14 February 2023
When creating a financial consolidation strategy, it is important to ensure that all automated processes and tools are integrated with one another.
Errors in financial consolidation arise from an organization’s increase in size and complexity as well as the use of obsolete or insufficient technologies by the finance department. As a result, a series of mistakes, inaccurate data, and duplications occur that may compromise the company’s compliance and the truthfulness of their remarks. As the company’s demands change, an integrated financial system guarantees that business operations can scale with the company’s growth rate.
A purpose-built consolidation system also changes the statements from a compliance requirement into an active strategic asset, enabling stakeholders, investors, and decision-makers to take initiatives knowing exactly how the company’s finances are doing. Following that, the typical financial consolidation issues that companies may encounter in 2023 are as follows:
Not Automating Financial Consolidation Processes
Some advantages of automation are plain to perceive. The company’s staff can devote more time to using their abilities in careful analysis and less time to laborious labor. Others, however, are less obvious. Various typical causes of inaccuracy are eliminated through automation. Human error is unavoidable when manual processes are used. Even the most meticulous and well-organized finance teams can make errors. Inaccuracies in financial reporting can be expensive and potentially humiliating.
The inevitable human error that results from incorrect data entry, copy/paste errors, or even adjustments to source or destination file formats that leads to unexpected (and inaccurate) findings when creating intercompany accounts can be greatly reduced by automating the close and consolidation processes. Companies can use automation to more clearly define protocol compliance and who has access to confidential financial data of the business. By monitoring user behavior and specific transactions, this not only avoids errors but also lowers the chance of fraud.
Automation improves real-time visibility and expedites the closing process. Leaders are keen to obtain information as quickly as possible in a company environment that is changing swiftly without losing accuracy. To improve corporate agility and responsiveness, many have shifted to more frequent reporting and planning cycles. The finance team invariably becomes mired down with time-consuming, repetitious duties when the company relies on manual methods to generate monthly reports. Automation greatly reduces friction in the procedure, speeding up the production of outcomes.
Not Using The Right Financial Consolidation Tools
Finance teams use a variety of financial planning tools, including the ERP platform, accounting software, and, maybe excessively, Microsoft Excel. Poor integration is the main issue brought on by these multi-tool processes. Many of these platforms struggle to “speak to each other,” which results in the use of mismatched file formats and a lack of data portability and visibility between the tools.
This explains why financial consolidation uses spreadsheets so frequently. From several financial sources, data is physically downloaded or exported, then manually combined within an Excel spreadsheet. This requirement can lead to problems with collaboration and visibility amongst remote stakeholders, as well as wasteful in terms of the time required to develop statements and the duplication of effort. It is best for businesses to invest in a software or system that will combine the existing tools and procedures in order to prevent this.
Select a piece of software that will facilitate the acceleration and simplification of financial consolidation procedures. Additionally, the software finance leaders choose should be adaptable and able to take into account the numerous foreign reporting standards as well as the manner the organization operates. To help the business become more focused and agile, look for software that enables easy interaction with a performance management platform.
In order to provide a higher level of transparency in their reporting, it is imperative that the company’s financial close and consolidation software be well integrated with each one of them. Finance teams should also be able to trace all of the company’s financial results back to the original data sources.
Changing Reporting Requirements
Reporting structures will alter along with external influences or as an organization’s internal structure evolves. In addition to economic conditions and market trends (for prediction and scenario planning purposes), external influences can include statutory reporting requirements. Acquisitions, mergers, joint ventures, and the adoption of new software systems and procedures are examples of internal forces.
The restrictive financial consolidation systems that rely on manually updated spreadsheets and data input are all strained by these changes. The procedure is cumbersome and ineffective because of the time needed to adapt to changes inside the system. Establishing an agile process with built-in scalability and responsiveness will enable companies to swiftly modify their reporting requirements to meet with current accounting standards and maintain the practices in line with evolving business needs.
Accuracy of data is crucial in the close and consolidation process. By taking note of these 3 key challenges, businesses will be able to take the necessary steps to further streamline their processes and enhance accuracy in their reporting. Now that we have entered the age of automation and technology, having too many tools that do not work cohesively with one another can also pose a problem. When creating a financial consolidation strategy, it is important to ensure that all automated processes and tools are integrated with one another so that the finance team does not spend too much time on just figuring out how to get the data they need.