12 reasons you should invest in consolidation software
Do you want to know why spreadsheets aren’t recommended for financial consolidations at scale? Are you struggling to understand whether financial consolidation software is worth the investment, or how you should make the business case for the software?
Well, you’re in the right blog! In this article, we’ll go through:
- What is financial consolidation software?
- When should I invest in financial consolidation software?
- 12 reasons you should invest in consolidation software:
After reading this article, you will understand the difficulties associated with completing consolidation in spreadsheets, and how financial consolidation software can help you improve the efficiency and accuracy of your consolidation processes.
What is financial consolidation software?
Financial consolidation software helps remove the complexity of preparing consolidated financial statements by automating processes, ensuring compliance, and centralizing data—providing efficiency and accuracy for controllers and accounting leaders.
The larger and more complex your company is, the more crucial it is to implement consolidation software. It’s a huge boost to be able to automate complex ownership structures, multi-currency translations and sub-consolidations, and verifying multi-GAAP and IFRS compliance, as well as ensure the data’s accuracy.
Learn more about financial consolidation software and how it compares to performing consolidations with manual spreadsheets here.
When should I invest in financial consolidation software?
As a finance leader, it can be difficult to predict a change in the strategic direction of your company. You don’t know what will happen to your group tomorrow: a doubling of scope due to the acquisition of a sub-group, a public offering with new shareholders who demand a fast close, a change in consolidation rules, or a request for more detailed information at the consolidation level.
A change in your company’s goals, and thereby your approach to consolidation, can happen at any time. That’s why it’s important to have tools and platforms in place now to deal with new and unexpected requests. Technology like financial consolidation software can help give your organization and its financial processes the power, flexibility, and reliability it needs to scale—and you just won’t be able to get that if you keep your financial processes in spreadsheets.
Moreover, it’s a sign of financial maturity and great financial leadership to keep up with technology and ensure our organization is as agile as possible.
Read on for a deep dive into how leading, financially mature organizations benefit from consolidation software—and how you can, too.
12 reasons you should invest in consolidation software (versus staying in spreadsheets)
Reason 1: Accounting logic
The consolidation process is based on accounting logic, and it must contain reports for balances, journals, and general ledger, which can be difficult to create in spreadsheets. If your auditors are regularly frustrated by your lack of documentation, you should consider adopting consolidation software
Reason 2: Dimensional complexity
Many finance leaders who are new to the consolidation process understand it as part of a matrix organization (companies x accounts), which would lend itself well to spreadsheets.
However, consolidation information is based on a transactional structure, not a positional one, which includes at least four different dimensions: the company, the account, adjustments, and flows. Sometimes, it includes analytical aspects as well
This information is part of a matrix but rather a hypercube, which necessitates using financial consolidation software that can function as a database.
Reason 3: Consolidation calculations
Traditionally, all calculations, operations, and transactions are done manually in spreadsheets. These processes can quickly turn into multiple worksheets, all linked together. And over the years, these worksheets can become illegible, inflexible, and risk prone.
The flexibility of spreadsheets, which is often one of its benefits, can become a risk in the consolidation process. In addition, spreadsheets make it difficult, if not impossible, to automate the process of compiling consolidation packages.
In contrast, there are clear benefits to using a specialized financial consolidation solution. Many solutions can streamline and automate calculations to enhance data reliability. Specialized software can also define consolidation methods, implement various simulations within the scope, and correct any errors, thereby improving the overall accuracy of calculations
Reason 4: Data conversion
Converting corporate data into the consolidation currency and running calculations for minority shareholders and consolidation reserves in spreadsheets can introduce errors.
By automating all these tasks with financial consolidation software, you can enable productivity gains and make it possible to quickly obtain reliable results.
Reason 5: Minority shareholders and translation adjustments
Often, consolidations done using spreadsheets omit minority shareholders in the equity or proportionate approach. With spreadsheets, it’s easy to forget to allocate minority shareholders their share in the value of a holding held by another subsidiary that isn’t 100% owned by the parent company.
Translation adjustments, consolidation reserves, and minority shareholders, and their reconstitutions and justifications can be an incredibly time-consuming process because they must be reconstituted outside of accounting, starting with each subsidiary.
