To say there’s no dominant player in FP&A software is accurate. According to a popular sampling, the top five tools have a combined market share of only 13%. But that’s not counting the most-used FP&A tool of all—the spreadsheet.
“The biggest reason people come back to spreadsheets, whether it’s Excel or another brand’s, is flexibility,” says Paul Barnhurst, aka The FP&A Guy, a podcaster, FP&A trainer and thought leader, the foremost expert on this category.
Spreadsheets are ubiquitous and, in FP&A, serve as the “least common denominator” used to connect data across various systems, according to a benchmarking survey by the Association for Financial Professionals.
That makes FP&A software, unlike accounting software, a nice-to-have but not compulsory for a small company. Finance can get by with spreadsheets for financial planning and modeling for a long time as the organization grows. Barnhurst has seen companies as large as $1 billion still using Excel, “but it’s painful.”
At some point, though, the sheer volume of data is unmanageable with a spreadsheet, says Barnhurst. FP&A software has much to offer—repetitive task automation, data-validation features, better handling of large datasets and complex models, direct data integration with other systems, version control and audit trails, advanced analytics and security features—and more.
Crowded Market
The FP&A market can seem intimidating because it looks super-crowded, but it isn’t, says Barnhurst—because not every tool competes in the same space.
There are many ways to segment the market and many questions to ask yourself, including:
- How much do you want to spend?
- How complex are your potential use cases?
- Do you want an industry-specific tool or an agnostic one?
- Should the software also handle operational planning? How scalable is the software?
- How much time and effort can you afford to maintain or adjust the financial models?
- How flexible are the modeling capabilities? Can you change the financial plans and forecasts quickly when unexpected events occur?
Spreadsheet Integration
One of the easiest ways to segment is by the degree of integration with your spreadsheet software. (Integration with your ERP, production software or other major systems is a big decision point, too.) From the perspective of the finance executive and the organization, here’s what the two ends of the spectrum look like:
The best of both worlds. “They love their spreadsheet, but they’re dealing with what I call ‘Excel hell,'” Barnhurst says. They don’t have the privacy, collaboration, workflow integrations and automated reporting that come with an application.
“Excel is just a mess.” “The models are always a mess. They’ve been bit too many times by errors and mistakes. They want to move away from it.”
Tool Types
Using the degree of spreadsheet integration to sort the vendors makes the job easier. (The products here are examples, not a comprehensive list.) The categories, at least currently, break down as follows, says Barnhurst:
- Spreadsheet add-ins: Liveflow, XPNA (Everything is done in Google Sheets or Excel.)
- Spreadsheet natives: Datarails, Vena, Cube (Web apps with their own database. Encourage you to work in the spreadsheet as much as possible.)
- High-to-low spreadsheet integration. These are really three segments. On the high-integration end, for example, are Jedox and Aleph; on the low-integration end are Abacum, Clockwork and Mosaic. The medium integration category includes Prophix and Planful.
- Spreadsheet replacements: Causal, Arithmix.
Generations
The other nomenclature heard in the FP&A software market is first generation, second generation and third generation. The FP&A category is 25 years old and started with large, monolithic tools, says Barnhurst.
The current evolution of third-generation tools emerged in 2018. They are often “low-code, no-code” and are more focused on the user interface and user experience, but most have less functionality, says Barnhurst. “FP&A tools take a long time to develop,” he says. “So third-generation software may not [yet] scale as well.”
Fourth-generation tools are in development and, of course, will have AI as a foundation. “The way to think about it is they will be planning tools with AI at their core, not an AI,” he says. These tools will have AI agents and allow FP&A teams to tap many more data sources—at least, that’s what is promised. They will act in response to spoken commands. They will be better at anomaly detection, alerts and commentary.
“I don’t know how far away we are, but I have seen it; I haven’t gotten to test it yet,”Barnhurst says.
Finding A Fit
What are the crucial points to remember when on the selection journey?
Moving away from Excel is not simple. Users must learn a new spreadsheet interface and maybe some coding to create reports. Nonfinancial personnel may balk. However, these applications are multidimensional, so modeling and projecting by customer, product and region/country is easier. “You don’t have to rewrite formulas…However, you always give up a little flexibility because they have a database, they have structure.”
Look forward. For a small midmarket company, enterprise tools will generally be overkill, says Barnhurst. However, consider where the organization will be in three to five years when establishing your requirements. “A super fast-growing company with $20 million in revenue now but that could realistically have $1 billion in revenue in three years probably doesn’t want a small-market tool,” says Barnhurst. “They’re either going to wait [to buy FP&A software] or overpay early on.”
Implementation is critical. Barnhurst says an FP&A software installation takes anywhere from four weeks to six months. “Don’t ever sleep on the implementation partner,” he says. “As important or more important than the software is the implementation partner because most of the software has the same core functionality.”
One more time for emphasis: “Never, never select a tool just based on the tool” and merely tolerate the implementation partner, Barnhurst says. “Because they’re the ones that are going to make it work, not the vendor who sold you the software.”
