Financial Consolidation Process: Each Step Explained in Detail

There are a number of benefits to pursuing financial consolidation. Perhaps the most obvious benefit is that it can help you achieve a more accurate view of your overall financial picture. 

When you consolidate your debts, you streamline your monthly payments and reduce your overall interest payments. 

This can make it easier for you to stay on top of your finances and plan for the future. Additionally, consolidating your debts may also improve your credit score, which could make it easier for you to obtain loans or lines of credit in the future.

So, What is financial consolidation?

Financial consolidation is the process of combining two or more financial statements of individual companies into a single financial statement. This is done to give a more accurate view of the company’s overall financial position. The consolidated financial statement will show the assets, liabilities, and equity of the combined companies as if they were a single entity.

  1. Financial Consolidation is a Process 

The process of financial consolidation is one that can be incredibly helpful in terms of streamlining a company’s finances and creating a more cohesive overall picture of the organization’s financial status. By bringing together all of a company’s financial data in one place, it is possible to more easily see where improvements can be made and where potential problem areas may be. Additionally, the act of consolidating one’s finances can also make it easier to obtain financing or loans, as potential lenders will have a clearer view of the company’s overall health.

  1. Financial Consolidation is Continuous

Many companies find that financial consolidation is a continuous process. This is because, as a company grows and expands, its finances become more complex. Additionally, as a company acquires other businesses, it must combine their finances into one consolidated report. Financial consolidation can be a time-consuming and complex process, but it is essential for accurate financial reporting.

  1. A Summary of Your Current Position

A financial consolidation is a summary of your current standing. It includes an overview of your assets, liabilities, and net worth. This information can be helpful in determining your overall financial health and in developing a plan to improve it.

But, financial consolidation is not a standalone function

Financial consolidation is not a standalone process and should be done in conjunction with other strategic planning initiatives. For example, if the goal of the consolidation process is to improve organizational efficiency, then the organization’s overall strategy should be examined to ensure that the consolidation effort supports and aligns with broader strategic goals. Additionally, the organization’s performance management system should be reviewed to ensure that it is aligned with the consolidation goals and supports continuous improvement. Finally, communication and change management plans should be developed to ensure that all stakeholders are aware of and understand the changes taking place as a result of the consolidation effort.

Financial Consolidation Process: Explaining Each Step

A company can consolidate its financial statements by combining the balances of two or more companies into a single set of financial statements. The financial consolidation process requires a step-by-step process to ensure that nothing is missed during the consolidation phases. Here, we define these steps and explain their purpose. 

Shortlist Entities That You Want to Consolidate

The consolidation process begins with the identification of companies that will be included in the consolidation. This can be done in a number of ways, such as by size, industry, or geography.

Evaluate Information About Assets & Liabilities of Entities 

The second step is to assess the financial condition of each company. This includes reviewing each company’s balance sheet and income statement.

Determine the value of each company’s assets and liabilities

The third step is to determine the value of each company’s assets and liabilities. This can be done by calculating the fair value of each asset and liability or by using market prices if they are available.

Calculate the net value of each company

The fourth step is to calculate the net value of each company. This is done by subtracting the value of each company’s liabilities from the value of its assets.

Combine the net values of all companies into a single entity

The fifth step is to combine the net values of all companies into a single entity. This can be done by adding up all the net values or by using a weighted average approach.

Things to Note During Financial Consolidation Process

  • A company can consolidate its financial statements by combining the balances of two or more companies into a single set of financial statements. 
  • The consolidated financial statements will show the assets, liabilities, and equity of the combined companies as if they were a single company. 
  • The consolidation process is used when one company has controlling interest in another company. 
  • A company has controlling interest in another company if it owns more than 50% of the voting shares of the other company. 
  • The consolidating company is called the parent company, and the other companies are called subsidiaries. 
  • The consolidation process must be done in accordance with International Financial Reporting Standards (IFRS).

Tools Used During a Financial Consolidation Process

Finance professionals use multiple data analytics tools for consolidating the data of different entities. Let’s read about some of the most popular tools.

  1. Spreadsheets 

The spreadsheets help finance and accounting professionals consolidate the financial information for a company. With spreadsheets, they are able to see where entities are making money and where they are losing money. This information is important as stakeholders make decisions about the future of the company based on complete calculations and accurate data offered only in spreadsheets.

  1. Financial Applications

There are a number of financial applications available for consolidating financial data such as Acterys. These financial consolidation applications can help a company to gather all of its financial data in one place so that it can be easily analyzed. This can help the company to identify areas where it may be able to save money or make more money. Additionally, a financial consolidation application can help a company to prepare its financial statements more quickly and easily.

  1. Ledgers or Databases

The digital databases for financial consolidation provide a number of advantages for businesses. The most obvious advantage is the ability to quickly and easily merge data from multiple sources into a single report. This can help businesses detect financial problems and trends sooner, and make better decisions about where to allocate their resources. Additionally, the databases can help businesses automate many of the tasks involved in financial consolidation, such as creating custom reports and tracking changes in financial data over time.

Acterys enables powerful financial consolidation, reporting, planning & forecasting for unlimited data sources including MYOB, Quickbooks, Xero, and Dear Inventory.   

Get started in minutes and access, single company or consolidated results in interactive dashboards and reports in Power BI or Excel exactly customized to your needs. 

Expert in Power BI visualizations & forecasts. I love to share my knowledge about Power BI & its connected apps on this blog. Email me for queries.

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