DO YOU USE SPREADSHEETS

Budgets, Forecasts, Management Accounts, Year-end Reports   

You don’t need to go to extremes to remove the pain and the risk in using spreadsheets - There are dependable, fast and easy solutions available to automate and manage your consolidation needs.

The Catch-22

By using spreadsheets, one can easily design extensive financial reports with a wide range of analysis and design options. But when a business grows in size and complexity, you start to experience certain limitations when using spreadsheets for the consolidation and reporting of financial results.

Coupled with the pressure from your various stakeholders and the push of ‘best practice’ what should be simple becomes complicated and you start looking at software solutions to replace your current process.

A key challenge is the many solution providers or advisors that will try and convince one to implement extremely time consuming solutions that just cost too much, mainly because the requirement is not clearly defined upfront.

The Sweet Spot

In this article we explain why and highlight the key points you should focus on to ensure a fast and cost effective way of implementing a consolidation solution. One that will provide you with all the necessary automation, analysis & reporting capabilities and database security your organisation needs.

Yes, there are various comprehensive accounting systems available in the market today that cater for large to medium organisations. And many large organisations – with multiple cost centres or business units  – use Enterprise Resource Planning (ERP) solutions to manage their transactional data and financial reporting.

Yet, many of these companies still use spreadsheets for the collation, consolidation and reporting of their monthly or year-end results, their budgets or even their forecasts. When asked some of the reasons are:

• “Our accounting system does not cater for budgeting or forecasting” or “our accounting solution is not user friendly or flexible enough to generate budgets or forecasts specific to our unique environment”;
• “We require our reports to look a specific way and it’s difficult and expensive to maintain such reports in our accounting system especially considering continuous changes to our reporting needs or ledger structures”;
• “Our accounting software does not cater for ‘consolidation’” or “the consolidation functionality of our accounting application is not flexible or efficient enough”;
• “Spreadsheets allow me to easily generate the formulas and create analysis tools unique to me. Depending on software consultants every time a change is required is far too time consuming and expensive in business”.

A typical example:

Reports (management accounts, budgets, forecasts, etc.) are typically created in spreadsheets and then sent to the various cost centres. Users then complete their ‘packs’ and send them back to the creator – who then generates a consolidated file, creating formulas and links across the multiple workbooks.

The Problem with Traditional Consolidation

• It takes far too much time and effort to consolidate, build and maintain links, fix errors and make changes;

• There is no database control. Files sit in different folders and you don’t always know what the latest is. The files also sit on an individual’s machine and one cannot easily recall reports from different periods.

• No ‘drill-down’ ability. What if a board member asks you for a breakdown per cost centre on advertising costs? You then need to create a new report with formula linking all the different spreadsheets. You should be able to click and drill to see the breakdown per cost centre.

• Lack of consistency and accuracy. Reports are often modified (through inserting rows or columns) and they don’t always capture to the format requested. This makes consolidating difficult. You need to force a standardised format to ensure conformity.

You cannot easily post elimination and consolidation journal entries.

What type of reporting solution should one consider?

This is always a difficult question, as many software vendors tend to sell their products and time, based on fear, complexity and over-complicating the scope of one’s business environment. They also love up selling the ’bells & whistles’ and the ‘nice-to-have’ features - which are usually completely unnecessary, difficult to maintain or slows down the end solution – None of which translates into efficient reporting…

Let’s look at some of the available options to streamline this financial reporting issue:

Option 1: Employing the services of a software development company to design a bespoke software system based on your unique environment.

The challenge here is that it normally takes a very long time to implement (with many tweaks and fixes in between) and by the time you have a workable system, your requirements have already changed – which means you are likely to keep the software consultants around on contract to make the necessary changes. These software development companies often rely on additional billable hours from working on a ‘time & material basis’. In most cases the final cost of implementation is well above the initially quoted project fee.

Option 2: Scale the functionality of your existing system to include consolidation, budgeting or forecasting etc.

 As comprehensive as some of the accounting systems are, they typically fall short with respect to budgeting and forecasting capabilities as well as the ability to capture the additional information or notes required to generate cash-flows or year-end reports. Certain top tier solutions do cater for this in the form of specific functional modules. However in most cases you will require the services of a software consultant (or a team of consultants) who will then take up a considerable amount of time and company resources to complete the additions.

Option 3: Implement software specifically designed to manage the collation and consolidation of your financial reports.

There are several options available including software applications, which form part of many applications provided by top tier companies.

For all 3 options above - there are a few things to consider:

They take Time… Many companies will quote you a fixed cost for implementation; however in most cases the implementation time line will be very long. From at least six months to well over two years. In most cases the end cost of the project is well above the initial quoted fee as the requirements and the project scope grows. In all cases your requirements will shift severely if a project is expected to take 6 months or longer.

They take Money… a rule is the longer it takes the more expensive it becomes. Companies, who generate an income from charging an hourly fee for the implementation of software, would want to be able to do the work in the longest possible time in order to generate the most possible billable hours. Therefore they rely on complexity and might take far more time than what is actually required. Companies that work on a fixed cost tend to ensure that they utilise their resources effectively and sparingly in order to complete the project on time and in scope.

And things Change… From changes in IFRS requirements, to new reporting line items, to new cost centres or to new reporting formats. In most cases companies are not equipped to modify their existing solutions to cater for the change in requirements. They should be able to, but do tend to depend too heavily on the suppliers who did the original implementation to make these changes for them. You need to consider whether or not the system will allow you to make the changes yourself. If the system is designed in a way, which will allow you to make the changes, you may still want to contract consultants to perform the work due to time constraints, with the key difference being that you will know how long it should take them to perform the work.

Don’t forget that the faster the implementation, the more likely the adoption and success of the solution. You can lose the interest and effective input from several parties when an implementation takes more than 4 months and your requirements will inevitably change.

In summary, these are the key points you will need to consider when selecting a reporting solution:

1. Implementation time. Ensure you implement a solution that can be implemented within a few weeks to ensure fast adoption through proper scoping of your specific reporting requirements;
2. A project implementation fee quoted on a fixed cost basis (with assurances that there will be no scope creep and increase in cost). Remember, if it’s a lengthy project, the fixed cost estimation does not matter as you will end up spending more than what you are led to believe!
3. A system that is ‘truly’ self-maintainable. Ask yourself - are you able to make quick changes without needing to contract software consultants at huge expense, that you don’t really have any control over?

You see, your accounting and consolidation process is in fact not as complicated as is seems. You can implement a fully functional, simplified consolidation system that doesn’t cost you millions of Rands nor take up unnecessary amounts of valuable time. All you needed was the formula for the sweet spot.