What do pants and dishwashers have to do with mid-market financial consolidation software?
You can get by with a pair of pants that only fit so-so.
A lot of us make do with dishwashers that don’t always leave the dishes spotless.
In the grand scheme of things, these are minor issues. You might sigh, but you move on.
When companies try to get by, make do or put up with the wrong tools for financial consolidation though, it’s different. It’s unproductive, frustrating and potentially very costly. Consider the costs of “getting by” to your business, which might include:
- A close, consolidation and reporting process taking longer than it should.
- Only being able to assess your cash flow as it was 2-3 weeks ago
- Highly trained CPAs not being able to put their skills and expertise to work
- Financial reports that aren’t just late, but that management doesn’t trust
- Making business decisions based on out-of-date, maybe inaccurate data
If your company is growing, acquiring new companies, expanding into new markets or going public, these costs can get steeper. Think about the regulatory, reputational and legal risks that would come from a material misstatement - and how easily it could stem from errors in your consolidation process.
Financial consolidation is one of those things you’ve got to get right. On time. Every time.
The moment finance has been waiting for
Many mid-market organizations have been waiting for purpose-built financial consolidation software to arrive for years. But it’s kind of like hoping you’ll eventually find the perfect-fitting pair of pants.
You’ve been getting by for this long — do you really need it? How do you know? Is now the right time? Is it worth the investment? What’s the business case you need to make?
If you’re considering modernizing your financial consolidation process, there could be lots of questions like these swirling around in your head.
Luckily, you really only need answers to a handful of questions to know for sure. Let’s walk through each in detail.
1. How often do close your books? How often do you want to?
As far fetched as it may sound, you too could become a member of the Continuous Close Club.
These are the organizations who have decided closing the books once a quarter, or even a month, is not enough. They are data-driven businesses that need to both monitor and act upon information in real time.
That’s possible when you can do a continuous close (sometimes known as continuous accounting).
By constantly consolidating and analyzing their finance data, these organizations can perform a “soft” close. Reconciling accounts daily instead of letting journal entries pile up. Avoiding what some call the “month-end mountain” that’s all too familiar to almost any accountant.
The result? Your financials become more relevant, as does the confidence in them. Management has real-time visibility into cash flow and business performance. And your finance team becomes among the most trusted in the organization.
Barriers to a more continuous close
“Sounds nice in theory,” you might say. In practice, there are plenty of hurdles that make a continuous close sound like utopia.
First, there’s all the data entry and consolidation accounting teams are often stuck doing. The less automated these tasks are, the more likely they need to be double checked and validated.
Second, many firms are trying to get multiple systems to do a job that a dedicated solution should perform instead. They are the opposite of purpose-built, in other words.
At Fluence, our research has shown 68% of companies rely primarily on disparate Excel spreadsheets for their consolidation process. Spreadsheets are like a second language to finance, but on their own they're hardly designed for the complexities of today's financial consolidation demands.
The power of up to date, relevant numbers
The implications of modernizing your consolidation process go far beyond closing your books faster. They don't just apply to your past performance but your forward-looking planning too.
Consider how many companies have invested in new budgeting, planning and forecasting software in recent years. Now consider how accurate they can be with actuals that are inaccurate or out of date.
By providing timely, trusted and transparent actuals, modern consolidation solutions ensure companies are getting the most out of their budgeting and planning systems and processes. And as more companies are realizing, the more frequently you close your books with confidence, the more agile your budgeting, planning and forecasting will be.
It's no surprise that research from BPM Partners shows 55% of finance pros want consolidation to be part of their budgeting and planning process.
Conditions in the market, your customer base and the world change every day. A more timely close puts you closer to seeing data, from revenues to cash flow, to know how to react. Tasks that are often well worth the effort (like reforecasting) start to seem like less of an effort.
As you think about your goals — whether it’s a continuous close or simply a shorter cadence between closes — be honest. Most companies don’t close more infrequently as a deliberate strategy. They feel they have little choice. Which bring us to the next question.
