WHAT IT'S ALL ABOUT...
Establishing or reorganising a group company structure can make sense for a variety of reasons. But where does such a move leave your finance team? A structural reshuffle tends to bring added complexity to the financial consolidation & close process. If such a change is on the horizon, it’s worth ensuring your finance technology is fit for the tasks ahead.
Corporate Structural Change in Turbulent Times
Is our existing structure sustainable? What changes can we make to maximise performance and value? Are we adequately protecting our assets? In ‘normal times’, whether you are embarking on a new project, extending your geographic reach, or reassessing your asset portfolio, these questions should be subject to periodic review.
When companies do decide to modify their structure, it’s usually triggered by the desire to mitigate a perceived commercial risk. And of course, there has been no shortage of those over recent months.
There may now, for instance, be a stronger case for quarantining your core assets from risks arising in particular areas of the business. You may wish to partially silo parts of the business for possible divestiture at a later date. Or there may be strong organisational reasons for reorganisation; for example, to strengthen the identity and managerial autonomy of a particular part of the company.
In any or all of these contexts, structural reorganisation is often a key part of the strategy for increasing business resilience. So far, so good. But where does this leave your finance team?
Corporate Reorganisation and the Case for Finance Transformation
The month-end close can be one of the most stressful and labour-intensive recurring tasks that any finance department has to deal with. In fact, in an MHR Analytics Twitter poll conducted last year, 73% of respondents revealed they are not confident about their data and numbers on month-end closes and audit submissions.
Even within a simple corporate structure, chaotic data sets and over-reliance on manual processes can make it difficult to close and report. Once you add a multi-entity dimension to all of this, things can get even more complicated.
The end goal is to provide accurate information to internal stakeholders, outside investors and regulators. But before this can happen, you need to aggregate the financial statements of multiple companies into a consolidated financial statement.
If your finance team is struggling with month-end reporting requirements right now, such problems are only likely to be exacerbated once corporate restructuring has taken place.
It’s time for a wider rethink. Key questions to ask include the following:
How do we bring data from different divisions together?
How can we make closing and reporting faster, smarter and simpler?
Which processes can and should be automated?
It’s the reason why corporate reorganisation can often be the ideal trigger for finance transformation.
Finance Consolidation Challenges
These can include the following:
Competing ‘data cultures’. This can be especially relevant where your organisation has acquired or merged with a company. Data sets, the way in which transactions are logged, even formatting preferences: these can all differ widely between different entities and branch offices. Despite your best efforts to achieve uniformity across the group, it can be hard to get individual branches to adapt to unfamiliar ways of doing things.
The logistics of data collection. Before you can complete the month close, you need the relevant information from each company within the group. You’re at the mercy of branch heads, hoping that they respond to your emails. And if there are queries about the figures, it means further back-and-forth communication, along with scope for delay.
Too much manual input. Spreadsheet-based tasks such as account mapping and applying specific rules require high levels of manual intervention. It’s time consuming, and gives rise to error.
Reasons to Upgrade your Consolidation Toolkit
If any or all of the following apply, it’s time to revise your financial consolidation processes and supporting technology:
We have undergone or are considering corporate reorganisation
We want to reduce manual consolidation entries and the scope for error
We want to reduce the volume of control activities undertaken by the central team
We want to reduce the timescales required for intercompany reconciliation, consolidation and close
We want to give managers the ability to obtain up-to-date reports from across the group, based on the latest inputs
We want the ability to create IFRS and GAAP-compliant reports on-demand
For auditability and accountability purposes, we want full visibility on any changes made to statements by insiders from across the group
If we undergo further restructuring and create additional corporate entities in the future, we want to add these seamlessly to our existing system
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