Consider the ever-evolving world of photography. With its advanced camera features, an iPhone is a fantastic tool for capturing everyday moments and even impressive travel shots. It's convenient, user-friendly, and delivers high-quality results for general purposes.

However, as your photography needs grow - maybe you start covering professional events or develop a passion for wildlife photography - you realise that an iPhone, no matter how advanced, cannot meet these specialised requirements. You find yourself needing a DSLR, a tool specifically designed for sophisticated photography needs.

In the context of consolidation, an ERP system is like your iPhone camera. It's excellent for managing daily operations and transactions, providing a broad range of functionalities to keep your business running smoothly. However, as your business grows and evolves - perhaps you acquire new entities, change ownership percentages, or dispose of certain assets - your financial consolidation needs become more complex.

This is where the limitations of an ERP system begin to surface. Just as an iPhone camera falls short in sophisticated photography, an ERP system may not be equipped to handle the intricacies of financial consolidation on a larger scale.

The shift from using an iPhone to a DSLR for meeting your growing photography needs echoes the shift from an ERP to a dedicated financial consolidation solution. As your business expands and your consolidation needs become more complex, relying solely on an ERP system could lead to inefficiencies and inaccuracies. Therefore, investing in a specialised financial consolidation platform, just like investing in a DSLR, is imperative to ensure your growing needs are met effectively and efficiently.

Before we delve deeper into the challenges of using ERP for financial consolidation, let's look at what exactly an ERP system is built for.

Why do companies use ERP systems?

An Enterprise Resource Planning (ERP) system is a centralised software solution that unifies diverse business processes, from finance and human resources to supply chain and customer relationship management.

Companies leverage ERP for streamlined operations, enhanced data visibility, and improved collaboration. The system ensures compliance with regulations, contributes to cost savings, and improves customer relationships.

In essence, ERP manages and integrates key business functions into one through real-time insights, adapting to changing business needs.

Now that we understand what ERP is and that businesses use it to integrate their key functions for efficiency and effectiveness let us briefly look at financial consolidation and its importance for a business. We can then gauge the impact of using ERP systems for financial consolidation.

Significance of financial consolidation for businesses

Financial consolidation is a crucial process for businesses, especially those with multiple subsidiaries, joint ventures, or affiliates operating in different regions. It combines the financial statements of all individual entities, including these collaborative and affiliated entities, within a parent company into one comprehensive set of consolidated financial statements.

This process ensures that the financial data from various entities is accurate and consistent and reflects the organisation's overall financial health. By consolidating financial information, businesses can better understand their financial performance, allowing for better strategic decision-making and ensuring compliance with regulatory requirements.

Financial consolidation plays a pivotal role in enhancing organisational transparency and accountability. The consolidated financial statements provide a holistic view of the company's financial stability and profitability, earning the trust of investors and other stakeholders. This consolidated perspective aids in identifying trends, managing risks, and making informed decisions about resource allocation and investment opportunities. 

Additionally, maintaining compliance with regulatory standards through accurate financial consolidation prevents legal issues and penalties and ensures that the company adheres to local and international financial reporting laws. 

Using the right technology to aid the process helps reduce errors, save time, and increase efficiency by eliminating the need to gather and reconcile disparate financial data manually.

Is ERP the right technology? Can it reduce errors and save time for the finance teams? Can it make life easier for finance teams that spend hours together on financial consolidation? Let's find out.

Is ERP the right answer to efficient & effective financial consolidation?

While ERP solution providers, including top ones such as NetSuite, SAP S/4HANA Cloud, Sage Intacct, and Microsoft Dynamics 365 Business Central, often present their products as comprehensive business management solutions inclusive of financial consolidation components, delving deeper is crucial. These financial consolidation features are typically add-ons requiring additional licensing and are built within the confines of the ERP system, limiting their functionality.

ERP systems are designed to primarily focus on transactional processing and operational efficiency, not financial consolidation. They lack some of the sophisticated features required for complex financial consolidation tasks.

While these modules can manage simpler financial consolidation tasks, they may falter when faced with intricate aspects of advanced financial consolidation. Complexities like multi-currency translations, intercompany eliminations and minority interest calculations can challenge the capabilities of standard ERP consolidation modules. On the other hand, a specialised financial consolidation platform is designed to handle these complexities easily, offering more accurate and efficient consolidation.

So, while ERP systems bring many benefits to business management, they may not be the optimal solution for advanced financial consolidation needs, necessitating a dedicated solution for robust, comprehensive financial consolidation.

What are the challenges of using ERP for financial consolidation?

Data integration challenges

Integrating financial data into a single, consolidated view can be incredibly challenging if your organisation uses multiple ERP systems or other data sources. 

The complexity of aligning disparate data structures and potential inconsistencies in data definitions can lead to increased manual errors and time consumption. This causes delays in generating consolidated financial reports, slowing decision-making and affecting your organisation's agility.
 

Lack of automation

Many ERP systems do not fully support the automation of financial consolidation processes. Finance teams must manually handle complex tasks like currency translations or balancing intercompany transactions. 

This also often involves dealing with exceptions, such as unusual intercompany transactions or complex ownership structures. ERP systems may not be adept at handling these exceptions, leading to inaccuracies. These inaccuracies could distort your understanding of the company's financial performance and potentially lead to poor strategic decisions.

Dealing with such complex exceptions manually slows down the consolidation process and raises the risk of human error, potentially leading to inaccuracies in the consolidated financial statements. Often, these inaccuracies could undermine stakeholder confidence and impact the organisation's reputation.
 

Limited scalability

As your company grows, so does the complexity of its financial consolidation needs. New geographies, newly acquired companies, etc., compound the complexity of the data that the finance team handles.