2. How long does it take you to get through the close? What are the challenges?
Time flies when you’re having fun, right? That’s not exactly the experience a lot of mid-market firms have when it’s time to complete the financial close.
Instead, the process may be akin to marking a giant “X” on a calendar as the process takes ever-longer. Ventana calls mid-market firms “slow closers” because they typically take a week or more. Our data paints an even darker picture. Our own research found that as much as 55% take three weeks or more to close their books each month. That’s a lot of Xs.
Companies aren’t in this situation because they’re procrastinating, but the consequences are similar to putting off your homework in school. You don’t complete an assignment because you have one day left. But then you get another assignment, or a pop quiz to prepare for. Once you’re in catch-up mode, it can be hard to escape.
Similarly, companies that struggle to close the books because they lack the right tools risk a domino effect of negative impacts. These include:
- A poorly-informed corporate strategy: Leadership teams need to base their decisions on the most current information available. Not numbers that are already weeks out of date.
- An inability to grapple with urgent issues: COVID-19 underscored the importance of more frequent cash flow reporting and reforecasting. How are you supposed to do that when the close holds up the process of critical variance analysis?
- A cross-functional freeze: There are many parts of the organization that depend on the close happening on time. The FP&A team, however, may be among the biggest stakeholders. They deserve timely data to do their best planning and budgeting.
Time to close might actually serve as a metric or leading indicator of the accounting team’s performance. If it’s perpetually late or takes an undue amount of time, people may start wondering what other processes are broken.
Why the status quo is hard to change
Companies can become so accustomed to a broken process that they avoid fixing it. We’ve seen first-hand that you don’t have to live with a painfully slow close, though. Some of our customers have reduced their close times by 90% or more. They’ve also cut the time and cost of the year-end audit by up to 75%.
The latter point is particularly important. Much like the close, audits can take time, and incur considerable expense. Software that’s tailor-made for financial consolidation allows companies to pick up the pace. It also allows for greater accuracy and transparency. That’s because more details or tracing facts back to a single source of truth is a one-click exercise.
3. How much manual effort is involved in your close and consolidation process?
CEOs will often say things like, “Our people are our greatest assets.” That’s not always how they feel when they’re actually on the job.
The pandemic forced all kinds of organizations to put their staff to considerable upheaval. This included pivoting to remote work in some cases. For many others it simply meant having to take on a bigger workload. The quality of the employee experience has become a boardroom priority. Concerns around burnout have arguably never been higher.
Meanwhile, in the accounting department, those involved in closing the books may already be stretched close to the breaking point.
Building your business case for financial consolidation software should also take into account the human factor. Ask yourself or your team:
- How many late nights have you had to spend reconciling bank statements, or recording and totaling journal entries?
- How many weekends have you had to give up consolidating your business units’ financials one spreadsheet at a time?
- How often have you had to 'plug' a material number in the financials because you don't have the time or visibility to arrive at the actual number?
And ultimately, what impact have strains like these had on employee morale, or your ability to attract and retain your best people? If the answer is even “a bit,” employee experience is being hurt by the close.
In short, it’s time to act.
True, buying financial consolidation software isn’t your only option. You could try to invest in more people, whether they are full-time employees or consultants.
The cost of leaning on extra help
While consultants might offer value in the short term, they can come at a considerable cost. Worse, they take all their expertise with them. And they’ll probably never know your firm as well as true insiders.
As for recruiting, think about why you’re bringing them on. Better yet, think about why they would want to come on board. Just Google “the Great Resignation.” You’ll find no shortage of articles about the number of highly skilled accountants deciding to leave for greener pastures.
CPAs are rightfully tired of being called “spreadsheet jockeys” behind their back. The “C” and “P” do not stand for “copy and paste.” This is a profession where people are often motivated to make a real difference in their organization. Effective technologies that take away the grunt work allow them to do that.
PwC estimates finance teams spend 80-90% of their time reporting on the past. When the financial close reflects the more recent past, the team responsible can focus on the future. If they don’t feel their current employer can empower them to do that, they may quit.
