Every day, companies make decisions based on the data they collect. Most of us have a sea of data at our fingertips—whether we need customer information, transaction data, or marketing metrics, the likelihood is a wealth of data is available. So why then do so many companies struggle to use data effectively?
One of the significant challenges of financial consolidation is understanding whether or not the data is trustworthy and can be relied on to make critical decisions—a challenge that is particularly relevant for companies scaling quickly and adding multiple entities.
A study by Gartner found that poor quality data costs the average organization $9.7 million a year and the U.S. economy $3.1 trillion annually. This blog explores why poor data management ends up costing multi-companies, and the most effective solutions for data management strategy in financial consolidations.
Why does poor data management cost multi-companies so much?
Data is central to how we do business, yet many can fail to consider its effective management. Often, information is sourced from so many disparate systems that it can be impossible to consolidate it or obtain a single source of truth.
The situation is further complicated as companies acquire new entities and scale operations. Often the amount of data to manage escalates considerably and ends up being mishandled without suitable systems and best practices in financial consolidation in place.
For instance—in the case of mergers and acquisitions—it’s common to see bottlenecks arise due to crucial data being pulled from incompatible systems and manually inputted to a parent system. This sort of process results in data riddled with errors as a result.
Data management is crucial to your company’s success, particularly when it comes to the sensitive financial information required for financial consolidations. Companies simply cannot afford the risk of poor data management. It can lead to significant bottlenecks, stressed accounting teams trying to align various financial reports, and non-compliance with government fines resulting in hefty fines (to name just a few of the ramifications).
1. Audit your current data and systems to identify areas for improvement
Poor data management is possible to fix. Often it will require your company as a whole to look for ways to align various entities and subsidiaries to ensure that financial consolidation is possible. It’s easy to identify where issues with data management arise. To build an effective data management strategy, you will need to audit your current data first, then make sure all new information meets the seven standards of reliable data:
- Extracted from a credible source
- Accurate and free from error
- Complete and comprehensive
- Consistent across all systems
- Standardized format
- Collected on time
- Current and relevant
Further reading: 4 ways ERPs simplify financial consolidation for multi companies
2. Develop standardized data management policies across all entities
Having a well-structured framework for data management for financial consolidations makes it easier to identify and rectify issues early on. To gain better insights, your business needs to have clear workflows outlining how to manage data for each of the five steps in data analysis: data definition, collection, cleaning, analysis, and application. By implementing consistent policies across all entities, your company can avoid much of the confusion that often follows a major shift in intercompany financial management, like a merger or acquisition.
If you’ve realized that you’ll need to revamp your finance department’s entire approach to data management or want to build a customized strategy from scratch, we recommend reading our blog covering ten best practices in data management for finance teams.
Further reading: Financial consolidations for multi-companies (FAQs answered)
3. Update security protocols to address data management for financial consolidation
Poor data management can cause significant security concerns for companies consolidating financials. Transferring data between various entities and systems can weaken security measures and introduce the risk of data breaches. If you’re interested in learning more about the security issues that multi-companies face—particularly mergers and acquisitions—you should check out our blog on the four common security issues they face.
Companies must be vigilant when consolidating data from various entities, often leaving sensitive information vulnerable to cyber-attacks if data is transferred between multiple databases. With stories of data breaches and their significant penalties making headlines, no company is immune to the risk posed by cyber threats. That’s why businesses must prioritize scalable security tools that offer impenetrable encryption and support secure sharing. Be on the lookout for the following features:
- TLS/SSL encryption
- Two-factor authentication
- Advanced firewalls
- Tiered access levels based on projects, job roles, and functions
It’s also a good idea to provide security awareness training sessions twice a year to encourage your team to stay vigilant and updating on the latest phishing tactics.
4. Stay up to date with compliance and data protection regulations
Establishing a culture of compliance within your organization is vital to safeguarding your data. You must not only remain updated on the latest changes to accounting standards like ASC 810 or IFRS 10, but you must also comply with any industry- or region- specific data protection regulations. Consult your risk and security officers about new technologies that feature autonomous data capabilities. While no software can guarantee compliance, automation can greatly improve data accuracy and augment your team’s productivity. Additionally, your policies should complement your technologies to create sustainable workflows.
5. Leverage automation to accelerate intercompany transaction processing
Your finance team can significantly reduce reporting errors by automating intercompany transaction processes, like matching, reporting, and eliminations. When done manually using spreadsheets, these tasks are time-consuming and lack proper data control, leading to errors that may only surface during the final stages of financial consolidation. Rectifying such errors can be burdensome and may require sifting through a large volume of data to find even a single mistake. Automating these processes saves time and reduces the need for triple-checking data integrity, empowering your team to master intercompany transactions.
Further reading: A comprehensive guide to intercompany reconciliation
6. Invest in an integrated, aligned, and centralized solution
A study by Bloomberg found that over 40 percent of respondents expected centralized, cloud-based technologies to be one of the most significant drivers of change in data management. By opting for centralized data management, you accelerate financial consolidations and decision-making processes, aligning all entities in a single database.
However, not all solutions are created equal. To set your team up for success, you need to start researching as soon as possible and have a plan in place for post-merger ERP integration. When investing in new software, you must prioritize the following six essential financial consolidation features:
6 essential features of financial consolidation software:
- Centralized environment for intercompany transaction processing
- Financial consolidation software should exist in the cloud
- Real-time consolidated reporting
- Enables comprehensive compliance management
- Scalable security features to ensure the protection of all data
- A customer service team and comprehensive training to enable smooth implementation