One Solution for all of your Global Financial Reporting Issues By Nolan Business Solutions

Transcription

1 One Solution for all of your Global Financial Reporting Issues By Nolan Business Solutions Introduction With the emergence of digital technology and the opening up of the world economy, the world is becoming smaller and smaller. At the same time, the potential expansion area for an enterprise is growing bigger. In order to be competitive and to take advantage of the emerging market conditions, more and more businesses are now targeting the global market. Large Enterprises have been doing this for quite a long time and now in the 21 st century, it is the turn of mid-size businesses to expand their horizons. While globalisation brings new opportunities for growth and opens up new sources of revenue, it brings a whole new set of challenges to the businesses. Global expansion is a business imperative for midsized companies, just as it is for larger companies. Business leaders can help improve the odds of achieving global growth objectives by continuously cultivating a global orientation; Conducting due diligence on all relevant cultural, business and financial issues; and communicating a clear vision for expansion across their organizations. - KPMG, M&A Spotlight Are these challenges different for a mid-size company compared to a Large Enterprise? The answer is no. The basic challenges are same but they become different in the context of scalability. Often the cost of resolving these issues for a mid-size company is proportionately much higher compared to a big size company because of its size and the economic viability. The most feared casualty of globalisation is the compromise of financial data. Analysis of financial data is the most effective way of measuring efficiency and monitoring progress of any business enterprise. It is imperative that the financial data must be accurate, reliable and available when needed. If the data is not reliable, does not reflect the accurate state of business, or is not available at the right time, the top management is vulnerable to the risk of losing its strategic and financial control. Such directionless growth is not desirable for any business. The purpose of this whitepaper is to identify the challenges faced by mid-size global companies, from a financial recording and reporting perspective, and how modern ERP software and its implementation partner can help alleviate these challenges.

2 The Challenge When the financial managers of mid-size companies are asked, what is the biggest challenge they face in a multi-national accounting environment, one answer which stands out is not surprising, it is common sense. All financial mangers agree that the biggest challenge is diversity diversity of markets, people, time zones, practices, currencies, languages, statutory requirements, infrastructure, cultures, and chart of accounts. To meet the diverse local requirements, the accounting data of business is recorded in a manner which satisfies the local statutory and business requirements, using a local version of chart of accounts, in local language, during local time, and in the local currency. Obviously, the data thus recorded meets the local statutory and external reporting requirements but it impacts adversely on the consolidation, standardisation, and corporate culture. Complexity in Consolidation Multiple Currencies Diverse Statutory Requirements Multiple Chart of Accounts Multiple Time Zones Lack of Standardisation Diverse Markets Diverse Practices Diverse Infrastructures Diminishing Organisational Culture Diverse People Diverse Cultures Diverse Languages Diversity Challenges Impact of Diversity Challenges on Mid-size Global Enterprise The extraction, collection, harmonisation and consolidation of the diverse set of financial data is a time consuming and highly complex task. Moreover, the delay involved in its preparation and its periodic availability makes it redundant as the data cannot contribute to the top management s strategic decision making process, which is the primary purpose of managerial accounting. The diverse business procedures dilute the standardised global processes, leaving a lot of responsibilities on the shoulders of the local executives and managerial staff belonging to different cultures and background. More often than not, they do not share the same ethical and behavioural values that the organisation stands for. These core organisational values are the lifeline of any business enterprise. They become more important in case of a midsize company as its entire competitive edge is built around its core values. With the erosion

3 of these values, the organisation not only loses its competitive edge, it also loses its internal control mechanism and finds itself operating in an unruly and chaotic environment. High Level Solution Now that the diversity has become the unavoidable norm of the day, multi-national organisations realise that the technology alone can be the enabler to bring the entire organisation under one standardised umbrella. Through commonality in deploying applications and procedures with single technology, they can safeguard and propagate their organisational values on a global basis. The company needs to find the right Enterprise Resource Planning (ERP) software that meets its consolidation as well as the local business requirements. The right ERP software can help a business consolidate and standardise its processes both horizontally across all geographical areas, and vertically across all process areas of business. By deploying one ERP software solution globally, the organisation can harmonise its end to end business processes, permitting limited localised diversions only to support local statutory compliance. Besides finding the optimum ERP solution, the organisation also needs to find an implementation partner that not only has expertise in the selected ERP but also has knowledge in the organisation s industry sector. The partner should have knowledge of the business practices and statutory requirements prevailing in the different geographical areas where the company operates. Selection of ERP Finding the right ERP software can be a huge exercise as it must not only meet all the present and future expansion business requirements, it must also be affordable. It must not only support the organisation s business processes, it must also provide strategic competitive advantage to the organisation. It must not only support the consolidated group reporting, it must also support the local requirements where the company operates or aspires to operate in near future. ERP Benefits: Integrated Processes One data repository A single view of the truth Real-time Information Powerful reporting tools Consistency in processing Increase in operating efficiency The preferred ERP software solution must support fast reporting and consolidation as speed of delivery and quality of data is the foremost requirement for a modern business. Today, an organisation must have its numbers at its finger tips and should be able to provide accurate financial information covering all aspects of the business to the top management of the company on real time.

