exist?

FP&A exists to help your business improve its financial performance.

That’s it.

Not to produce budgets. Not to produce analysis. Or board reports. None of it has any value in isolation. So, FP&A has to justify its existence by demonstrating value to the business.

The good news is that’s pretty easy to do. Even the most basic FP&A cycle run well can unlock tremendous value and performance for a business. Connecting the overall strategy down to performance objectives on the shop floor, and everything in between.

But done badly… wow. FP&A errors don’t create $20m problems on their own. They create systemic drag, missed strategy signals, and cultural decay. That’s the real cost. The result is stranded pockets of underperformance all over the organization, which can add up to a huge number in total. And in the worst cases, it is the starting point for accounting disasters (hi Matt).

In my last CFO role, there was a real disconnect between the operations of the business and the numbers it produced.

How did I fix that?

By breaking down the FP&A cycle step by step, repairing it, and putting it back together. It was worth all of the blood, sweat, and tears. This sh*t works.

What is an FP&A Cycle?

Let’s dive into the features of a typical FP&A cycle:

• Oftentimes annual (but not always)

• Each annual cycle takes approximately 18-20 months (meaning that cycles overlap one another)

• The precise processes vary business by business, but typically include:

  • Long Range Plan

  • Budget

  • Monthly Management Reporting

  • Reforecasts

  • Monthly Performance Reviews

I call these the ‘Sacred 5’:

The processes at the top of the table are more strategic and get more operational towards the bottom. In the first half of this MEGA series, we will break down each of these processes in detail.

These five processes make up the spine of financial performance management. Each one has its own tempo, decision points, and politics, but it’s the interlock between the five processes where most FP&A failures occur.

Mastering them individually is good. But making them work together is where the best finance teams excel.

The Sacred 5 come together to form the core FP&A cycle. The cycle tends to start 4-6 months before the start of a new year and finishes 2 months after the year-end.

A typical example could look like this:

Many of you have contacted me to share pictures of this image printed and stuck to your desk, or used in company presentations. It makes me happy every time I see it, but more specifically, it makes Mrs. Secret CFO happy. It was her handiwork (with an assist from our kids’ felt-tip pens.)

Anyway… here’s another way of visualizing the cycle you might find useful.

Each individual process within the FP&A process is complex enough. But most failings in FP&A happen at the interlock points from one process to another.

This is where Matt f*cked up. At each critical checkpoint, he made a fatal error:

• Long Range Plan: Failed to resolve the expectation gap with corporate

• Budget: Repeated the mistake from the LRP process, hard-wiring the gap into the annual operating plan

• Monthly Accounts: Parked the inevitable variance between actual and budget on the balance sheet (the most egregious of his mistakes)

• Monthly Performance Review: Nobody discussed or resolved the variance. They didn’t know there was one!

FP&A cycles drive the monthly business feedback loops. Critical for ensuring the business keeps performance on track:

Common FP&A Failures

We will discuss where FP&A can go wrong throughout this series, but to kick us off, here are the most common failings found in poor FP&A teams:

1. Too many FP&A processes are run as finance processes. They should be business processes run by finance, not finance processes. The distinction is important. It’s easy to think FP&A is about spreadsheets. They’re important, but by my estimates, only contribute ~20% of what’s needed for success. The other 80%? It’s about people.

2. FP&A frequently attacks the wrong level of detail. Either too in the weeds, or too high level. Getting this right at each part of the process is critical (and harder than you think.)

3. FP&A without senior buy-in is just a waste of time and overhead. If the outputs of FP&A aren’t directly plugged into the exec, you may as well get rid of it altogether. The CFO’s most critical role in FP&A is fostering that connection.

4. Most FP&A teams have a much better understanding of the cost model than the revenue model. They see sales as an input controlled by a pesky sales function. And the cost model from there is formulaic. Great FP&A teams understand the revenue and margin model even better than the cost model. Revenue is much harder to model properly as it’s multi dimensional, including variables outside of the circle of control. But if your FP&A team can’t explain the sales conversion funnel (and its cost), they’re not ready to help run the business.

