5 Tips for Optimizing the Financial Consolidation Process

If your month-end close process takes 4.8 days or fewer to complete, congratulations: You’re in the top 25% of organizations with enhanced processes. A fast close means more time for forecasting and data analytics and more time at home — something we could all use more of, right?

If that doesn’t describe your organization (or if you just want to close much faster), you can take key steps to optimize the financial consolidation process. But first, what is financial consolidation? And why is it important to smooth and speed up the process?

What Is Financial Consolidation?

Financial consolidation is the accounting process of combining financial transaction data from various entities, subdivisions, and subsidiaries into a unified set of financial statements. As a practice, financial consolidation encompasses complex calculations, eliminations, and adjustments, including intercompany reconciliation, account reconciliations, transaction matching, and foreign currency conversion.

Refining the consolidation process is crucial for several reasons:

• Accurate Reporting: Financial consolidation involves combining financial data from various departments or subsidiaries into a single, comprehensive financial statement. By optimizing this process, you ensure that the data is accurate and reliable, which is essential for accurate financial reporting and ensuring informed business decisions.
• Compliance: Regulatory bodies require companies to provide accurate and timely financial reports. With an optimized consolidation process, you ensure all financial data is correctly reported and complies with relevant regulations. Such optimization also reduces the risk of restatements and penalties.
• Strategic Decision-Making: With accurate and timely financial data, management can make better strategic decisions. Optimized financial consolidation provides you with a clear and comprehensive view of the company's financial health, enabling leaders to identify trends, allocate resources effectively, and plan for what lies ahead.

Below, I’ve listed five tips to get you started with a faster consolidation process.

5 Tips to Help You Optimize the Financial Consolidation Process

1. Leverage Advanced Automation and AI (and Leave Behind AI Fluff)

Artificial intelligence (AI) is THE buzzword in consolidation right now. And if you’re not careful, you can get suckered into empty promises that could, at worst, lengthen your close.

Be sure to avoid the following:

• Overly Complex Interfaces: While advanced features are important, the tool should be user-friendly and embedded directly in the consolidation solution. Avoiding data movement and overly complex processes helps you get the insights you need. Conversely, overly complex interfaces and processes can hinder adoption and efficiency.
• Generic AI Claims: Some tools make broad claims about AI without demonstrating specific, measurable benefits. Look for case studies or testimonials that show real-world applications and results.
• Unnecessary Features: Some AI tools may offer features that sound impressive but don't add significant value to the consolidation process. Focus on functionalities that directly impact accuracy, efficiency, and strategic insight.

Instead, controllers should look for AI and automation platforms that offer specific, actionable features rather than generic promises. Here are some key capabilities to prioritize:

• AI-Powered Anomaly Detection: AI platforms should be able to identify unusual patterns or discrepancies in financial data that might indicate errors or fraud. Anomaly detection helps maintain the integrity of financial reports.
• Predictive Analytics: AI solutions that can forecast financial trends based on historical data are vital. In turn, predictive analytics aid in strategic planning and decision-making.
• Automated Data Entry and Validation: AI should streamline data entry processes and validate data accuracy, reducing the risk of human error.

2. Integrate Real-Time Data Analytics

Rapid, timely data integration is crucial for making timely and accurate financial decisions. For example, timely data analytics enhance decision-making capabilities. When financial data is available, chief financial officers (CFOs) and controllers can make informed decisions quickly, rather than relying on outdated or static information. This immediacy allows CFOs and controllers to identify emerging trends, such as shifts in revenue or unexpected expenses, and adjust strategies proactively.

The ability to compare and act on actual, trusted data combined with operational data aligned to the actuals, rather than historical figures, is a game-changer in maintaining a competitive edge.

Moreover, the accuracy and reliability of financial reports are greatly improved with timely data integration. Using the most current information available reduces the risk of errors and discrepancies due to outdated data. In addition, accurate and reliable financial reports are essential for maintaining stakeholder trust and ensuring compliance with regulatory requirements. When stakeholders know they can rely on the data presented, it fosters confidence and supports better decision-making at all levels of the organization.

Proactive risk management is another significant benefit. With agile financial analytics, organizations can more effectively identify and mitigate risks. Continuous monitoring of financial data aligned to operational data also allows controllers to detect anomalies or potential issues early on. This proactive approach to risk management helps prevent financial restatements and ensures the stability of the organization. By addressing issues before they escalate, organizations can maintain a more secure and resilient financial position.

Finally, scalability and flexibility are essential for growing organizations. Built-in data quality and integration capabilities are designed to handle large volumes of data and can scale with the growth of the organization. With this flexibility, the financial consolidation process remains effective as the company expands and evolves. Scalability is particularly important for multinational corporations with complex financial structures, ensuring the system can adapt to increasing data demands and organizational changes.

When looking for financial close and consolidation software to enable real-time data analytics, seek out the following features:

• Seamless Data Integration: The system should be able to integrate data from various sources, including enterprise resource planning (ERP) systems, customer relationship management (CRM) platforms, and external databases. This ensures a comprehensive view of the organization's financial health.
• Real-Time Dashboards: Interactive dashboards that update in real time provide instant insights into key financial metrics. With real-time information, controllers can monitor performance and adjust as needed.
• Data Accuracy and Consistency: The platform should maintain data accuracy and consistency across all integrated sources, which reduces the risk of discrepancies and errors in financial reports.

