Financial consolidation is a critical and usually mandatory process for mid-market companies aiming to formalise their financial reporting and fulfil compliancy requirements. It involves combining and analysing the financial transactions from different entities to create a unified financial statement. This can be quite complex, especially for businesses operating in multiple countries. However, with advancements in technology, much of this process can be automated, leading to significant improvements in efficiency and accuracy.
Understanding Financial Consolidation
Financial consolidation is not just about adding up or subtracting numbers from different subsidiaries. Companies need to adjust transactions among subsidiaries to avoid double-counting. This requires eliminating inter-company transactions and balances. For mid-market companies, this can be quite a daunting task due to limited resources and system-functionality. Often smaller companies use a spreadsheet to execute this important and complex effort, which is understandable but not advisable, nor necessary.
The necessity for Financial Discipline
To effectively automate the consolidation process, a company must first exhibit a high level of financial discipline. This means maintaining accurate and timely financial records and adhering to consistent accounting policies and procedures across all entities. Financial discipline ensures that transactions are posted on time and on the right account.
Automation of the Elimination Process
The elimination process during consolidation can be fully automated, but it requires the right tools and a disciplined approach to financial management. Consolidation software works by following predefined rules to adjust the financial transactions accordingly. For example, if two subsidiaries have recorded an inter-company transaction, the software can identify and eliminate it from the consolidated results, assuring compliant financial statements.
This automation not only saves time but also reduces the likelihood of errors that are common with manual adjustments outside of the financial system, e.g. in excel. It allows financial teams to focus more on analysis and less on the mechanics of consolidation.
Benefits of Automating Consolidation
1. Efficiency: Automation significantly speeds up the consolidation process, allowing financial statements to be prepared faster. This is particularly beneficial during periods of tight deadlines, such as month-end or end-of-year reporting.
2. Accuracy: Automated systems reduce human error, ensuring that financial statements are more accurate and reliable.
3. Consistency: Automation enforces uniformity in how financial data is processed and reported, which is crucial for companies with multiple subsidiaries operating in different currencies and under different Chart of Account-structures and accounting standards.
What are options for automating your consolidation process?
The following table shows the options SMB’s have to execute the consolidation process, with the pro’s and con’s that come with it.
| How | Solutions | Pro’s | Con’s |
| DIY using a spreadsheet | Excel, Google sheets, … | Cheap, no training or implementation required | Error-prone, requires uploads and manual work |
| Outsource to your auditor | TBD by your auditor | You don’t have to do the work yourself and you do not have to buy software | Full consolidation usually only once per year and potentially a costly service |
| Use your auditor’s solution | Visionplanner, Silverfin, Syft analytics, … | Training and onboarding via your trusted auditor, using professional tools | Requires training and implementation time, software comes at a fee |
| Financial close solution | Lucanet, Fluence, Smartbooks | Fully automated, financial & business analytics, consolidated budget and cash flow statements | Requires training and implementation time, software comes at a fee |
If analysing consolidated numbers and cash flows are not interesting from a business perspective, outsourcing it to your auditor is probably the best choice. But, if regular insights into consolidated financial and business performance is required, your own Financial close solution may be the most robust and at the same time most flexible option.
Implementing Consolidation Automation
Implementing an automated consolidation system involves selecting the right software that fits the specific needs of your business. It is crucial to choose software that can be customized to the specific accounting practices and complexity of your operations. Involving your financial team in the software selection and implementation process is also important, as their buy-in is crucial for successful adoption.
Conclusion
In summary, automating the financial consolidation process offers numerous benefits for mid-market companies, from faster execution to enhanced accuracy and compliancy. However, the success of automation depends heavily on maintaining strong financial discipline throughout the organization. By ensuring accurate and timely financial transaction processing, companies can leverage automation tools to streamline their consolidation process and achieve better financial oversight and reporting.