4 Which ERP solution is right for a business organisation depends upon many factors such as size, nature of business, geographical location(s), corporate objectives, availability of resources, volume of business, etc. However, an organisation must consider four major aspects Domain, Affordability, Reliability, and Environment (DARE) in the evaluation process. By Domain, we mean the extent of organisation s business aspects that will be covered by the ERP, such as Sales & Distribution, Marketing, Financial Accounting, Fixed Assets, Inventory, Service, etc. Under the affordability criteria, all costs associated with the acquisition, implementation, deployment, training, maintenance, and hardware needs to be assessed. Under the reliability category, the software s ease of accessibility, availability anytime & anywhere, gap analysis and flexibility of add-ons, data security, etc. needs to be evaluated. Lastly, under the environment category, the solution s abilities to support diverse local requirements, consolidation, forecasting and budgeting tools, and closing process should be weighed. The illustration below shows the example of the items under each category that should be considered, while evaluating various ERP solutions. D Domain Affordability Marketing, ecommerce Total Cost of Ownership Customer Relationship Implementation and Training Cost Financial Accounting Ongoing License and Maintenance Fees Employee Expenses and Time Sheets Hardware Purchase and Backup Cost Service & Project Increase in Productivity & Profit Margin R Reliability Ease of Accessibility & Use Cloud-based Technology Implementation Time and Risks Data Security Gap Analysis and Flexible Add-ons ERP DARE : ERP Selection Considerations Environment Real-Time Consolidation Multiple Chart Of Accounts Multiple Currencies Multiple Tax Procedures Multiple Languages Multiple Companies A E

5 Below is a chart that shows a comparative analysis of the three most popular ERP systems that are recommended for medium size global businesses and support multi-currency, multi-language, multi chart of accounts, and multi-company environment. Vendor Comparative Analysis NetSuite Sage X3 Microsoft Dynamics GP Customer Suitability Enterprise Medium Size Small Business Enterprise Medium Size Enterprise Medium Size Small Business Cloud Multi Language Multi Currency Applications Accounting / ERP CRM ecommerce Salesforce Automation Marketing Automation Customer Support & Service Incentive Partner Relationship Employee & Productivity Consolidation / OneWorld Financial Reporting & Business Intelligence Sales Customer Service Purchasing Inventory Manufacturing Sector Focus Wholesale & Distribution Creative & Media Institutes & Associations IT Resellers Software Vendors Manufacturing Professional Services Sport & Leisure Banking & Finance Banking & Finance Wholesale & Distribution Manufacturing Retail Professional Services Sport & Leisure Food & Beverage Financial Reporting & Business Intelligence Project Field Service Human Resource Supply Chain Banking & Finance Wholesale & Distribution Government & NPO Not for Profit Charities Professional Services Institutes & Associations Education

6 Selection of Implementation Partner As discussed earlier, besides finding the optimum ERP software solution, the organisation also needs to find a suitable implementation partner who can help to maximise the benefits of ERP implementation and mitigation of associated risks. Which Implementation Partner is right for a business organisation depends upon many factors such as choice of ERP, area of operation, nature of business, geographical location(s), corporate priorities, availability of resources, volume, etc. However, an organisation must consider four major aspects Command, Affordability, Reliability, and Environment (CARE) in the evaluation process. By Command, we mean the implementation partner s command in the selected technology, command over the industry sector of the organisation, command in the associated software, infrastructure, etc. The partner must have knowledge of the business practices and statutory requirements prevailing in the different geographical areas where the company operates or aspires to operate in the near future. Under the affordability criteria, all costs associated with the implementation, training, development, maintenance need to be assessed. If applicable, the training cost of the consultants must also be estimated and taken into consideration. Under reliability category, the partner s implementation methodology, quality of documentation, project management abilities, availability of consultant with right level of expertise, etc. need to be evaluated. Lastly, under the experience category, the partner s experience with regards to industry, technology, and location needs to be considered. The illustration below shows the example of items under each category that should be considered, while evaluating various ERP software solutions.

