The Biz Box: Financials

10 reasons why year closing with Excel needs to stop

Written by Joost van Koot on . Posted in Financials

And why it’s now time for a proper consolidation tool

Year closing is a serious undertaking for any financial team. If you’re up to your neck in spreadsheets, your making your life more difficult that it needs to be. Not convinced? Well, here are at least 10 reasons why 2016 should be the last year you complete without a dedicated consolidation tool.

1. Intercompany reconciliation takes you too much time

Getting to a final consensus on intercompany administration is never easy, often involving complex discussions that take more time than you have. Gathering all the data, aligning it and ensuring all the intercompany entries match up and can be correctly eliminated is perhaps the greatest test of your excel skills – not to mention your patience in rounds and rounds of conference calling (usually with distant time zones). While that can sometimes be fun, it certainly comes with an equal measure of stress.

Once the final decisions have been made, the corrections and eliminations that are made must also be clearly noted for further down the line. When you look back, potentially when you feel something might have gone wrong, it’s essential to be able to trace quickly and clearly exactly what you did to complete the consolidation picture. As such, the more of the intercompany transaction and elimination process that can be automated, together with central commenting where necessary, the better.

2. Currency transactions are a drama

If you’re operational across multiple countries, you’re probably having to wrestle with currency conversions. Doing this by hand isn’t fun. Which rate are we going to use? How do we support demands to use differing exchange rates for the balance and for the P&L? Having currency conversion (with options to choose between historical, average and current rates) fully integrated with the reporting tool ensures the process can run smoothly and quickly, as does the ability to report against a constant currency rate. Manually updating spreadsheet formulas to manage the conversions does not.

3. Non-standardized processes add unnecessary time pressure

If the business isn’t working in the same way everywhere you can be left hanging around by the less efficient teams – not something you want when deadlines are approaching.

How far is each division with their monthly closing process? Do I already need to start calling people to give me their first versions? What can I expect in terms of accuracy when it arrives? Will I be able to get straight to work, or am I first going to need to call everyone back? And when will I be able to give the CFO an indication of the total result?

Chasing data and trying to get it all uploaded to the consolidation master file eats up the time you should be using to analyze the information and explore anything unexpected. It also makes it difficult to make promises to your colleagues that you can keep. The key is focus on designing standardized processes across the company that will allow data to be collected and aligned quickly.

4. Disparate file formats are causing you unnecessary pain

Even if the process for compiling and delivering the financial reports is standardized, you can have a major headache if local teams are working in different tooling and not all delivering a standardized format.

If information is turning up in CSV and XLS, you’ve got a major job on your hands to convert and align the data without losing or corrupting any of it. Standardization of IT systems and reporting formats is the key to driving both speed and accuracy – both in the local divisions and in the final consolidation process.

5. The truth comes in multiple flavors

The computing power of Excel isn’t the only challenge it throws up. By working with a collection of spreadsheets, rather than a central tool, you can easily end up with multiple versions of the same report – all showing different information.

Updating and sharing reporting files across multiple stakeholders makes version control practically impossible – not something you can afford when the auditing accountant wants to check the progress. When you’re preparing the final company statement, you need to be sure you’re working with the latest version, including all corrections and agreed upon intercompany eliminations. One source of truth, with no possibility to work with an outdated version, is the only way to be sure you’re discussing the actual situation.

6. Communication is haphazard and confusing

It’s at the end of the financial process, when all the various reports are being brought together, that good communication between all stakeholders becomes critical. If anything still isn’t clear, the query needs to be addressed quickly and definitively. And that depends on how you share information/

What are the channels and where is information stored? Can everyone be sure that they are always looking at the very last communication? Or are people working on the same questions in parallel? Are you able to check up on the latest situation in the Far East without colleagues there needing to be available around the clock to pick up the telephone?

Companies using a range of tools (from the good old phone, to WhatsApp, Slack, project management systems or plain e-mail) to converse with their colleagues are running major risks. It’s slow and no-one can ever be 100% sure they’re still working on the right question in the right way. One central environment, with one set of attachments, comments and explanations should be the standard. All changes need to be clear, and all contributions should be fully traceable and auditable.

7. Budgeting, forecasting and reporting are not integrated

As a business, it’s critical that the links between budget, forecast and performance are solid, making them easy to quickly compare and contrast, and identify precisely where, if anywhere, things have not gone as plan. That’s the only way to create a positive improvement cycle for budgeting realism and forecasting accuracy.

Working with these 3 frameworks across diverse systems is not helping drive improvements. Aligning the original ambition (the budget) with the forecasts and results that followed demands action in multiple systems, and the generation and comparison of reports that don’t align neatly. Time consuming and difficult, this undermines your ability to use your insights to advise the business.

8. You can’t deep-dive your reports from the tool that creates them

When the consolidation process raises a query, diving into the original transactions to look for causes or explanations has to happen in the ERP. If, for example, a sub’s balance sheet looks out of sync, the consolidation manager needs to quickly establish whether ‘corrective’ entries have been made directly in the owned capital. And why. This can be a major puzzle.

If you are trying to solve it with non-integrated systems, you’ve got a challenge on your hands. The company’s financial administration on the one hand, and the tooling you use to align and consolidate your end reports on the other – both not talking to each other. Creating the link between what you’re seeing in Excel, and the transactions that led to it, is manual detective work. Having that insight at the click of a button would get you to the end of the road much quicker, but it’s a pipe dream until your consolidation entries and financial transactions are integrated in the same environment.

9. It’s hard to keep up with the complexity of your organization

Fast growing or internationally active organizations can create extremely complicated organizational structures, particularly if the company is active on the M&A front. Trying to manage a company’s continuously changing legal and managerial structure in spreadsheets can be tricky and labor intensive.

Keeping up with the growing organization by copying and pasting complex spreadsheet formulas and tables rarely delivers exactly what one was hoping for. A dedicated consolidation tool is designed to be scalable for these kinds of organizations, making it far easier and safer to replicate parts of the administration as the business evolves.

10. You’ve convinced yourself that MS Excel is a consolidation tool

Maybe points one and two don’t apply, and everyone delivers their spreadsheets as agreed. You’ve got everything in one file format – easy to align and consolidate. Nothing to worry about. Maybe.

Or maybe not. If you’ve convinced yourself that Excel is your friend, let’s not forget how many formulas and macros appear that only one person really understands. Complexity creates room for error. One recent study from the TU Delft found that 5% of corporate spreadsheets had more than 100 errors! When it comes to an up to date view of the business that can be trusted, you need to have 100% faith in your tooling. How much would you bet on your spreadsheets being 100% correct?

Do yourself a favor

Consolidation is a high responsibility task. And a challenge in equal measure. If you’re putting yourself under unnecessary pressure by using tools that are not up to job, it’s time to stop. You don’t have to do it anymore.

Dedicated consolidation tools create a seamless flow for the entire process by integrating with the ERP source of the financial data. By creating actual journal entries, they ensure a clear trail through the corrections that are made – not something that happens with a spreadsheet They also offer a central environment where everyone can contribute effectively – no more headaches around version control and missing information. Just one reliable source of the very latest situation direct from the financial administration. Currency rate translations are automated, as is intercompany matching and elimination, those correction journal entries and end reporting.

Create an accurate picture, quicker with less risk and less stress. It’s time to say goodbye to Excel. Turn over a new consolidation leaf in 2017 and spend your time using the results of the reporting to push the business forward.

Consolidation masterclass

Exact consolidation will transform your financial department

Did you miss our webinar from Thursday February 16th? Watch it here to see how those spreadsheet dramas can be overcome. Quickly, easily and with 100% confidence.

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