Financial Consolidation: Benefits, Best Practices, Tools

Financial consolidation is a complex process that requires organizations to effectively manage their financial data and create accurate reports. This can be challenging as companies often juggle multiple subsidiaries, currencies, and systems.

Through this complete guide to financial consolidation, we will provide an overview of the process, discuss best practices for getting started and maintaining an effective program, and highlight some of the top tools available in the industry today.

What Is Financial Consolidation?

Financial consolidation is the process of combining an organization's financial data from multiple sources and generating a consolidated financial statement. This statement can be used to better understand the organization's overall financial performance.

The process involves collecting, consolidating, and reporting financial data from multiple sources such as subsidiaries, equity investments, and joint ventures. Data from different systems, currencies, and accounting methods must all be unified for the financial statement to accurately reflect the organization's overall financial performance.

Financial Consolidation vs. Financial Close

Financial consolidation and financial close are often used interchangeably. However, they are two distinct processes.

• Financial close refers to the end of a reporting period and the closing of books. This is the process of ensuring that all financial transactions have been captured and recorded accurately in the organization's books.
• Financial consolidation refers to the process of combining and consolidating financial data from multiple sources into one financial report. This process begins after the close of the previous reporting period and is typically completed before a new reporting period begins.

When Is Consolidation of Financial Statements Required?

Financial consolidation is typically required when multiple entities within a group need to be reported on. This is especially true for organizations with subsidiaries, equity investments, and joint ventures.

Financial consolidation is also often necessary when preparing financial reports for investors or other stakeholders. Consolidated financial statements provide a more accurate picture of an organization's performance, which is vital for both internal and external stakeholders.

Benefits of Financial Consolidation

Financial consolidation provides organizations with multiple benefits. The most significant of these benefits is the ability to generate a clear and accurate view of their financial performance. This information can be used to make better-informed decisions, reduce risk, and identify potential areas for improvement.

In addition, financial consolidation can allow companies to see their financial data in real time. This can help them quickly identify any issues and make changes as needed.

Considerations for Financial Consolidation

When getting started with financial consolidation, there are a few critical factors to consider.

1. 1. First, organizations must ensure that their data is accurate and up to date. This can be done through regular data quality checks and validations.
2. 2. Organizations also need to ensure they have the right financial consolidation system in place. This system should be able to handle a variety of currencies and accounting methods, as well as allow for seamless integration with other systems.
3. 3. Finally, organizations must ensure that their financial consolidation process is secure and compliant with all relevant regulations.

Steps for Implementing a Financial Consolidation Process

Implementing a financial consolidation process can be complex. As such, organizations should follow these steps for successful implementation:

• 1. Develop a financial consolidation strategy: Develop a plan to ensure all relevant data is captured, consolidated, and reported accurately.
• 2. Analyze existing financial systems: Evaluate existing financial systems and identify any gaps or inefficiencies.
• 3. Choose the right system: Select a financial consolidation system that meets the organization's needs and is compliant with any external regulations.
• 4. Implement the system: Follow the steps outlined in the financial consolidation system's documentation and ensure sufficient user training.
• 5. Monitor results: Monitor the effectiveness of the financial consolidation system and make adjustments as needed.

By following these steps, organizations can ensure their financial consolidation process is efficient, secure and compliant with all relevant laws and regulations. This will help them generate accurate financial reports that provide a comprehensive view of their performance, enabling better, more informed decision-making.

Best Practices for Successful Financial Consolidation

Financial consolidation is a complex process and requires careful planning to ensure success. Here are some best practices for effective financial consolidation.

1. Regularly Scheduling Reviews & Reconciliations

Organizations must schedule regular reviews and reconciliations to ensure their financial data is accurate and up to date. This includes conducting monthly close activities, such as journal entries and finalizing financial statements. Regular reviews and reconciliations can help organizations identify any errors or discrepancies that need to be addressed.

2. Ensuring Compliance

Organizations must ensure their financial consolidation process complies with all relevant regulations and laws. This includes understanding the local and international financial reporting standards for accurate reporting and making sure data security protocols are in place.

3. Improving Data Accuracy with Quality Assurance Checks

Organizations should also use quality assurance checks to ensure the accuracy of their financial data. This includes running independent checks and validations to verify the data's integrity. Additionally, organizations should monitor their financial consolidation process to ensure any errors or discrepancies are identified and addressed in a timely manner.

4. Optimizing Your Chart of Accounts Structure

Organizations should also optimize their chart of accounts structure for efficient financial consolidation. This includes streamlining the number of accounts and ensuring they are organized in a logical hierarchy. This will make it easier to collect and consolidate data and identify any discrepancies or errors.