3. Take a Close Look at Your Intercompany Reconciliation Processes

Intercompany transactions involve the exchange of goods, services, or funds between different entities within the same corporate group. Thus, the process is critical to ensuring an accurate reflection on the financial statements and a clear view on profitability. Enhancing the intercompany reconciliation and elimination process is crucial for several reasons.

One reason is that, especially for multinational corporations with multiple subsidiaries operating across various regions, intercompany transactions can be numerous and intricate. Accordingly, the reconciliation of these transactions is essential to ensure the consolidated financial statements accurately reflect the financial position of the entire group.

Another primary reason is the potential for errors and discrepancies. When transactions between entities aren’t properly reconciled, inaccuracies can occur in the consolidated financial statements. These inaccuracies can distort the financial health of the organization, leading to misguided strategic decisions and potential compliance issues. Evaluating the reconciliation process helps to eliminate these errors, ensuring the financial data is accurate and reliable.

In addition, manual reconciliation of intercompany transactions can be time-consuming and labor-intensive, diverting valuable resources away from strategic activities. Automating and enhancing this process reduces the time and effort required, which frees up resources for more value-added tasks such as financial planning and analysis. The resulting efficiency gain is particularly important for large organizations with complex ownership and intercompany activities.

When evaluating a platform that’s particularly strong in intercompany reconciliation, consider asking about the following features:

• Automated Matching: Look for solutions that can automatically match intercompany transactions and balances, which reduces manual effort and the risk of errors.
• Elimination of Intercompany Balances: Confirm the system can eliminate intercompany balances during the consolidation process, which ensures accurate consolidated financial statements.
• Audit Trails: Ensure the platform provides detailed audit trails for all intercompany transactions, which enhances transparency and compliance with regulatory requirements.

4. Adopt a Unified Financial Data Model

Adopting a unified financial data model is a cornerstone of effective financial consolidation. In fact, a unified model offers several compelling advantages that can transform the way organizations manage financial data.

A unified financial data model ensures all financial data across the organization is standardized. With standardization, the data definitions, calculations, and reporting structures are consistent across all entities. This consistency translates into more accurate and reliable financial reports. When everyone in the organization is working with the same set of data, the risk of errors and discrepancies is significantly reduced. The resulting accuracy is crucial for making informed business decisions and maintaining stakeholder trust.

OneStream's unified financial data model streamlines the entire financial consolidation process. By integrating data from various sources into a single platform, OneStream eliminates the need for multiple, disparate systems. This integration simplifies data management and reduces the complexity of financial consolidation. As a result, controllers and CFOs can spend less time reconciling data from different systems and more time on strategic analysis and decision-making.

5. Implement Continuous Improvement Practices

Continuous improvement is a vital aspect of financial consolidation, one that ensures processes remain efficient, accurate, and adaptable to changing business needs. Continuous improvement is essential for several reasons.

First, it ensures adaptability. Business environments are constantly evolving, so the financial consolidation process must adapt to new regulations, market conditions, and organizational changes. Continuous improvement ensures processes remain relevant and effective.

Second, efficiency is critical. Regularly reviewing and refining processes can lead to incremental enhancements in efficiency, reducing the time and resources required for financial consolidation. Through continuous improvement, accuracy is also improved. The continuous improvement helps identify and correct errors or inefficiencies, leading to more accurate financial reporting.

Finally, demonstrating a commitment to continuous improvement fosters trust among stakeholders, including management, employees, investors, and regulators.

There are many actionable ways you can improve the continuous improvement process itself. Here are just 10 suggestions:

1. Promote an Improvement Mindset: Encourage team members to suggest enhancements through regular communication and recognition. This mindset fosters a culture where continuous improvement is valued and actively pursued.
2. Set Clear Goals: Define specific, measurable goals for improvement aligned with strategic objectives. Clear goals provide direction and help track progress effectively.
3. Schedule Reviews: Set up quarterly, semi-annual, or annual reviews of the consolidation process. Regular reviews ensure processes are continually assessed and refined.
4. Involve Stakeholders: Include finance team members, auditors, and management in the reviews to gain comprehensive insights. Diverse perspectives help identify a broader range of improvement opportunities.
5. Implement Feedback Mechanisms: Use surveys, suggestion boxes, or regular meetings to collect input on the consolidation process. Gathering feedback from those involved in the process provides valuable insights for improvement.
6. Review Feedback: Regularly analyze feedback to identify common themes and areas for improvement. The information gained helps prioritize actions that will have the most significant impact.
7. Research Best Practices: Stay informed about industry benchmarks and standards for financial consolidation. Understanding best practices helps ensure your processes are competitive and effective.
8. Attend Conferences: Participate in industry events to learn about new trends and best practices. Networking and learning from peers can provide fresh ideas and solutions.
9. Prioritize Improvements: Focus on small, incremental changes based on impact and feasibility. Incremental changes are easier to implement and manage than big changes, leading to steady progress.
10. Test and Refine: Implement changes on a small scale first, monitor their impact, and refine them based on feedback. This approach minimizes risk and ensures changes are effective before a broader rollout.

Collectively, these steps will help controllers establish a robust continuous improvement process that enhances efficiency, accuracy, and adaptability in financial consolidation.

More?

Optimizing the financial consolidation process is essential for achieving accurate reporting, compliance, and strategic decision-making. Through the strategies outlined above, controllers can significantly improve the efficiency and accuracy of their financial consolidation efforts.

For those looking to dive deeper into these strategies and explore more advanced techniques, I highly recommend reading the eBook "Financial Close and Consolidation."