ERP systems might struggle to scale efficiently to meet these evolving requirements. This could hinder your company's growth and development and its ability to produce consolidated financial reports quickly and accurately. This lack of scalability in a fast-paced business environment could limit your ability to respond effectively to new opportunities or efficiently diffuse challenges.
 

Inadequate support for regulatory compliance

ERP systems may not be equipped to handle the ever-changing landscape of financial regulations. Ensuring compliance with different accounting standards across multiple jurisdictions can be challenging when using an ERP system for financial consolidation. Non-compliance could lead to hefty penalties and reputational damage, making this a critical concern.

Lack of audit trials and control

Consolidating financial data from multiple ERP/source systems often presents significant governance challenges. As data flows in from various ERP/source systems, maintaining clear audit trails becomes exceptionally difficult when consolidating at a group level. These shortcomings can compromise transparency, increase non-compliance risks, and harm your business reputation with inaccurate consolidated results.
 

Dependence on technical teams

Using ERP for financial consolidation often involves reliance on technical teams for data extraction and report generation. This can slow down the process and create bottlenecks, especially when quick turnaround times are required for financial reporting. Moreover, this dependence could strain your technical resources and divert them from other critical tasks, potentially impacting overall business operations.
 

Costly customization

While it's possible to customise ERP systems to handle financial consolidation better, this can be an expensive and challenging endeavour. It might require additional resources and expertise for initial setup and ongoing maintenance. Moreover, maintaining these customisations over time as the system upgrades can become difficult, potentially leading to system instability or performance issues. This could result in unexpected costs and disruptions to your financial consolidation process.

The challenges of using an ERP system for financial consolidation are not limited to these. There are many more, like rigid data structure, limited reporting capabilities, etc.

Now, let us see how a full-fledged, cloud-native financial consolidation solution can solve all the above challenges and ensure efficient and effective financial consolidation for organisations.

JustPerform: The consolidation solution you need

Easy data integration
Integrating data with 80+ data sources gives organisations flexibility and simplifies data integration. By automating the process of financial data consolidation, JustPerform eliminates the complexities and inconsistencies associated with multiple ERP systems for data import and data processing.

Thanks to the automated data mapping capability, it aligns disparate data structures, reducing manual errors and time consumption. This speeds up the overall financial consolidation and improves the organisation's agility.
 

Automate complex adjustments
JustPerform's Business Rule Library feature is a game-changer in this scenario. It automates complex tasks like currency translations and balancing intercompany transactions, reducing manual intervention.

The result is a faster, more accurate consolidation process with a significantly lower risk of human error. This not only boosts the accuracy of financial statements but also strengthens stakeholder confidence and safeguards the organisation's reputation. 
 

Scale with ease and agility
JustPerform's 100+ inbuilt scenarios can directly address the scalability concerns. As the company grows and evolves, JustPerform offers adaptability to changing needs and easily handles new geographies and acquisitions. 

The inbuilt scenarios give a head start to the relevant processes rather than starting from scratch. This ensures efficient scaling of financial consolidation processes, enabling quick reporting.

Based on the different exceptions that companies meet, the finance team can build their own models, define new business rules, etc. In a dynamic business landscape, JustPerform offers flexibility and business responsiveness, supporting your growth strategy.
 

Stay ever compliant with regulation requirements
JustPerform's inbuilt IFRS and Multi GAAP compliant reports are designed to tackle the challenges of regulatory compliance head-on. These reports help ensure compliance with various accounting standards across different jurisdictions, reducing non-compliance risk.

Using these templates can avoid hefty penalties and protect your organisation's reputation. With JustPerform templates, the company can always stay compliant and need not worry about the ever-changing compliance requirements, giving you peace of mind and confidence in your financial consolidation.

Complete control of the financial consolidation process
JustPerform addresses the challenges of data access and lack of audit trials with its fine-grain authorisation feature. By providing comprehensive access control, it ensures data integrity during financial consolidation. Unauthorised access is mitigated, leading to accurate reports and informed decisions.

Additionally, JustPerform offers robust audit trails, enhancing compliance and transparency. This makes tracing errors, detecting fraud, and proving compliance during audits straightforward. With JustPerform, you gain control and auditability, reducing non-compliance risks and protecting your business reputation.
 

Be self-sufficient and independent
JustPerform, with its intuitive interface and Excel familiarity, empowers finance teams, reducing dependency on technical teams. Its user-friendly design allows for easy data extraction, report generation, and model building, speeding up the financial consolidation process and eliminating potential bottlenecks.

This not only frees up your technical resources for other critical tasks but also gives your finance team complete control over the consolidation process. With JustPerform, you can achieve self-sufficiency and independence in your financial operations.
 

Customise the consolidation capabilities for unique needs
JustPerform offers flexible customisation options that cater to each business's unique needs. It eliminates the need for extensive resources and expertise, making financial consolidation more efficient and less costly.

Furthermore, JustPerform ensures smooth upgrades, preventing system instability or performance issues. This minimises unexpected costs and disruptions, allowing the finance team to focus on the financial consolidation process without worrying wheather or not the system can meet the company requirements.
 

While ERP systems are invaluable for streamlined operations, their limitations become apparent when faced with the intricate demands of advanced financial consolidation. Opting for a dedicated solution like JustPerform empowers the finance team to capture the complex, nuanced reality of the financial picture easily and precisely.

Forget manual errors, sluggish reconciliation, and compliance woes. JustPerform automates complex tasks and scales effortlessly and guarantees regulatory compliance, freeing your finance team to focus on strategic insights and decision-making.

Step up from managing snapshots to crafting a vibrant financial masterpiece. Choose JustPerform and unlock the benefits of effective and efficient financial consolidation.