6 best practices for faster financial consolidation
Every industry has yearly processes that involve a substantial amount of manual work, considerable resource investment, and compliance with local regulations. Manufacturers are tasked with reviewing safety measures, restaurants face health and safety inspections, and suppliers must review their inventory. For many organizations, another significant process is financial consolidation.
While this process can be difficult and time-consuming, there are ways to improve and streamline consolidations. This makes the consolidation team’s life easier, gives executives better data to work with, and keeps organizations compliant.
In this article, you’ll learn how to improve your financial consolidation process, including:
- What does an improved financial consolidation process look like?
- 6 best practices for faster financial consolidation
- How to find the right platform to streamline financial consolidation
Financial consolidation can seem like a simple enough task; all you need to do is compile financial data from your subsidiaries to create a holistic view of your company’s financials. But if you’ve ever been involved in this process, you know just how complex it can get.
International subsidiaries imply currency conversions, which can create errors. Large organizations work with dozens—if not hundreds—of data sources, making the initial data collection a huge challenge. Financial consolidation is not without its hurdles.
However, there are ways you can improve your financial consolidation process and remove the hurdles entirely. So – what could you achieve with an initial investment of time and resources? Here’s what an improved financial consolidation process would look like:
If you only review your financial consolidation process once a year, you won’t notice inefficiencies until you’re halfway through the work. When you invest in improving your process, you can discover and eliminate inefficiencies before you start.
Quicker data collection
With so many data sources, it can be difficult to get the information you need before you start. By spending some time reviewing the data collection process, you can ensure that it’s executed more quickly in the future.
Financial consolidation processes often rely on too much manual work, which can eat up precious hours. By looking for opportunities to automate your own process, you can get it done in a fraction of the time.
Comprehensive audit trails
Ultimately, financial consolidation is about turning raw data into useful insights and essential reports. The better your process, the more comprehensive your output.
Whether it’s because of new legislation or requests from the executive team, reporting requirements can change mid-process. When improving financial consolidation, you can build in contingencies to better handle changing requirements.
6 best practices for faster financial consolidation
Financial consolidation is a high-effort, high-stakes process that often involves spreadsheets and quite a bit of manual work. But with a bit of preparation, some forward-thinking adjustments, and the right software, you can consolidate more efficiently. Here are six ways to evaluate your current approach to financial consolidations, so you can feel confident about where to go from here.
1. Determine the level of unification you need
Not all financial consolidation processes are equal, because not all organizations have the same needs. Generally, there are three levels of unification needed for financial consolidation: harmonization, convergence, and complete unification.
- First, a harmonization project that aims to align the process and set a common reference point, making reconciliation tasks easier.
- Then, a convergence project that consists of building management reporting processes in a common tool and following a shared frame of reference, while keeping the different processes led by two different teams.
- Lastly, there’s a complete unification project, which has the goal of implementing a solution and one unique frame of reference with a unified team that will lead the processes of statutory consolidation and management reporting
The first steps of the project determine the target group, keeping in mind that unified reporting offers clear advantages in terms of quality and data coherence, but also limits the flexibility and capacity to evolve with your needs. Moreover, in the case of complete unification, both the consolidation and management reporting teams need to make peace with the fact that they will have to make certain concessions.
2. Understand your reporting needs
One of the most important things financial consolidation processes do is turn mountains of data from multiple subsidiaries into clear, detailed reports. This data is often for internal use and must comply with local laws and regulations. That means before you even undertake financial consolidation, you should know exactly what your reporting needs are.
Failing to do so could lead to suddenly having to change your consolidation process halfway through, as you learn about new legal requirements or requests from executives. Best case scenario - you have more work than you might have thought, swelling your budget. Worst case scenario - you need to start over.
3. Establish a common frame of reference
Since most companies only perform financial consolidation once a year, there’s not necessarily an incentive to spend a lot of time clearly defining processes. In fact, many businesses still use spreadsheets exclusively for financial consolidation, and just buckle down until it’s done. But without clear rules, standardized tools, and a common frame of reference for the teams running your financial consolidation across subsidiaries, you’re inviting the possibility of costly mistakes and duplicate work.
Having a common frame of reference for everyone involved is essential for streamlining and accelerating your financial consolidation process. That can mean prioritizing a fully integrated financial consolidation platform over spreadsheets, drafting best practices for details like intercompany reconciliation, and even standardizing review processes. This can prevent mistakes, inconsistencies, and conflicting work throughout the process.
4. Link your processes
Too often, teams working on financial consolidation are trapped in silos; their work is completely independent of anyone else, and few people can see what’s happening at each stage. This is because building processes that fit together seamlessly doesn’t occur naturally. Most organizations expect each team to work out of spreadsheets, making requests for the information they need as they need it. Then, once they’re done with their part of their process, they send their work on to whoever handles the next stage.
To speed up the financial consolidation process, key challenges need to be addressed—including disparate data sources, differences in data formats and quality, and lack of consistency and collaboration.
When planning your financial consolidation process, find ways to link each stage together so your teams don’t have to work in silos. This can take different forms, from switching out spreadsheets for more advanced tools to scheduling regular check-ins between teams, or even having a dedicated project manager to keep everyone collaborating smoothly.
Learn more about the differences between financial consolidation software and spreadsheets.
5. Evaluate your IT architecture
In software development, there are two types of developers: front-end and back-end developers. “Front-end” refers to anything software users see, like the interface and different features. “Back-end” refers to the unseen architecture that keeps everything running.
In financial consolidation, the front-end includes the tools, processes, and meetings available to the teams running the consolidation. The back-end is the IT architecture making sure everything operates smoothly. When planning your next financial consolidation, consider these ways to improve the IT architecture enabling your process:
- Research and deploy integrations that connect your financial consolidation platform to the tool’s decision-makers use. Or, better yet, get a tool that can do both.
- Choose your financial consolidation tool carefully. While spreadsheets are still the default choice for many organizations, dedicated financial consolidation software can streamline your processes while also offering native reporting solutions.
- Consider the volume of data you’ll need to process during financial consolidation. Depending on the size of your organization, you may be dealing with millions of records, and not all software can handle that much data.
It can be tough to know just how much you should involve your management team, since too much involvement can slow down the financial consolidation process. Without clear guidelines in place, it’s entirely possible that your management team will receive constant requests for support—interrupting their own critical work. Or, worse, they may never be consulted at all.
When streamlining your financial consolidation process, consider how you should involve the management team throughout. Unifying financial consolidation implies structural choices that affect managers and their teams across all subsidiaries, and they should be consulted. Not only can they offer essential insights into their own processes, but they can also help guide overall consolidation efforts.
How to find the right platform to streamline financial consolidation
Improving your financial consolidation process can involve a significant investment in time, budget, and other resources. Since this yearly endeavor is crucial to keeping your organization growing and compliant, it’s worth the investment. But what if you could take a single step to massively improving your financial consolidation process with a great ROI?
That’s where dedicated financial consolidation software comes in. Financial consolidation software automates the process for creating consolidated financial statements and reports. With financial consolidation software, you can automate many processes, including multi-currency translations, sub consolidation and scenario-based consolidation, complex ownership structures, intercompany eliminations and adjustments, auditor reporting, and more.
If you're looking for faster financial consolidation, investing in the right technology is a big game changer. And the biggest benefit of all—financial consolidation software helps you get ahead. You can see data and make crucial business decisions in advance with all the insights at your fingertips.
Not sure where to start? Prophix is a fully integrated financial consolidation platform that can streamline every step of the financial consolidation process from data collection to transformation, adjustments, and reporting. It’s built with every member of the Office of CFO in mind.