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Why do you consolidate your financial data?
- Helen Veetamm
Whenever your financial year ends you are probably facing the period of compiling the Annual Financial Statements. For groups, you need to present consolidated Financial Statements. Have you ever asked yourself why do you consolidate the financial data? Do you just take it as an obligation from the law or the requirement by the banks? Sometimes it really is so, sometimes it’s the matter of thinking. Depending on your group structure and size as well as business characteristics, consolidation can actually be a useful tool to plan your business. Here are some tips to change the way you’re seeing it.
Consolidation as an overview
If your group functions as a whole, consolidation is the solution for group overview. You can see the standalone financials, but it always has distortions when there are significant intra-group transactions included. You cannot make complete conclusions of the group’s economic health without consolidating your data.
Consolidation for planning your business activities
No-one has said that you should consolidate only data from closed periods. You can also use consolidation for budgets and plan your business activities. Budgets shouldn’t be only on entity level if group results are important. Comparing your standalone reports to standalone budgets isn’t enough. You can simply plan your financials using the same consolidation principles as with closed periods. If you are consolidating your financials why should the budgets be separately planned?
Tool to change your business actions in time
Financials are usually consolidated annually or with a better option, quarterly. Think if this is sufficient for your group in current quickly changing economic circumstances. If you know your group’s financials each month, you can change your business decisions in more accurate time to be successful
Lack of resources or proper tools?
Sometimes consolidation doesn’t seem an option because of the time and effort it takes. Probably you don’t have proper solution for consolidation to make it quick and easy. There are several options to make consolidation much easier than in spreadsheets. Don’t be afraid of the software cost or implementation — there are also cheaper and easier solutions. IT is developing quickly and modern solutions don’t depend on accounting software nor locations.