Manual vs. Automated Consolidation: The Benefits of FPM Software
In order to make financial consolidation as efficient as possible, CFOs must first of all look for the optimal software solution that will allow to carry out the consolidation process in the easiest and most effective way possible. But what consolidation options are available to CFOs and finance teams and what are their advantages and disadvantages? We have compared three approaches.
1. Using your own ERP system as a financial consolidation tool
Most companies have an ERP system that can theoretically do "just about anything" for reporting. However, when it comes to the financial consolidation of accounts, the reality can be quite different, as such systems are usually not flexible and do not produce the same results.
ERP systems do offer certain advantages: When it comes to financial reporting, for example, they may be suitable for dealing with a handful of companies and even with various currencies. But that alone is not always enough. The main problem is that ERP systems do not have the necessary level of detail for consolidating accounts to be able to comply with the various consolidation methods and regulatory standards.
It is therefore hard to avoid making manual adjustments when preparing consolidated financial statements using an ERP system.
2. Further options for consolidation: Excel
In their search for a suitable tool for financial consolidation, CFOs often come across different tools – among them, MS Excel. Formulas and pivot tables are then created manually in Excel in the vain hope that the final result for the consolidated financial statements somewhat resembles the original data entered.
Every CFO is keenly aware of this nightmarish situation and that it is hard to guarantee that the figures produced through such spreadsheet calculations will end up being entirely valid in the long run. Excel spreadsheets are therefore a burden on time and resources, not to mention a cause for uncertainty as to the validity of report data.
3. The results of manual consolidation
Unfortunately, in most cases, manual consolidation procedures contain numerous sources of error. Financial managers often resign themselves to make do with the "patching up" of inaccuracies in their consolidation system month after month, even though this method only solves the problem superficially and in the short term, without developing a suitable solution for the long term.
What must be done if the only tool used for consolidation turns out to be unreliable?
The most effective solution: Software for Financial Performance Management (FPM)
The best option is to find a permanent solution to the problem. In the best case, it should be a software solution that enables the reconciliation of accounts and in which the data are available in their entirety, so that all group companies can be consolidated with one hundred percent reliability. And it would be even better if time and resources in the finance department can also be reduced in the process.
It is precisely for these reasons that all companies that are mandated to prepare consolidated financial statements should use special-purpose consolidation software. This allows the process of preparing consolidated financial statements and reporting to be automated, resulting in greater efficiency and security and less effort in preparing the consolidation. And as a result, you’ll have more time to analyze the data!
If most of the following characteristics apply to your company, then you should use Financial Performance Management software to prepare your consolidated financial statements:
- Financial statements of multiple companies need consolidating
- Varying charts of accounts
- Deviating fiscal years
- Multiple currencies
- Different reporting requirements or reporting levels
Summary: Manual or automated consolidation?
When consolidated financial statements are prepared manually or by using tools that are not specifically designed for this purpose, the consolidation process becomes highly error-prone and takes up unnecessary time.
However, if software such as LucaNet is used — designed specifically for financial consolidation, planning, and reporting — you can automate all processes within the finance department, thus saving you from having to carry out tiresome manual tasks and leaving you more time to analyze the data.
Find out more on our solution page for financial consolidation: