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How to Manage Uncertainty with Confidence - and Financial Consolidation

published on
January 22, 2021

In 2020 COVID brought about changes that no one predicted ahead of the pandemic. It continues to force business leaders to adapt to new challenges on a monthly, weekly - even daily basis. And for accounting teams at mid-sized businesses, the right financial consolidation software can be a Swiss Army knife to overcome them.

Every year the consolidation and performance management analysts at BPM Partners poll thousands of finance leaders as part of their annual research. In 2020, a consistent theme of BPM’s research was COVID and its impact on finance teams and business planning as a whole.

While presenting many challenges, BPM found COVID also provided new opportunities for finance and accounting functions. Like using consolidation tools and financial reporting software to not just to survive, but even thrive with agility, speed and confidence. See their key findings below and in Managing Uncertainty with Confidence: An Executive Guide.

The bottom line?

Finance and other business leaders have had to accept the new reality of COVID, especially the “Black Swan” of things not returning to normal. From a finance point of view, this means a need for efficiency gains, trusted numbers for analysis, and better reporting. The right financial consolidation software delivers on all fronts.

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Mid-sized Companies: Under-served in Financial Consolidation

For mid-sized companies, the importance of staying afloat in the choppy waters that COVID brought about is especially salient. Before COVID, they already struggled with timely, accurate consolidation reporting to drive sound business decisions.

Most mid-market companies already tend to use patchwork systems combining general ledgers (GL), enterprise resource planning (ERP) software, and Excel. The challenges of such patchwork systems are probably familiar, including:

  • version control issues with no single source of truth
  • manual errors copying, pasting and overwriting formulas in Excel
  • distrust in the finance function and the numbers they report to management (and any decisions based on those numbers)

These familiar challenges become even more complex when companies grow through acquisition and expansion into new markets. Each can bring with it new and different:

  • subsidiaries, partnerships and other legal entities
  • GLs, ERP systems and other data sources
  • currencies, regulatory reporting requirements, and more

If these challenges sound familiar, a dedicated consolidation system may be just what you need. As we’ll explore below, the resulting benefits range from streamlining operations to guaranteeing a single source of truth.

What does Financial Consolidation Mean?

In the simplest terms, financial consolidation means creating a single source of truth to produce consolidated financial statements and reports.

In practice, the process first involves collecting financial information from different regions, subsidiaries and other legal entities. That means different currencies, ERP systems, regulatory requirements and more.

Next comes consolidating that information into a single, timely and reliable source of financial data and KPIs. The crux of the process, the consolidation stage involves advanced, often cumbersome accounting functions and calculations including:

  • Account reconciliation
  • Allocations
  • Intercompany matching/eliminations
  • Cash flow management
  • Currency translations

Last but not least comes reporting. Whether it’s consolidated financial statements, regulatory reporting (e.g. GAAP, IFRS) or management dashboards, all rely on a single source of trusted numbers you get from having the right consolidation tools in place.

What does Financial Consolidation Mean?

Mid-sized companies use a range of consolidation tools to manage each step of the process. Many use a combination of ERP systems, corporate performance management (CPM) software and - most of all - Excel spreadsheets.

Today more than ever, what they need most is dedicated, out-of-the-box financial consolidation software tailored towards the needs of the mid-market.

Tackling the New “Not Normal” with Financial Consolidation Software

In a new world of constant change, it’s more important than ever to have a single source of trusted performance numbers. To keep pace with such change and thrive in the new “not normal,” BPM recommends financial consolidation software that delivers on two key success factors:

  • Speed - having the insights you need to make quick, sound decisions
  • Agility - adapting quickly and easily to changing market conditions

Speed - Respond Quickly

In the context of COVID, speed matters more than ever, especially in companies’ finance and accounting departments. Here, efficiency gains may even become competitive advantages.

Better consolidation software produces consolidated financials based on real-time, accurate numbers. With the consolidation tools in place, you’ll find a direct link to faster close times, more informed decisions and - ultimately - better business performance.

In fact, BPM found that 77% of consolidation software customers reported faster month-end close (MEC) times. That correlation is no accident.

77% of consolidation software customers report faster month-end close times

Agility - Adapt Quickly to Constant Changes

The new “not normal” of the COVID era continues to force finance and other leaders to to adapt with agility. Both in response to changing conditions and to plan proactively for future ones.

With adaptation in mind, consolidation and reporting software has proven to be an invaluable tool. Not just for closing the books but also for agile planning based on accurate reporting. To be sure, more than two-thirds of finance leaders told BPM that better reporting was a primary driver behind new performance management investments.

Going a step further, making smart, adaptive decisions in the face of uncertainty is a function of several benefits offered by purpose-built consolidation software, including:

  • Timely and accurate consolidated financials
  • Efficiency gains by cutting your close time by more than 90%
  • Better, more confident business decisions based on trusted management reporting

It’s worth noting that COVID is placing unprecedented new demands on the financial close, planning and analysis functions in almost every organization. Beyond efficiency gains or giving leadership teams the insights they need, COVID poses an entirely new axis of planning considerations. From face mask mandates to rapid responses to new outbreaks.

What do all of these examples have in common? Proactive planning for, and adapting quickly to, a constantly changing world. Both of which require the right consolidation and reporting software to ensure you’re basing your decisions on the most accurate, up-to-date data available.

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Considering New Financial Consolidation Software

The right financial consolidation software delivers accuracy and efficiency to your finance function and your decision making as a whole. If anything, COVID has only magnified the importance of consolidation tools that combine:

Affordability and Functionality

Cutting costs has become a key worry for leaders as companies grapple with cutting costs, and having fewer resources available. For that reason, an agile consolidation solution should save time, money, and reduce errors in reporting.

Combining multiple data sources, automating processes to reduce human error, and cutting standalone Excel spreadsheets all help the bottom line. That is, preserving the functionality needed, while also increasing affordability.

Timely Solutions and Fast Implementation

Quick implementation and adoption are always key success factors in selecting your ideal financial consolidation software. More to the point, anything that takes 6-18 months to implement should raise red flags and strike you as a deal breaker.

Just as important is how quickly your software enables you close your books and report your results. A case in point from the BPM Partners guide:

  • Top-performing finance departments close their books in less than 5 days
  • Bottom performers take more than 10 days to do the same
Top-performing finance departments close their books in less than 5 days

In current times, forward thinking leaders are planning for monthly (or more frequent) forecasts. Reporting to management should also be close to real-time. In the first weeks of the pandemic, discerning organizations put their consolidation software to the test, then adjusted accordingly. By continuously re-evaluating financial and operational plans and more frequent forecasts, they are able to successfully navigate the new normal.

All in all, choosing a solution that is quick to implement and adopt will allow your company to reap benefits of time, functionality, and cost-savings. Staying on top of changes and conditions as they occur have become primary to survival, and having a consolidation system that works for you ensures that you are well positioned.

Consolidation Software in the COVID Era

It's clear the effects of the COVID era on finance and accounting will linger for some time. That businesses need to get used to what BPM Partners calls the new “not normal.”

In this context, having one source of truth, of timely, accurate insights for finance and management teams, is paramount. For most mid-sized companies, this means having the right consolidation tools and reporting software in place. For gathering, consolidating and reporting on key, decision-driving financial and operational data.

A proper, modern financial consolidation system will give you the speed and agility to respond to changing circumstances. To equip you with sound, up-to-date, and accurate data. To equip you and your company to make better business decisions while slashing your reporting and close times.

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John Power
Chief Operating Officer
Fluence Technologies
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