FP&A glossary
The terms of financial planning and analysis, defined in plain English.
Annual recurring revenue (ARR)
The yearly value of a company's active subscription contracts, usually monthly recurring revenue multiplied by twelve. ARR leaves out one-time fees and services, which makes it the standard headline growth number for subscription businesses.
Bookings
The value of contracts signed in a period, recorded when the customer commits rather than when the revenue is earned. A three-year deal signed in March is a March booking, but its revenue is recognized month by month over the three years.
Bottom-up forecast
A forecast built from the operating detail upward: individual customers, products, reps or hires, each with its own drivers, summed into totals. It is slower to build than a top-down forecast but easier to defend, because every total traces back to an assumption someone owns.
Budget vs. actuals (BvA)
A report that sets what a business planned to earn and spend beside what it actually did, line by line and period by period. The gap between the two is the variance, and explaining the largest variances is the core of a monthly finance review.
Burn rate
How fast a company spends its cash. Gross burn is total monthly cash spending; net burn is cash spending minus cash coming in. Net burn is the figure that, divided into the cash balance, gives runway.
Customer acquisition cost (CAC)
The sales and marketing spend required to win one new customer, calculated as the period's sales and marketing cost divided by the customers gained in that period. Compared with lifetime value, it tells you whether growth is paying for itself.
Cash runway
The number of months a company can operate before it runs out of cash at its current net burn. Runway is the number most early-stage boards ask about first, and it changes with every hiring and spending decision.
Churn
The share of customers or recurring revenue lost in a period. Logo churn counts customers; revenue churn counts dollars. Net revenue retention adds back expansion from customers who stayed, so it can exceed 100% even when some customers leave.
Deferred revenue
Cash a customer has paid for goods or services not yet delivered. It sits on the balance sheet as a liability and moves to revenue as the service is provided, which is why an annual prepayment raises cash immediately but revenue only gradually.
Dimension
A way of splitting a number into parts, such as product, region, department or customer segment. In a dimensional model, one formula is written once and applies to every member of the dimension, instead of being copied row by row as in a spreadsheet.
Driver-based forecasting
Forecasting the financial statements from the operational inputs that cause them, such as leads, conversion rate, price, headcount and salary, rather than by extending last year's totals. Changing one driver flows through every number that depends on it.
EBITDA
Earnings before interest, taxes, depreciation and amortization: net income with those four items added back, and commonly approximated as operating profit plus depreciation and amortization. It is a common, if imperfect, stand-in for the cash a business's operations generate.
Financial planning and analysis (FP&A)
The finance function that plans and explains performance: budgets, forecasts, scenario models, and the analysis of why results differ from plan. Where accounting records what happened, FP&A works out what is likely to happen and what to do about it.
Fully loaded cost
The total cost of an employee beyond base salary: payroll taxes, benefits, bonuses, equipment and software. A fully loaded cost is commonly 1.2 to 1.4 times salary, so a headcount plan built on salary alone understates spending.
Gross margin
Revenue minus the direct cost of delivering it, expressed as a percentage of revenue. For software that cost is mostly hosting and support; for product companies it is materials, labor and freight. Gross margin caps how much a business can spend on everything else.
Headcount plan
A schedule of current and planned employees with their start dates, departments and fully loaded costs. For most companies people are the largest expense, so the headcount plan drives the operating expense forecast and much of the cash forecast.
Customer lifetime value (LTV)
The gross profit a typical customer generates over the whole relationship, often estimated as average monthly gross profit per customer divided by monthly churn. An LTV of at least three times CAC is a common benchmark for healthy unit economics.
Monthly recurring revenue (MRR)
The monthly value of active subscriptions. MRR movement is usually broken into new, expansion, contraction and churned MRR, which shows where growth is coming from and where it is leaking.
Reforecast
Updating a forecast partway through the year with the actual results to date and revised assumptions for the months that remain. Many teams reforecast monthly or quarterly while keeping the original budget fixed for comparison.
Rolling forecast
A forecast that always looks the same distance ahead, for example the next twelve or eighteen months, adding a new month as each one closes. Unlike an annual budget, it never runs out of horizon at year end.
Scenario planning
Building several versions of a forecast, such as base, upside and downside cases, from different assumptions, and comparing them side by side. Scenarios turn questions like 'what if the round closes late?' into numbers a team can plan around.
Sensitivity analysis
Changing one assumption at a time to see how much an output moves, for example how runway responds to a 10% drop in new bookings. It shows which drivers deserve the most attention and the most careful estimates.
13-week cash flow forecast
A week-by-week projection of cash receipts and payments over the next quarter. Because it is built from expected collections and scheduled payments rather than accruals, it is the standard tool for managing liquidity when cash is tight.
Three-statement model
A model in which the income statement, balance sheet and cash flow statement are linked, so that a change in one flows correctly into the other two. Net income feeds retained earnings and the cash flow statement, and the cash flow statement explains the change in the balance sheet's cash.
Top-down forecast
A forecast that starts from a total, such as market size times expected share or last year's revenue times a growth rate, and allocates it downward. It is quick and useful for targets, but it says little about what has to happen to hit the number.
Unit economics
The revenue and cost of a single unit of the business, whether one customer, one order or one subscription. Unit economics such as CAC, LTV, payback period and contribution margin show whether selling more will make the company healthier or just bigger.
Variance analysis
Explaining the difference between planned and actual results, usually by splitting each variance into its causes, such as price, volume and mix for revenue or rate and headcount for payroll. Good variance analysis ends in a decision, not just an explanation.
Working capital
Current assets minus current liabilities, chiefly receivables and inventory minus payables. A growing business often consumes working capital, because it pays suppliers and staff before customers pay it, so profitable growth can still drain cash.
Zero-based budgeting
Building each budget line from zero every cycle and justifying it on its own merits, instead of starting from last year's figure and adjusting. It takes more effort but stops spending from persisting simply because it existed before.
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