9 best practices for an efficient financial consolidation process

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 undertaking is the financial consolidation process.

Embora esse processo possa ser difícil e demorado, há maneiras de melhorar e Streamline consolidar. Isso facilita a vida da equipe de Consolidação, oferece aos executivos dados melhores para trabalhar e mantém as organizações em conformidade.

In this article, we’ll explore what an improved financial consolidation process looks like, including 9 best practices you can apply today.

What is the financial consolidation process?

The financial consolidation process involves gathering, adjusting, and combining transactional and general ledger data from subsidiaries and the parent company into a set of financial reports. This process typically includes consolidating financial statements such as the balance sheet, income statement, and cash flow statement. Depending on the complexity and the finance software used, consolidation can take from a few days to several weeks.

Financial consolidation is essential when a company and its subsidiaries operate as a single economic entity, ensuring compliance with regulatory requirements like GAAP or IFRS. The primary goal is to provide a comprehensive view of the company's financial health and performance, supporting accurate reporting and informed decision-making.

Why is financial consolidation important?

The financial consolidation process is important because it provides a holistic view of organizational performance, which supports strategic decision-making and compliance with regulatory requirements.

However, many finance leaders find the financial consolidation process challenging due to difficulties in:

• Manually collecting and manipulating data in Excel
• Combining data from disparate accounting systems
• Keeping up with required reporting frequency and tight deadlines
• Understanding differences between local and group accounting standards and currencies
• Reducing audit costs and timelines
• Deep diving into data and explaining variances
• Having confidence in reported results

These hurdles can lead to missed regulatory reporting deadlines, resulting in fines and reputational damage, poor data stewardship due to lack of visibility into KPIs, increased audit risks and billable hours, and poor business decisions due to erroneous data.

To help you overcome these roadblocks, we’ve outlined 9 best practices you can apply to your financial consolidation process below.

9 best practices to streamline your financial consolidation processes

The financial consolidation process is high-effort and high-stakes, and 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.

Prophix One, a Financial Performance Platform, has been designed to support the financial consolidation process by automating manual tasks like data entry and audit trails, so you can create customizable reports that communicate a clear picture of your organization’s financial situation—without data inaccuracies.

Let’s dive into nine ways to improve your current approach to financial consolidation, with tips on how to leverage Prophix One, so you have confidence in your reported results.

1. Determine o nível de unificação que você precisa

Not all financial consolidation processes are equal, because not all organizations have the same needs. Generally, there are three levels of unification needed for the financial consolidation process: harmonization, convergence, and complete unification.

• Harmonization involves aligning processes and setting a common reference point, making reconciliation tasks easier.
• Convergence consists of building management reporting processes in a common tool and following a shared frame of reference, while maintaining different processes led by separate teams.
• Complete unification aims to implement a single solution and unified frame of reference with a cohesive team leading both 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. In complete unification, both the consolidation and management reporting teams may need to make certain concessions.

How Prophix One helps: Prophix One Intercompany Management empowers subsidiaries to complete their own transaction-level matching and issue resolution, accelerating the unification process. This eliminates the need for an intermediary like a group accountant, enhancing governance and financial insight within your financial consolidation process.

2. Entenda o que você precisa Reporting

One of the most important things the financial consolidation process does 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 such as GAAP or IFRS. 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 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.

Data accuracy and integrity are also equally important to reporting, helping you avoid errors that could compromise the quality of your reports. In addition, communication with stakeholders ensures that all your reporting needs and expectations are clearly understood and met.

How Prophix One helps: Prophix One reporting allows you to automate report creation and distribution and make changes that are dynamically reflected across all reports. Instantly understand variances over time or between subsidiaries and comply with regulatory requirements with pre-built templates. Prophix One is also scalable, so you can adapt to the growing needs of your business, accommodating more subsidiaries or evolving reporting requirements.

3. Estabeleça um quadro de referência comum

Since most companies only perform the financial consolidation process at certain times of the year (monthly, quarterly, or annually), 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, which can lead to errors from manual data entry, lack of version control, and difficulties in collaboration. 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.

How Prophix One helps: Prophix One, a Financial Performance Platform, combines all your financial consolidation processes, including account reconciliation, intercompany eliminations, and reporting into one unified interface to make it easier to review processes and involve stakeholders, enhancing data accuracy, improving collaboration, and providing real-time insights, which are crucial for strategic decision-making.

4. Invest in collaboration tools

Too often, teams working on the financial consolidation process 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 don’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.

Para acelerar o processo de Consolidação Financeira, os principais desafios precisam ser abordados - incluindo as fontes de dados da Desigual, as diferenças nos formatos e na qualidade dos dados e a falta de consistência e colaboração.

