Ultimate Excel finance guide
A comprehensive collection of articles, videos and more, hand-picked by our editors
Financial consolidation can be complicated or simple, but, for chief financial officers, the overriding goal is always the same: faster and more efficient closes.
By submitting your personal information, you agree that TechTarget and its partners may contact you regarding relevant content, products and special offers.
The need for financial consolidation varies significantly by organization and typically depends on how often consolidation occurs, as well as the number and disparateness of corporate entities and data systems. Regardless of the specific requirements, the following four tips, compiled from user and expert advice, can help companies optimize their financial close processes by reducing time and effort.
Automate as much as possible
Companies use a range of tools, such as Microsoft Excel, ERP systems, corporate performance management (CPM) software and specialty products, for financial consolidation. But no matter which tool a company opts to use, CFOs should strive for more automation, according to Chris Iervolino, research director at Gartner Inc., headquartered in Stamford, Conn.
"Automation is a good idea for a couple reasons -- it's going to speed up the process, and it'll also help ensure compliance," Iervolino said. "If we're in compliance, there's no need to go back and make corrections, which slow the close."
Iervolino recommended CPM over ERP systems for consolidation, especially since the functions of CPM software are expanding to encompass close to disclose processes. "ERP typically can't do it all," he said. "It lacks flexibility and doesn't provide the same level of close management, financial analytics or support of geographic and industry specific regulations -- [functions] that CPM systems provide that streamline the close process."
Move away from Excel
The monthly close used to take a week and a half for Coaxis, a software development company based in Portland, Ore. Lewis Rife, the finance and administration manager, chalked up the lengthy financial consolidation process to the fact that it was performed using spreadsheets.
More on financial management software
Read about one company's transition from Excel to cloud financial software
Get experts' top predictions for financial management software in 2013
Find out if ERP vendors are ready for IFRS compliance
"Excel is not a collaboration tool and consolidation is really a collaborative event -- every part of the organization is talking to accounting and saying, 'Here's what happened over this last period,'" he said. "By definition, [using Excel for financial consolidation] is really a square peg in a round hole scenario."
He also warned about the potential for formula issues within large spreadsheets. "Spreadsheets break, and you'd never even know," he said. "It just becomes a nightmare."
Coaxis adopted NetSuite in 2010, and today, the cloud ERP system is used for all of the company's accounting. Rife illustrated NetSuite's collaborative properties using the example of a purchase request. At any point in the approval process, he can attach comments on the request, which helps to clear up confusion.
Rife said these collaborative abilities have saved the organization time during financial consolidation. Since implementing NetSuite, he said, the month-end close is finished in four days.
Involve more people to achieve greater visibility
As financial management software products have become more robust, they allow for more users to participate in processes like financial consolidation. Iervolino said finance executives, especially those at businesses with multiple entities, should capitalize on this capability by involving more people in the close process.
"As a best practice, I'd involve business units more closely because they're familiar with [their data]," he said. "[By] including more of the organization to collaborate in the close, there's less back-and-forth and checking which numbers are correct."
The situation is reversed at Coaxis. Rife said fewer people take part in the close process since the company implemented NetSuite, but that's because the system allows the same end to be achieved through greater visibility.
"Rather than [sending] emails to operational folks who have no understanding about what we're after and having to try to explain 'Here's how accounting works, and here's what I need from you,' we're able to have a lot better visibility in the system [to see] what's gone on over the past month, without as many people involved," he said.
In addition to it being simpler to obtain the necessary data, Rife added that time is saved by not having to wait for responses to requests for information.
Create a consistent close schedule
If a CFO decides to include more people in the process, a tight schedule becomes critical. A white paper from financial management software vendor Prophix underscores the value, saying, "Since financial consolidation tasks involve multi-person processes, workflow management is very important; users often need to be reminded when data must be made available."
This sentiment was echoed by Daniel Jette, director of finance and operations at Lowell Community Charter Public School in Lowell, Mass., who uses QuickBooks for financial consolidation. "Set a monthly calendar with no exceptions, so you have time to pull [the data] together and analyze it," he said. "Having a strong expectation of when everything is due is important."
Selecting software for financial consolidation
Since consolidation needs can differ dramatically depending on the company, Iervolino said finance executives should map out functionality requirements before assessing vendors, bearing in mind that some companies might require more than one product.
Prophix's white paper lists several factors that might add to an organization's software requirements, such as entities that have different charts of accounts or fiscal calendars, multiple currencies, intercompany eliminations and multi-level reporting requirements.
The choice for Coaxis came down to SAP and NetSuite, Rife said. Factors against SAP included cost and the high amount of maintenance. He explained that NetSuite was the organization's final choice due to its customizability and the fact that it was a Software as a Service (SaaS)-based system, which allowed users to access it from a variety of locations.
Regardless of which product a company chooses, Rife said it's important to pull the trigger before old systems begin to take a toll. Coaxis was in the market for financial management software because the company was rapidly growing through acquisition and needed a new system to keep pace. In hindsight, he said he wishes the company had adopted new software earlier.
"We knew we were gaining momentum in the market so we were gearing up for it, and what we would've done differently is move to an ERP a little sooner," he said. "If you wait until something is painful enough that you know you have to move, you've probably waited too long."
Emma Snider is the associate site editor for SearchFinancialApplications.com. Follow her on Twitter: @emmajs24.