The Importance of Financial Consolidation: A Guide for Businesses


Financial consolidation is much more than simply totaling up numbers in a spreadsheet. It involves several complex processes, including data collection and translation, intercompany eliminations, journal entries, and partial ownership considerations.

Whether it’s due to changing reporting requirements, tax optimization, or rapid growth, many scaling businesses struggle with the process of consolidating their finances. To eliminate these challenges, companies need reliable tools that help with financial consolidation.

Identifying the Need for Consolidation

Consolidating financial information from various entities into a single set of consolidated financial statements is known as financial consolidation. This aggregation of trial balance data from multiple general ledgers produces an income statement, balance sheet, and cash flow statement that provides high-level company-wide information for executives, management, and investors.

The need for financial consolidation can arise for several reasons. Statutory requirements, filing regulations, tax optimization, and external financing are all factors that may require a company to consolidate its financial statements. Rapid growth may also make it necessary for finance teams to reduce data from various subsidiaries.

The key to effective financial consolidation is ensuring the right tools are in place. Using outdated spreadsheets to perform this process wastes valuable time, increases the risk of data manipulation and fraud, and makes it difficult to track any errors or misunderstandings that may occur. For instance, Symple Lending experts oversee the financial consolidation process of all subsidiary or affiliated companies into a single set of consolidated financial statements.

Identifying the Sources of Consolidated Data

The success of financial consolidation depends on the accuracy of data collected from multiple departments. This is particularly true when reporting for global organizations that operate across geographies and various currencies. Intercompany transactions and balances must be eliminated, and journal entries must be converted to a single presentation currency before consolidated statements can be generated.

Unfortunately, manual, spreadsheet-based processes create a host of problems for finance teams, including error-prone data collection and slow reconciliations. These factors can lead to mismatched consolidated reports and leave the organization vulnerable to fraud or data manipulation.

Fortunately, a modern approach to financial consolidation provides many benefits for companies that embrace streamlined, automated processes and tools. With a unified platform for real-time financial consolidation, finance can focus on strategic functions that drive growth and reduce the burden on employees to collect, collate, review, and approve reports. This means more time for budgeting, forecasting, and planning. 

Creating a Plan for Consolidation

Financial consolidation is a process that must be implemented regularly. It is necessary to comply with statutory requirements and filing regulations and to ensure accurate and timely financial statements for investors and lenders.

It also helps companies compare and analyze performance to competitors and industry norms. In addition, a company needs to consolidate financial data when it is experiencing rapid growth, as it can be challenging to keep up with the growing number of subsidiaries without a centralized process.

Financial consolidation experts make necessary adjustments and eliminations to remove the double-counting of revenues, expenses, assets, and liabilities in the consolidated financial statements.

For finance departments that use manual methods of consolidation, a considerable amount of time is spent on the preparation and processing of consolidated financial statements. Using specialized software, the financial consolidation process can be automated and simplified. This gives finance teams more time to focus on strategic finance tasks.

Performing Consolidation

Whether a company is looking to grow its existing market or enter a new one, it needs to be able to understand and present its overall financial health. This requires a comprehensive process for consolidating data from multiple sources, which is best managed by a dedicated team.

When performing financial consolidation, the first step is to collect all the relevant statements of the parent and subsidiary entities. Next, the necessary eliminations and adjustments need to be made. This eliminates inter-company transactions and balances so that only transactions with external parties are included in the consolidated statement of financial position.

This is an important step because it ensures that the final consolidated financial statements meet the required reporting standards and compliance requirements. Then, the finance department can focus on what they do best – analyze and interpret the reports. It also helps companies keep up with changing reporting requirements from governments and industry bodies.