Even deeper in the consolidation process, many companies struggle to manage consolidation entries, the concept of flow, and creating restitution reports or financial statements, as well as cash flow and tax proof tables.
Unlike traditional spreadsheets, consolidation software can automatically factor in minority shareholders in the equity or proportionate approach. It can also simplify the process of managing consolidation entries, translation adjustments, consolidation reserves and reconstitutions.
Consolidation software allows for a seamless flow of data, making it easier to generate crucial reports such as financial statements, cash flow and tax proof tables. By automating these intricate tasks, consolidation software not only enhances accuracy but also reduces the time and resources spent on consolidations.
Reason 6: Consolidation entries
While it’s possible to set up consolidation entries in spreadsheets, it’s not a long-term solution. With each new consolidation period/year, it’s important to review the entries from the previous year to determine if they must be carried over.
Other items such as sales and deconsolidation must be considered, which can make it difficult to isolate entries by company.
Financial consolidation software can link accounts within each company, giving you the flexibility to post entries from company to company.
Reason 7: Updates
Additional issues can arise when a chart of accounts is deployed using one worksheet per company and modifications must be made to each individual worksheet. There’s also the risk of using the wrong lines, resulting in inconsistencies.
In contrast, financial consolidation software can eliminate the need for manual updates on each individual worksheet, which mitigates the risk of inaccuracies and inconsistencies. It can also ensure that any modifications are universally applied, ensuring uniformity across all datasets.
Reason 8: Consolidation variants
Spreadsheets aren’t the best tool for producing consolidation variants from the same set of data either. For example, IFRS consolidation, followed by a version in local GAAP, creation of a sub-group, and production of segmented data, etc.
Consolidation software, by comparison, can easily produce different versions of consolidated data. With the flexibility to manage multiple consolidation variants from the same dataset, you can ensure consistency and accuracy across different reporting standards and requirements.
Reason 9: The concept of flow
Most consolidations done in spreadsheets are done with balances, meaning that the notion of flow is absent. Creating a cash flow statement in spreadsheets can be a tedious task without any guarantee of quality. It requires the use of data from the financial statements of various companies within the scope, adding to its complexity.
In contrast, financial consolidation software can incorporate the concept of flow and automate the creation of restitution reports.
Reason 10: Intragroup (or intercompany) transactions
Consolidators must check the status of intercompany positions between subsidiaries during the consolidation process, even if a prior exchange procedure was carried out. Intercompany relationships are not about singular account-to-account connections, but rather about multiple accounts interacting with other multiple accounts
In practice, this means checking that the intercompany position of A with B for a certain account reflects the intercompany position B with A for another account. This linking can take on combinatorial proportions that are difficult to manage in spreadsheets.
Consolidation software, on the other hand, is designed to automatically validate the status of intercompany positions between subsidiaries, helping you avoid the combinatorial complexities associated with manual inputting data into spreadsheets.
Reason 11: Audits
Many auditors have more confidence in a consolidation that was done with a dedicated financial consolidation solution, as it’s a guarantee of quality.
Consolidation software can make your processes more secure, while also providing a detailed audit trail that enables auditors to access the reasons for each entry. The result? A quick and efficient audit.
Reason 12: Sharing of know-how
Another challenge with spreadsheets is that they are often only understood by their creator. But what happens if that person leaves the group? Financial consolidation software can help you ensure continuity and security.
Why financial consolidation software is the preferred solution for consolidation
In conclusion, the challenges associated with consolidation in spreadsheets can lead to inaccuracies, inefficiencies, and increased risk. From complex calculations to managing intercompany transactions, traditional spreadsheets fall short in providing a streamlined and reliable process.
On the other hand, financial consolidation software offers an automated, efficient, and accurate solution. It simplifies the management of consolidation entries, seamlessly handles updates, effortlessly produces multiple consolidation variants, and provides a detailed audit trail.
Financial consolidation software also ensures continuity and security, even if the person who initially set up the processes leaves the organization. By choosing to invest in financial consolidation software, you can significantly improve the efficiency and accuracy of your consolidation process, leading to more reliable financial reporting. Learn more about consolidation software pricing.