Budget Consolidation in Multi-Entity Organizations (Budgeting Series)
This article focuses on consolidating finances from multi-entity companies.
Nobody likes growing pains, but every company wants to grow. Growing pains are symptoms that an organization needs to make a transition. It is the nature of business. There is a way to alleviate these pains through automated consolidation of your company’s budget. Budget consolidation, just like financial consolidations, is growing in significance because of reasons such as globalization and the popularity of acquisitions and mergers. Nowadays, it is not uncommon for a mid-sized organization to own many legal entities in different locations. Although a business’ budget consolidation requirements may not be that complicated, creating a set of consolidated accounts can be time consuming and prone to many errors if done in Microsoft Excel spreadsheets. There are many financial consolidation tools and solutions that can also automate the consolidation of your budgets and they can replace or improve existing processes and systems. This article is the second installment of our series on budgeting: Budget Consolidation in Multi-Entity Organizations.
Choosing the right tool is extremely crucial for a growing company. There are three basic approaches to budget- and financial consolidation: ‘best-of-breed’ financial consolidation applications, Enterprise Resource Planning (ERP) systems, and general tools. These approaches were distinguished in a study in 2011 by BPM International. BPM International surveyed 99 of the largest companies in the world across all industries to identify similar traits of top finance departments. The study found 81 percent of survey participants used financial consolidation applications, while 25 percent of the participants used an ERP system. The remaining 12 percent used general tools. Keep in mind that participants were able to select more than one option, which is why the total percentage is greater than 100 percent.
Business professionals should strive to find a tool that makes it easy to manage and roll up budgets for multiple entities, whether your organization structure is simple or complex, domestic or global. Fast growing businesses usually experience a storm of foreign currencies and languages, tax structures, accounting standards, and reporting and compliance requirements that spreadsheets cannot handle. Surprisingly, as I have mentioned in the statistics above, 12 percent of the largest companies still use general tools such as spreadsheets and data warehouses (DW).
Every company has unique issues with their budget consolidation process. What are your challenges? What does budget consolidation mean to you and your business? I ask these questions because budget consolidation can mean different things to different companies. On a basic level, when a company that is a single entity uses the term, it can mean simply adding budget data from several cost centers either for monthly variance reporting reasons or at the tail end of the budgeting process. The data that is added is usually known as general ledger (GL) budget data, while more detailed budgets such as for payroll or capital expenses are often not consolidated. The purpose is both to get the final, big picture of the budget as well as to produce a set of actual and budget financial statements that relate to the entire company including all entities being consolidated. However, budget consolidation means a lot more than this. Budget consolidation usually involves combining data from not only departments of a single entity, but from multiple legal entities. Combining data can be difficult and complex. For instance, legal entities can have different charts of accounts and fiscal years. They can also be partially owned. Multi-entity accounting is a common need for growing businesses. Consider the geographic growth, new expansions that leave room for security needs between divisions, and acquisition of new companies and how problems can arise due to these growing structures.
In an article titled ISV Programs Expand Best-of-Breed Solutions for Microsoft Dynamics and Other ERPS, we see an example of a simple consolidation solution, Multi-Entity Management (MEM), from Binary Stream that processes transactions from different corporate entities within a single company database in the ERP system. Most advanced consolidation tools use their own centralized database with a comprehensive security layer, where intercompany transactions can be automated, and master files can be shared across entities. This streamlines multi-entity transactions, immensely improves financial reporting time and quality for each facility, ensures secure information, and reduces operational costs. Third party solutions, such as Solver’s BI360, Hyperion and many more, are fully integrated to support simple as well as advanced consolidations of budgets as well as actual monthly data, depending on your company’s needs. Business professionals with a state of the art consolidation system are able to save time and streamline processes by producing automated consolidated or entity-specific financial reports at the GL- and even the Sub-ledger level. Real-time access also improves efficiency, by not waiting for the Information Technology (IT) team to update a middleware system in order for reports of analysis to begin. Third party solutions, like BI360, also take information from Dynamics, Sage, Acumatica, Intacct, SAP Business One and other ERPs into Microsoft Excel and web-based interfaces. This enables business users to produce dynamic boardroom quality budget packages, financial reports, charts and graphs in a single centralized database that stores all of the company’s data in a secure and high performance environment
As you invest in a great budgeting solution for your organization, you will most likely have questions, but I am hoping this article will give you a better understanding of the tools for consolidating your company’s budgets, so you and your team can easily manage budgets for multiple entities. This will cover multiple currencies, multi-level reporting requirements, partial ownership, and entities with different charts of accounts and fiscal calendars. The next topic of the budgeting series will focus on the similarities and differences between Microsoft Excel-based tools and web-based budgeting tools.
Solver enables world-class decisions with BI360, a leading web-based CPM suite made up of budgeting, reporting, dashboards, and data warehousing, delivered through a web portal. Solver is reinventing CPM with its next generation solution. BI360 empowers business users with modern features including innovative use of Excel in the model design process. If you’re interested in learning more, our team is excited to hear about your organizational needs and goals.