5. If your FP&A doesn’t connect to your incentive plans, then you are leaving execution on the table. The real art of FP&A is connecting a big strategic goal all the way down to the performance management system and bonus targets for each individual across the whole organization.

A Rant

Every LinkedIn post I read talks about how FP&A teams should be ‘internal consultants’ and ‘strategic partners.’

These are nice words, and are what most CFOs and FP&A pros want to hear (which is why they rack up LinkedIn likes), but they set the bar for FP&A far too low.

The sentiments aren’t wrong, but they are nowhere near enough.

Yes, FP&A focuses on strategy and insights. Of course, they do. But the real FP&A value is in the unglamorous work of helping the business execute. Your brilliant insights mean jack if you can't deliver the tools and processes that turn them into reality.

If your goal is to 10x revenue in the next 3 years, your job is to ensure the millions of tiny actions in the business that go towards that add up to deliver on that goal. To help the business limit downside exposure and blow the roof off upside potential. Yes that’s about strategy, and analytics. But it’s also about control. Not control in the accounting sense, but control of business performance.

I don’t know who needs to hear this, but… that 52-year-old VP of Ops doesn't value your "strategic advice" about her operation because you're brilliant. She appeases you because you're a gatekeeper to the information she needs. When technology inevitably gives her direct access, your ‘strategic partner’ act becomes as relevant as a Blockbuster loyalty card.

But give her the tools she needs to help her ACTUALLY deliver results? Now you are essential to her. A true strategic partner.

In this series, we’ll talk about exactly how you do that.

Series Agenda

We will break down each of the key components of an FP&A cycle over the next nine weeks.

During May, we will break down the individual parts of the ‘Sacred 5.’ Then in June, we dive headfirst into some contentious FP&A areas to help round off your FP&A toolkit.

PART I - MAY

• Week 1 - Intro to FP&A

  • Why Revisit FP&A Now

  • Why is FP&A Important

  • The Sacred 5

  • How they fit together

  • Common FP&A Failings

  • Setting Expectations for the Series

• Week 2 - Long Range Planning

  • What is an LRP

  • Why do you need it?

  • Step-by-Step LRP Process

  • The LRP model

  • Simple building blocks

  • FYE vs PYE effects

• Week 3 - Budgets

  • What is a budget

  • Why do you need it

  • Budgeting in 6 steps

  • Beating budget bullsh*t (politics)

• Week 4 - Monthly Management Reporting

  • Why is the monthly cycle so important

  • What makes good monthly reports

  • Backward-looking vs forward-looking

  • Close timelines

  • Principles for better monthly reports

• Week 5 - Monthly Performance Reviews

  • What is an MPR

  • Who is it for?

  • Critical ingredients

  • Structuring the meeting

  • Governing the output

PART II - JUNE

• Week 6 - Forecasting

  • Why most forecasts are bad

  • Approaches to Forecast

  • Risks & Opportunity Planning

  • What I use

  • Forecast Weaponization

• Week 7 - Bridging Performance

  • Purpose of performance bridges

  • Driver-led vs P&L line-led

  • Types of bridging items

  • Calculating bridging items

  • Best practices and common failings

• Week 8 - Linking Operations to Finance

  • What measures?

  • Isolating variables

  • Linking them together

  • The variance overlap problem

  • Communicating with operations

  • Linking FP&A to incentives

• Week 9 - Adjusting performance (ethically) without losing your job 

  • Why adjust at all?

  • Ethical responsibilities

  • When to adjust and when not to

  • Version control

  • Managing stakeholder tension

AI and emerging technology are challenging some long-held conventions about FP&A. Like forecast frequency and even whether the planning cycle should be annual at all.

We’ll get into that over the coming weeks too.

Net-net

Remember…

A failure to align the business around targets is a failure of the CFO.

This series will give you the definitive playbook for delivering that alignment. From the top floor to the shop floor.

And for those wondering what happened to poor old Matt from the opening anecdote… I still don’t know, but I expect he has found a very rewarding career somewhere outside of finance.

See you next week for the long-range plan.

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