It could also become increasingly difficult to bring a new generation of finance talent inside. No wonder BDO reports 45% of mid-market CFOs plan to increase HR spending this year.
Of course, hiring isn’t the only way organizations grow.
4. How many acquisitions have been completed or are planned?
The press releases announcing mergers and acquisitions often read the same. A quote from the CEO talks about the powerful synergies and benefits to customers. A quick overview of the company being acquired makes it clear it complements the firm buying it. The tone suggests nothing but a bold new era beginning.
You already know what really happens behind the scenes. The accounting team needs to conduct a full review of the acquired firm’s processes. This includes its chart of accounts, consolidation rules and any foreign currencies involved.
Then there are technologies that may need to be integrated, like a separate ERP.
This on top of all the cultural aspects of successfully making an acquired firm’s team feel like a part of the parent organization.
Employee experience redux
Be warned that this can compound the employee experience issues we talked about above. It’s bad enough trying to manage the financial close in Excel. Asking the same team to now juggle 10 different mapping tables to the corporate CoA could be the last straw.
According to HR consulting firm Willis Towers Watson (WTW), 61% of companies are having trouble retaining their employees. and expect the challenge to continue will into next year. When they do lose staff, it’s painful - and costly.
At the same time, nearly three-quarters of companies are having difficulty attracting new employees, WTW says. That’s up three-fold since 2020.
Indeed, numerous sources estimate the cost of replacing (including recruiting, retraining, etc.) highly skilled employees like CPAs ranges anywhere from 200-400% of their annual salary
Companies may come to find this becomes a serious impediment to achieving their objectives over time. There could be understandable reluctance to acquire another company if leaders know it creates internal havoc.
Once a deal has been done, meanwhile, there is always an urgency to move forward as a single entity. Difficulties in the accounting department shouldn’t get in the way of that.
Sometimes a company that’s active in M&A comes to be known as an industry “juggernaut.” The word refers to an unstoppable force that crushes whatever is in its path. That’s good if you’re talking about the competition. It’s bad if you’re talking about your own people.
You could take this question further to beget one more.
5. How many entities do you need to consolidate?
As companies become larger and more successful, internal complexity might just seem like one of the tradeoffs.
It’s not just a matter of M&A activity. Equally challenging from a consolidation standpoint are changes in existing ownerships, equity pickups, divestitures or carve-outs. The experts say this will all continue apace. BDO, for instance, projects that 20% of mid-market CFOs plan on carve-outs/divestitures in 2021-22.
Deloitte forecasts 87% of executives are planning divestitures or carve-outs in the next three years.
Those executives depend on their finance and accounting teams to provide transparency — to management, auditors, shareholders and more — as they make such moves. It can seem like a big ask, one that may lead back to the question of looking for outside help.
When your tech is stacked against you
The tech stack can really get in the way here. BPM Partners says 50% of companies have two ERP systems or more, with each additional system making the consolidation process more complicated and time-consuming than it needs to be.
It’s not necessarily that much easier if you’re only dealing with a single ERP, though:
You may still wind up leaning on expensive consultants.
You may still wind up exporting to Excel. More than 2/3 according to our research.
You may still wind up, in other words, with the same factors that contribute to your financial close problems.
Conclusion
Employees often have a way of trying to rise to the occasion. The pandemic was one example, but perhaps an extreme one. On an everyday basis, your team may be going the extra mile to handle tasks like the close.
They may only have so many extra miles left in them, though.
Purpose-built financial consolidation software has finally arrived. It’s the answer to a long-held desire by many mid-market controllers, CFOs and CAOs.
It means an end to tackling everything in-house, manually and often with great difficulty.
No more exporting financials from your ERP systems into standalone Excel spreadsheets.
A streamlined, automated way to handle the financial consolidation process - from intercompany matching and eliminations to currency conversions and cumulative translation adjustment (CTA) calculations.
You’ll notice none of the five questions we’ve presented here are a simple yes/no. They require critical thinking. They demand considering your organization’s particular history and context.
Hopefully, they also help lead you to the right decision, but you may have more you want to know.
And if you do, we’re ready to talk.
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