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Consolidated financial statements provide an assessment of the overall health of a group of companies.

A Business Owner’s Guide to Consolidated Financial Statements

In today’s competitive business landscape, any small detail can make the difference between success and failure. Companies are aware of this, and as a result, many are consolidating their financial statements. This is the process of merging financial data from multiple business entities within an organization to determine their performance.

Consolidated financial statements are becoming more crucial for larger, multi-state businesses. To keep your finance team at the top of its game, you must discover ways to streamline your financial consolidation process in order to produce accurate and actionable financial reports and insights.

When Are Consolidated Financial Statements Needed?

More businesses are seeking to grow through acquiring stocks of other businesses. This type of acquisition can be a strategic investment as well as an entry point into a new business, while also offering a consistent source of supply.

Parent and subsidiary companies, however, continue to be managed by the same central management structure. As a result, it’s beneficial to compile a single set of consolidated financial statements that include the parent company’s financial data with those of its subsidiaries.

The accounting information of a group of firms is presented as if they were a single organization in consolidated financial statements. As a result, this financial report enables entrepreneurs to have a clear vision and a comprehensive understanding of their company’s economic reality.

The Advantages of Consolidating Financial Statements

Companies attempt to achieve their “one version of truth” through the financial consolidation process. This is especially true for companies that are:

  • Multinational
  • Growing steadily
  • Have numerous divisions

Financial statement consolidation enables a presentation of the actual picture of a business’s assets.

The following are the main benefits of financial consolidation:
  • It evaluates the organization’s solvency or liquidity.
  • Aids in the decision-making process for future investments.
  • It enables the evaluation of takeovers, mergers, and other business transactions.
  • When requesting for credit, it serves as a guarantee.
  • Tools for better management are provided.

How To Consolidate Your Financial Statements and Streamline the Process

Traditionally, financial consolidation was a demanding and time-consuming job undertaken for each branch or subsidiary using complex spreadsheets. Consolidating financial statements entails a thorough evaluation of the information to ensure that it is consistent, expressed in the same currency, and has the same cut-off date. Only in this manner can unified data be shown in the report.

The following are the steps to take in order to streamline your financial consolidation process:

1. Obtain individual financial statements for the parent company and its subsidiaries.

2. Determine whether the companies’ accounting policies are consistent. 

3. The companies’ financial statements must have the same due dates. 

4. Ensure that the financial statements of both entities are expressed in the same functional currency. It should be noted that if they are issued in different currencies, you will need to convert the financial statements.

5. Combine the financial data of the parent and its subsidiaries. 

If you’re interested in creating an efficient financial consolidation structure, apply these four techniques:

1. Make Your Financial Consolidation Process Automated

By letting everyone on your finance team and throughout the company work from the same statistics, automated cloud-based solutions for storing financial data can improve data quality and decrease the need for tedious, manual reconciliation.

Automation can also manage validation and reporting, which speeds up consolidation while lowering error rates.

This extra time can be used by your business to focus on other parts of consolidation that cannot be easily automated, such as report analysis and strategy optimization.

2. Simplify data collection and do real-time consolidation

Simplify data collection for your team by reducing the need for manual data collection from several sources. Cloud-based technologies can update and share your company’s financial data across numerous systems effortlessly.

Technology can instantly discover new trends or data changes. This will minimize slowdowns that could occur when the incoming flow of data contains significant changes that must be accounted for.

3. Make use of the appropriate tools

Modern technology can help you improve your consolidation process significantly. The financial consolidation process is filled with detailed, data-intensive, and tedious operations. Even a dedicated staff may struggle if they don’t have the necessary tools.

Cloud-based applications enable you to share financial data across all of your systems. Furthermore, you can access the data from any location, at any time, and on any device.

The seamless interface of these tools with your finance platform saves your company from having to deal with any setup or maintenance issues. Instead, your customers receive better experience and your team is provided with tools to help you close faster.

Conclusion

Consolidated financial statements assist in budgeting and analyzing the financial reports of a group of companies without needing to look into each entity individually. Having a dedicated team promotes process standardization, consistency, and accuracy of your financial outputs.

Need help in preparing your consolidated financial statements? Contact Today CFO for a free, no obligation, consultation!

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