How to speed up your financial consolidation process to generate faster insights

Ask decision-makers what they want from their finance function, and you’ll get a simple answer, “we want insights to help us make better decisions”. What’s the challenge? Most of the time the finance function is not able to generate them fast and reliable enough to be considered when the decision is made.

This is true regardless of if we consider insights derived from internal or external reporting. To decrease the time to insights we face several challenges. In this blog post we will focus on the challenges faced in the financial consolidation process.

The good news is that the financial consolidation process is not dependent on internal management allocations. The bad news is that numbers need to be accurate as they are used for external reporting to the market but also reporting to the executive management team and the board. How can the finance function address this challenge?

 

Manual processes and diverse data sources

To better understand the challenge, we conducted a poll among finance and accounting professionals on LinkedIn. We specifically asked, “What is the main challenge you experience in trying to consolidate your numbers faster without compromising accuracy? We gave the following options:

• Complex and diverse data sources
• Manual processes
• Poor quality assurance
• Other

 

You can find the results of the poll below. More than 200 people voted and “Manual processes” was the clear winner with 54% of the votes while “Complex and diverse data sources” with 37% also figures to cause significant challenges. Only 8% noted “Poor quality assurance” as an issue.

However, this also indirectly highlights the main issue the consolidation team is facing in their consolidation process. The increased risk of errors and other issues from manual processes and diverse data sources is mitigated through an extensive quality assurance process. This figures to prolong the duration of the consolidation process significantly and lead to lots of unneeded hours spent on checking the numbers.

 

A day in the life of the manual consolidation process

We can easily imagine what a day in the life of a manual consolidation process looks like in consolidation teams across the world. Most teams are stuck in a variety of manual processes such as

• Performing variance analysis
• Doing intercompany reconciliations
• Preparing schedules for review
• Currency translation
• Soliciting comments from entities on variances
• Preparing reports for presentation and discussion

 

For many Excel (or similar spreadsheet software) is even the main system. This requires building financial models with many assumptions and calculation sheets that few understand, It leaves the process at great risk if key resources leave the company.

The manual process greatly increases the need for quality assurance. The consolidation team checking the work of other finance teams sending the process into a vicious cycle of work and rework.

At this point we haven’t even begun to discuss the issues with master data management e.g., legal entity structure, chart of accounts, nor the implementation of new accounting standards. All are real headaches when you work with Excel as your primary tool.

How to take financial consolidation to the next level?

The challenges are known to most working with financial consolidation. We need faster insights while maintaining accuracy and reducing the number of errors.

The obvious answer to addressing the challenges is to introduce a proper consolidation system as it brings a long list of benefits.

• Completely automated procedure across all consolidation steps and group structures
• Simultaneous presentation of accounting standards
• Foreign and group currencies
• Presentation of all group schedules and the consolidated cash flow statement
• Multi-currency conversion and translation
• Easy maintenance of structures, chart of accounts, and master data
• Complete data integration within one data model

 

This easily tackles the two main issues in our poll. It introduces automated procedures which limit the manual work and introduces integration to all the needed data sources in your company. It allows for integration into other reporting tools needed for internal and external reporting.

It reduces the need for quality assurance as validations can be built into the system ensuring that no entity can submit faulty numbers. While this may seem like it’s pushing work from the consolidation team to the entities it’s in fact supporting them to deliver high-quality work.

Another benefit of a system which today would be cloud-based is that auditors and other stakeholders can access the numbers directly. This eliminates the need for large binders of printed materials to be reviewed.

It’s hard to argue against the benefits of introducing a systems-driven consolidation process as it’s easily funding itself in reduced workload and need for manual checking. It also reduces the risks associated with the consolidation for external reporting which could have a substantial negative impact.

A day in the life of the automated consolidation process

Now imagine you’ve taken the plunge and implemented a consolidation system. What would the new financial consolidation process look like?

• At entity level: As the consolidation system easily integrates with other data sources such as local ERP systems it makes the first step of the journey effortlessly done. For the reporting part as the entity now needs to pass validations before submitting it’s easy to detect where issues might occur and fix the root cause once and for all.
• At group level: Numbers are now received faster and intercompany reconciliation can be performed on one of the first working days in the new month. All translations and consolidations will be done automatically leaving the team much more time to analyze the numbers and review comments submitted by the entities along with their reporting. Reporting schedules are set up in the system and populated automatically for review.
• At management level: The consolidated results are now delivered quicker to management. This gives them an overview of group performance when it’s still relevant for decision-making. Quality is also higher, increasing management’s confidence in the consolidation team and the insights they share.

 

Not only does this speed up the financial consolidation process and generate faster insights but it also increases engagement in the team as they now feel they’re spending their time on the right things.

In summary, the benefits of improving your consolidation process are significant and easily come with a high ROI on any investment you’ll need to make. Ask yourself, what’s the true cost of running the process like we do today? In person hours, in risk of errors, in potential miscommunication and misinformation to senior and external stakeholders? Are you willing to continue as-is?

Find out how a financial consolidation software is the ideal solution to digitalize your accounting process.

 

Financial consolidation software