5. Streamlining Corporate Policies & Procedures Documentation

Organizations should also ensure their corporate policies and procedures documentation is up to date. This includes documenting the financial close process and ensuring it is regularly reviewed and updated. This will ensure everyone involved in the financial consolidation process is aware of the procedures that need to be followed for accurate and timely reporting.

6. Utilizing Automation & Technology

Utilizing technology and automation can help organizations streamline their financial consolidation process. This includes using financial consolidation software to automate data collection, validation, and reporting. Automation can also help organizations improve accuracy, reduce manual effort and free up more time for analysis and decision-making.

By following these best practices, organizations can ensure their financial consolidation process is efficient and effective, enabling them to make better decisions and maximize their performance.

What are Financial Consolidation Tools?

Financial consolidation tools can help organizations streamline their financial consolidation process and generate accurate, timely reports. These tools allow companies to manage multiple sets of financial data from disparate sources and consolidate them into a single set of financial statements. This makes it easier to identify discrepancies, monitor performance, and ensure compliance with relevant regulations and laws.

Additionally, these tools can help organizations automate the financial consolidation process, improve accuracy, reduce manual effort and free up more time for analysis and decision-making.

Types of Financial Consolidation Tools

Today, many tools and technologies are available to help organizations streamline their financial consolidation processes. Here are some of the most popular solutions:

• ERP systems: ERP systems provide an integrated platform for managing multiple aspects of an organization's operations, including financial consolidation.
• Cloud-based consolidation solutions: Cloud-based consolidation solutions provide users with the flexibility to access and manage their financial data from anywhere.
• Spreadsheet-based consolidation software: Spreadsheet-based solutions allow users to quickly and easily consolidate data from multiple sources.
• Data integrity solutions: Data integrity solutions help organizations ensure the accuracy of their financial data by validating and verifying data points.

Top 15 Financial Consolidation Tools

There are countless financial consolidation tools, software, and platforms out there. Some of the most popular ones include:

1. 1. Layer: Layer is a free Google Sheets add-on to share parts of your Google Sheets with different collaborators. You can then collect data input and review and approve all inputs and changes before merging them with your master spreadsheet.
2. 2. Oracle's Hyperion Financial Management: Oracle's Hyperion Financial Management (HFM) is a powerful financial consolidation tool that provides real-time access to consolidated financial data.
3. 3. Anaplan: Anaplan is a cloud-based solution that enables users to consolidate financial data from multiple sources and generate customized reports.
4. 4. Sage Intacct: Intacct is a cloud-based financial consolidation solution that offers secure access, real-time visibility into financials, and automated reporting.
5. 5. Tagetik: Tagetik is a unified platform that provides end-to-end financial consolidation and reporting capabilities.
6. 6. Adaptive Insights: Adaptive Insights is a cloud-based financial planning and consolidation solution that helps users quickly and accurately consolidate financial data.
7. 7. Host Analytics: Host Analytics is a cloud-based solution that provides real-time visibility into consolidated financials and enables fast, accurate reporting.
8. 8. FinancialForce Accounting: FinancialForce Accounting is an integrated financial management solution that offers automated consolidation capabilities.
9. 9. SAP BusinessObjects Planning and Consolidation: SAP's BusinessObjects Planning and Consolidation (BPC) is a comprehensive financial consolidation solution that enables users to quickly and accurately generate consolidated financial statements.
10. 10. Prophix Software: Prophix is a cloud-based financial consolidation solution that automates data integration, reconciliation, and reporting functions.
11. 11. BOARD: BOARD is a unified platform that helps organizations scale their financial consolidation, analysis, and reporting process.
12. 12. Microsoft Dynamics GP: Microsoft Dynamics GP is an integrated financial management solution that offers automated consolidation capabilities.
13. 13. Host Analytics Consolidation Suite: Host Analytics Consolidation Suite is an automated solution for consolidating financial data from multiple systems.
14. 14. IBM Planning Analytics: IBM's Planning Analytics is an integrated planning, budgeting, and forecasting solution that enables users to quickly and accurately consolidate financial data from multiple sources.
15. 15. BlackLine: BlackLine is a cloud-based financial consolidation and reporting solution that helps organizations reduce the time to close.

Each of these financial consolidation tools has its own pros and cons, so it's crucial to research and consider your needs before deciding which tool to go with.

Conclusion

Financial consolidation is an essential part of any organization's financial management process. The right tools and technologies can make the process faster, more accurate, and more efficient. By leveraging the best financial consolidation tools, organizations can save time and money while ensuring accurate consolidated financials.