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 that enable real-time collaboration 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.

How Prophix One helps: Prophix One Data Integration combines data from across your subsidiaries into a single version of the truth that stakeholders can use to validate and review outcomes, giving you a holistic view of your company performance. Pre-built connectors and APIs also simplify and streamline financial data integrations, enabling faster time to value, enabling you to easily add new subsidiaries or company structures. In addition, Prophix One has built-in security, so relevant financial data is only shown to those who have the necessary permissions.

5. Ensure meeting compliance standards

The financial consolidation process is complex and involves many steps—from collecting data across departments to consolidating it properly—so it’s crucial to have the right software in place to ensure everything complies with local accounting regulations. This can be particularly challenging when subsidiaries operate in different countries with distinct currencies and regulatory frameworks. Staying updated with regulatory changes is essential to maintain compliance and avoid potential penalties.

How Prophix One helps: Prophix One Account Reconciliation standardizes processes by integrating data from local accounting systems, centralizing reconciliations to improve accuracy and boost confidence in reported figures. You can also setup structured workflows to allow each subsidiary to manage its own reconciliation process, helping to alleviate the burden of multiple currencies and varying regulatory requirements. Prophix One also provides audit trails, offering transparency and traceability for all changes, which is necessary for compliance and auditing purposes.

6. Evaluate your IT architecture

In the financial consolidation process, 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 process, consider these ways to improve the IT architecture enabling your process:

• Pesquise e implemente integrações que conectem sua Plataforma de Consolidação Financeira às ferramentas utilizadas pelos tomadores de decisão. Ou, melhor ainda, adquira uma ferramenta que possa fazer as duas coisas.
• Choose your financial consolidation tool carefully. While spreadsheets are still the default choice for many organizations, dedicated financial consolidation software, like Prophix One, can streamline your processes while also offering native reporting solutions.
• Considere o volume de dados que você precisará processar durante a Consolidação Financeira. Dependendo do tamanho da sua organização, você pode estar lidando com milhões de registros, e nem todos os softwares conseguem lidar com essa quantidade de dados.

7. Involve the management team

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 by establishing well-defined roles and responsibilities. As unifying financial consolidation implies structural choices that affect managers and their teams across all subsidiaries. This clarity prevents overlap and ensures management team members know when and how to contribute effectively. Creating feedback loops can also be beneficial, allowing management to offer input and suggest improvements to the process.

How Prophix One helps: Prophix One reporting automates the distribution of reports to management teams, allowing them to contribute to the financial consolidation process and establishing clear communication channels between leadership and the consolidation team. Personalized dashboards provide executives with real-time insights into company performance, enabling them to make informed decisions without needing full data consolidation from subsidiaries.

8. Automate financial consolidation tasks

The financial consolidation process often relies 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. This decreases the amount of data entry and reporting errors, allowing you to make strategic decisions with confidence. Automation also offers scalability, enabling your process to grow with the organization and manage increasing data volumes and complexity without additional effort.

Real-time data access becomes a significant advantage, improving your ability to respond to market changes and enhancing decision-making. Automating your financial consolidation process also enhances audit readiness by maintaining consistent and accurate records.

How Prophix One helps: Prophix One Financial Consolidation can handle large data volumes and complex consolidation structures to free up time to focus on other strategic priorities. Remove the complexity of consolidation by automating processes like multi-currency translations and sub–consolidation, ensuring multi-GAAP and IFRS compliance, and much more, reducing the need for expensive customizations.

9. Implement a robust financial consolidation software

Implementing robust financial consolidation software eliminates the need to compile and validate data from multiple spreadsheets and other disparate systems, making it easier for organizations with complex operations to streamline their processes efficiently. A key benefit of financial consolidation software is its integration with existing ERP and accounting systems, which further reduces manual input.

A user-friendly interface also improves user adoption and reduces the learning curve for new users, making the transition from spreadsheets to software smoother.

How Prophix One helps: As we outlined in the best practices above, Prophix One, a Financial Performance Platform, is robust financial consolidation software that replaces disconnected spreadsheets and systems to make your financial consolidation process more efficient.

Prophix: Efficient financial consolidation process at hand

If you're looking to speed up your financial consolidation process, investing in the right technology is a 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.

Take these Prophix One users as an example—with Prophix One Financial Consolidation:

• Rent-A-Port can conduct multidimensional analysis based on projects and regions.
• Pictect can quickly add new companies to their consolidation scope.
• Jan De Nul Group improved the reliability of their consolidated accounts.

Prophix One, a Financial Performance Platform, a Financial Performance Platform, streamlines 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.