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 is particularly challenging for organisations using multiple ERP systems or other external data sources, such as legacy systems, specialised software, or spreadsheets. ERP systems, even with add-ons, struggle to handle non-ERP data, leading to silos and inconsistencies.

Aligning disparate data structures and definitions often requires significant manual effort, increasing the risk of errors and prolonging the consolidation process. These delays not only slow down the generation of accurate financial reports but also hinder timely decision-making, impacting organisational agility.
 

Data residency challenges

One critical challenge of using ERP systems for financial consolidation is compliance with data residency requirements. In many countries, regulations mandate that financial data be stored and processed within their borders to ensure compliance with local laws, such as data protection and sovereignty rules.

Traditional ERP systems often centralise data in a single global location or a few regional data centres, which may not align with these requirements.

This lack of flexibility can create legal risks, increase the complexity of compliance, and limit operational efficiency. Organisations operating in regions with strict data residency rules must consider alternative solutions that offer localised data storage while maintaining seamless consolidation capabilities.
 

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.
 

Multi-GAAP and regulatory compliance challenges

Global organisations operating across jurisdictions face the complex task of adhering to multiple accounting standards, such as IFRS, US GAAP, or country-specific regulations. While ERP systems are robust in transactional accounting, they are not inherently designed to handle simultaneous multi-GAAP consolidation efficiently. These systems often lack the flexibility to dynamically adjust to varying reporting frameworks, requiring extensive customisations or workarounds to accommodate diverse standards.

This lack of built-in multi-GAAP functionality can increase manual intervention to reformat or reconcile financial statements for compliance purposes, significantly heightening the risk of errors. The challenge becomes even more pronounced during audits or regulatory reviews, where discrepancies in reporting or delayed responses to compliance inquiries can erode trust and credibility.

Furthermore, as accounting standards evolve or new regulations emerge, ERP systems may struggle to keep pace, requiring frequent updates and IT involvement. This not only adds to operational costs but also burdens finance teams with additional administrative overhead, diverting focus from strategic financial analysis. Ultimately, the inefficiencies in managing multi-GAAP compliance can delay financial close processes, disrupt decision-making timelines, and expose the organisation to potential regulatory penalties.
 

Inefficient notes to accounts process

Preparing notes to accounts, a vital component of financial reporting can be particularly cumbersome with ERP systems. While ERP solutions excel in handling transactional data, they often fall short in facilitating the detailed documentation and narrative required for notes to accounts. Many ERP-based add-ons lack the intuitive workflows, built-in templates, and automation features that streamline this process.
 

Limited scalability

As organisations grow, their financial consolidation needs become increasingly complex, driven by factors like expansion into new geographies, acquisitions, and evolving ownership structures. ERP systems often struggle to scale efficiently to accommodate these changes.

Adding new entities, managing intercompany eliminations, or handling intricate ownership hierarchies can become cumbersome and resource-intensive. This lack of scalability not only slows the consolidation process but also increases operational costs.

In a fast-paced business environment, these limitations hinder the ability to produce accurate consolidated financial reports quickly, respond effectively to opportunities, and navigate challenges efficiently.
 

Lack of audit trials and control

Consolidating financial data from multiple ERP and non-ERP source systems often presents significant governance challenges. As data flows in from various ERP and non-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.
 

High dependence on tech teams and costly customisations

ERP-driven financial consolidation often requires extensive IT involvement, making the process heavily dependent on technical resources. From setting up consolidation rules to adjusting for organisational changes such as acquisitions or restructuring, finance teams frequently rely on IT for customisations, data extraction, and report generation. While ERP systems can be customised to handle financial consolidation better, these modifications are often expensive, complex, and resource-intensive.

Maintaining these customisations over time poses additional challenges, especially as systems undergo upgrades, which can lead to instability, performance issues, or disruptions in the consolidation process. This dependence not only reduces agility for finance teams but also creates bottlenecks when quick turnaround times are needed for financial reporting. Furthermore, it diverts technical resources from other critical business operations, increasing costs and slowing overall productivity.

These challenges are compounded by ERP systems’ inherent limitations, such as rigid data structures and limited reporting capabilities, further hindering efficient and agile financial consolidation.
 

