How PFM services can help to overcome challenges in financial consolidation
Financial consolidation is when an organization gathers financial data from all its departments for analysis. It’s a fundamental process for businesses as it allows them to gain a better understanding and control of their finances. Due to its importance, organizations often use all kinds of tools to ensure their financial consolidation process goes smoothly. PFM, short for Public Financial Management, is a prime example of such a tool.
What Are PFM Services?
PFM services or systems are originally designed to help government agencies centralize their financial data. Its main functionality is to connect multiple departments or data sources and funnel all the data into a single place, which is often a platform. This is to ensure that government agencies are aware of the organization’s overall financial health so they can act accordingly.
In other words, PFM services and systems offer government agencies a single solution for planning, budgeting, and forecasting existing financial data in the most streamlined fashion. Though they were initially designed to help government agencies manage their finances, PFM services can be a vital component of the financial strategy of companies. After all, their supposed benefits are perfectly suited to overcome the challenges of financial consolidation.
What Are The Common Challenges In Financial Consolidation?
Though the idea behind financial consolidation is quite simple, it can be tricky, especially if the organization is large. Below are some of the most common challenges it may pose:
- Manual data entry errors: If an organization’s financial consolidation process involves entering financial data manually, there’s a high possibility of data inaccuracies. Missing digits and duplicate values are examples of these errors.
- Calculation errors: Just like data entry, it’s also possible to make calculation mistakes, like using the wrong formula and converting currency incorrectly.
- Financial consolidation can get tedious: An organization will most likely have several financial statements from different departments and subsidiaries. To consolidate all the data, the company must invest a few days or weeks of work.
- Integration issues: It’s not uncommon for every branch or department of a company to use different reporting tools. While it may not pose a problem initially, the disparity between the systems can result in an even more tedious consolidation.
- Reporting compliances are continuously evolving: Financial reporting standards, compliance regulations, and statutory requirements are continually changing. As the company grows, it becomes more difficult to keep up with these constant changes.
How PFM Services Overcome Challenges In Financial Consolidation
While there’s no one-size-fits-all solution to overcome all these challenges, PFM services have proven to be quite helpful in that regard. Here’s how PFM services can help with these issues.
1. PFM Services Promote Full Traceability
PFM services aim to create a system where you can trace every piece of data back to its source, whether it’s from a different department or a separate subsidiary. With full traceability, this means that if a piece of data that isn’t supposed to be in the system finds its way to the platform due to an employee’s or worker’s mistake, the software can quickly detect the mishap and rectify the error. This minimizes the likelihood of manual data entry and calculation errors in financial consolidation.
2. Automates Tedious Finance Tasks
One of the main selling points of modern software is automation. PFM systems are no exception, as they’re known for automating numerous tasks, including particularly tedious ones.
Currency conversion and calculations are examples of tasks that PFM systems should be able to automate to some degree. Not only will this automation accelerate the financial consolidation timeline, but it can also reduce the likelihood of errors caused by manual work. Certain PFM service providers can even automate the financial data collection process altogether.
3. Provides An ERP System
Most PFM services come with an Enterprise Resource Planning (ERP) system. The system consists of applications that are already integrated with one another. Though it’d require a company to overhaul the existing reporting systems of each department or branch, it can help significantly in future financial transactions. There would no longer be a need to manually connect data sources, as they’re already connected with one another through the system.
4. Highly Configurable
When performing financial consolidation and creating reports, a company must comply with international, local, and industry-specific requirements. Otherwise, the organization can be fraught with legal troubles for allegedly misrepresenting accounting to manipulate share prices.
PFM systems can be a solution to this problem as they often have highly configurable requirements. What that means is you can add, remove, or edit statutory, compliance, and reporting requirements in the system. By doing so, you can ensure the platform handles financial data in compliance with the requirements and regulations that apply to your company.
The Bottom Line
As much as you’d like to invest in PFM services right away, one must keep in mind that it’ll bring a huge change to the company. Not only that, but it may also take a while to deploy the system if you push through with the decision. As such, it makes sense why you’d want to learn more about the service first. At the very least, you now have a better understanding of PFM services and how beneficial they can be to your organization, specifically with financial consolidation.