In our previous posts on consolidation, we’ve reviewed consolidation basics and complexities. In this post, we’ll cover system solutions to consolidation challenges.

If you’ve been following our blog for awhile, you probably know we believe in implementing the simplest solution possible to get the job done. We apply this approach to consolidation as well. We’ve identified four different ways to solve consolidation challenges.

1. Outside Accountants
For mid-sized companies with two or three entities, the most common approach is to let outside accountants deal with it. When a company has to answer to its bank and a few owners, a consolidated statement is generally not all that important – it’s something they have to produce once a year at most. And while auditors who follow strict rules of independence shouldn’t be doing your consolidation for you, smaller accounting firms generally handle such things in the normal course of business.

2. Excel
When all else fails, use Excel – the accountant’s Swiss Army knife. Again, this can work to a degree. If you only have a few entities and don’t have to consolidate statements very often, then Excel is fine. Generally companies start using Excel when their outside accountants stop doing consolidations for them, and consolidation remains an occasional chore rather than a key part of the financial close.

3. The General Ledger
Any General Ledger that can support a mid-sized company will have the ability to create multiple legal entities. We often use this ability to get elimination entries into systems and out of spreadsheets. Database driven ledgers are preferable to spreadsheets because they are far better at ensuring data consistency.

Even if all your companies don’t use the same GL system, you can still make it work by writing an interface between ledgers. We’ve done this for many clients because it’s generally easier (and more cost effective) than buying new software just for consolidation

4. Multiple Sets of Book Within One System
As we mentioned in our example, sometimes you need to keep multiple sets of books – one for management purposes and one for tax purposes. You might even need a third set for GAP purposes.

While you can use your standard ledger to get most of the way there, you might want to find out if your system has the ability to have multiple ledgers within one system. While you still won’t be generating your consolidation automatically, you’ll at least meet management and statutory needs with one system.

5. Real Consolidation Software
When you grow beyond a certain size, your ledger (even if it can support multiple sets of books) isn’t enough. That’s when it’s time to check out software designed to handle consolidations. Some examples are SAP Planning and Consolidation or BPC or Oracle Hyperion Financial Management software.

One final cautionary note: Software isn’t a panacea. A great team can get the job done with just okay software, while perfect software won’t save a mediocre team. To get the desired results, you really need to nail down the non-software side. Different divisions have to talk to one another. They need to agree how they’re going to make entries and do it in a timely manner. They need to agree to a close schedule so month end doesn’t turn into a mad house with people scrambling to find matching entries. They need to use their systems to the fullest, so it’s easy to segregate internal and external company transactions.

If you have these kinds of processes in place, then your software will do the job. If not, gold plated software won’t be enough.

Adam Jacobson

Adam is founder and president of Red Three Consulting. He has over 20 years of experience in ERP consulting and BI consulting. Adam has particular expertise in complex accounting and other multi-company and international reporting challenges. Prior to founding Red Three, Adam was a partner in United Systems Consultants where he ran its 30-person Lawson software practice. Outside of work, he serves as board member and treasurer of the Riverdale Y. When not working, he spends his time answering his son’s political questions and cycling, swimming and reading.


Leave a comment

Get tips and insights delivered to your inbox

Start a conversation with us

Call: 917-848-7284

Request a Consult