The news these days is full of stories on corporate expansion through merger and acquisition – and in today’s markets, companies continue to look for opportunities to expand globally. While a global strategy has become essential for businesses to succeed, it also brings about several challenges, particularly from the financial side.
Global expansion can lead to headaches for core financial functions like budgeting, planning, forecasting and reporting. Often times, with workforce planning in one system, P&L and balance sheet planning in another system, and sales planning in yet another, the fragmented structure of ‘newly global’ or ‘recently expanded’ companies leads to additional operations and maintenance costs, not to mention compliance issues.
The Problems Are Not Merely Internal
Competition continues to be fierce, and as a company extends their geographical reach, they must be able to deal effectively with external pressures, particularly, again, on the financial side. Long gone are the days when organizations could manage their business based on a traditional annual budget. Companies need flexible budgets, but don’t always have the tools or knowledge to manage them.
Further, global companies must meet multiple, global statutory requirements, including IFRS, GAAP and other country specific regulations. To accomplish this, companies must consolidate their financials at various levels, including legal entity, group, country and region, by performing inter-company eliminations and consolidations of ownership to prepare statutory reports.
Despite these challenges, companies hesitate to invest in tools and training that could significantly improve their performance. This can lead to the following scenarios:
- Financial closes are consistently late due to an inability to digest and disseminate the volumes of available data.
- Data changes frequently during the close process (i.e. sales and production forecast adjustments that make previous financial forecasts obsolete before they are ever issued).
- Manual closing and transactional tasks, such as reconciliations with Excel spreadsheets, manual journal entries and eliminations, and financial reporting in Excel or PowerPoint tend to be the rule rather than the exception.
- Planning cycles and close processes that can be chaotic due to a lack of control (process, data, etc.).
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