JustPerform: The consolidation solution you need

Seamless data integration

JustPerform simplifies data integration by seamlessly consolidating data from over 80+ sources, including non-ERP systems, legacy platforms, specialised software, and external spreadsheets. Unlike ERP systems that struggle with disparate data structures, JustPerform’s automated data mapping aligns and integrates these structures efficiently.

This eliminates silos and inconsistencies, reducing manual errors and freeing up your finance team to focus on strategic activities. By automating data import and processing, JustPerform accelerates the generation of accurate consolidated financial reports, improving agility and empowering timely decision-making.

When it comes to handling data residency challenges, JustPerform has the ability to create summaries of the data residing in other geographies, that can be used for financial consolidation. This saves a lot of costs and time improving the efficiency of the process.
 

Advanced automation for complex tasks

With JustPerform’s Business Rule Library, manual interventions in complex tasks like currency translations, intercompany eliminations, and exception handling have become a thing of the past. Unlike ERP systems that often require extensive manual effort, JustPerform automates these processes with precision, ensuring accuracy and speed.

This automation not only reduces the risk of errors but also ensures compliance with accounting standards, safeguarding your organisation’s reputation. As a result, your finance team can produce accurate financial statements faster, instilling confidence among stakeholders and enhancing strategic decision-making.
 

Scalable consolidation for growing businesses

As organisations expand across geographies or through acquisitions, JustPerform’s scalability ensures that your consolidation processes remain efficient and adaptable. The platform’s 100+ inbuilt scenarios easily handle adding new entities, complex ownership structures, and evolving intercompany dynamics. These predefined scenarios act as ready-to-use templates, providing a head start rather than requiring a time-intensive setup from scratch.

Moreover, JustPerform allows finance teams to create custom models and rules, ensuring flexibility in dynamic business environments. This scalability reduces operational costs and supports rapid, accurate reporting, enabling your business to respond effectively to opportunities and challenges.
 

Streamlined notes to accounts process

JustPerform redefines the notes-to-accounts process with intuitive workflows, built-in templates, and automation features that simplify documentation and reporting. Unlike ERP systems that lack such capabilities, JustPerform enables finance teams to handle detailed narratives and compliance requirements seamlessly.

With real-time collaboration tools, reconciling inputs and securing approvals becomes efficient, even for decentralised operations. This streamlined approach not only reduces errors and manual effort but also accelerates reporting cycles, ensuring that your organisation meets tight deadlines with confidence.
 

Simplified multi-GAAP and regulatory compliance 

JustPerform tackles the complexities of multi-GAAP compliance with inbuilt templates designed for IFRS, US GAAP, and other accounting standards. These templates eliminate the need for costly ERP customisations or extensive manual interventions, dynamically adjusting to diverse reporting frameworks.

The platform ensures real-time compliance, reducing errors and protecting against regulatory penalties. JustPerform also stays updated with evolving standards, ensuring that your financial processes remain compliant without the added burden on your finance and IT teams. This allows you to focus on strategic goals while maintaining trust and credibility during audits or regulatory reviews.
 

Comprehensive control and audibility

With JustPerform, governance and control over financial consolidation are enhanced through fine-grain access controls and robust audit trails. Unlike ERP systems that struggle with tracking data access and maintaining clear audit trails, JustPerform ensures data integrity by preventing unauthorised access and enabling traceability.

These features simplify error detection, fraud prevention, and audit compliance, making financial processes more transparent and secure. As a result, you gain greater control, reduce non-compliance risks, and safeguard your organisation’s reputation.
 

Self-sufficiency and tailored flexibility with minimal disruptions 

JustPerform’s intuitive, Excel-like interface empowers finance teams to take complete control of the consolidation process, minimising reliance on IT. From data extraction to report generation and model creation, the user-friendly platform eliminates technical bottlenecks, accelerating financial close cycles and enhancing productivity.

At the same time, JustPerform’s customisable features adapt seamlessly to your unique business needs, eliminating the high costs and complexities of ERP modifications. With smooth upgrades that maintain system stability and performance, JustPerform minimises unexpected disruptions and ensures accurate financial results. This combination of independence and flexibility enables your finance team to operate efficiently while focusing on strategic priorities.
 

Conclusion

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.