7 C Command Command in Technology Command of Industry Command in Local Markets Command on associated Hardware, Software, Infrastructure R Reliability Implementation Methodology Quality of Documentation Project Quality of Consultants and Back-up Implementation Partner Affordability Consulting Fees Implementation and Training Cost Ongoing Maintenance and Support Estimated Travelling Cost Development Cost E Experience Track Record and Performance Industry Experience Experience in Global Implementation Experience in Training Experience in Development A Business Benefits CARE : Implementation Partner Selection Considerations Let us now discuss how the right combination of ERP software and an implementation partner can contribute to an organisation in alleviating the challenges qualitatively and quantitatively. Can all or majority of the issues identified for a mid-size global business with regard to financial recording and reporting perspective be resolved with the combination of these two? A very important issue for a business operating in a global environment is multiplicity of the chart of accounts. Due to the locally mandated and reporting requirements often the local entity of the company has to deviate significantly from the global or group chart of accounts. In order to alleviate this issue, many of the new age ERP software solutions provide ways to build a cross-reference matrix that maps accounts from multiple charts of accounts. This mapping is used by the system at the time of transaction recording, enabling real time availability of various financial reports with global chart of accounts. There is a general perception among the financial managers that a separate consolidation system is needed over and above the general ledger. As the worldwide data of the organisation is stored in one database, there is really no need to have a separate consolidation system. Most of the ERP systems support creating consolidation ledger in the same system, thereby eliminating the process of data extraction and transmission. Proximity of consolidated data to the transaction data also provides ability to drill-down to the transaction level, adding more visibility to the process. Shortening time for month-end closure is another big focus area for the financial managers. Month-end closure for a multi-national company becomes more complex and demanding as it involves multiplicity of currencies and companies. New age ERPs support real time

8 translation of currencies at the prevailing exchange rates and provide financial information in the group currency at all times. This centralised financial data also helps global management to determine the resource (cash, inventory, etc.) availability and requirements worldwide and to facilitate placement of right amount of resource at the right place at the right time. Existence of multiple companies pose two inter-related challenges intercompany reconciliation and intercompany elimination of receivables, payables, gains, and losses. Since all the companies belonging to the group, record their transactions in one system and also that the cross-company transactions are simultaneously posted on both sides, it eliminates the risk of error. Since there is only one source of truth, there is no comparison and need of reconciliation. Elimination of intercompany receivables, payables, gains, and losses becomes much simpler if the intercompany data is identified and reconciled. The consolidation process becomes very simple resulting in significant reduction in the time taken for month-end close. The setting of strategic goals for an organisation demands the regular involvement of the top management and the local leaders in the organization. They must have global financial data and trends in order to achieve this task. The ERP system not only provides this data instantly and accurately, once the goals are set, the system also provides functionality for entering forecast in the system at different levels of responsibility areas and subsequently, continues to support monitoring forecast / actual comparison real time. More and more businesses are investigating shared services and looking to shift from a multi-local to a global shared services system. ERP software plays a very important enabling role in meeting this objective. Conclusion Although, we cannot say that deployment of ERP with the help of a implementation partner is the panacea for all the challenges faced by organisations operating in multi-culture, multicurrency, multi-company, multi-language, and multi-national environment, we can definitely conclude that deployment of the right ERP software with the help of the right implementation partner will help the organisation significantly in alleviating these challenges. The degree of success may vary depending upon the choice of resources, geographical area of operation, stake holders involvement, and human and other miscellaneous factors; significant improvements in this area can be achieved and can be definitely guaranteed.

9 Nolan Business Solutions Nolan Business Solutions is an international solution provider who has helped thousands of companies solve their business problems by implementing leading mid-market business systems and custom developed software applications for over 25 years. Nolan Business Solutions are a unique solutions provider for Microsoft Dynamics GP, NetSuite and Sage X3. We have the ability to deliver standard and customised enhancements, as well as straightforward out-of-the-box or cloud installations. At Nolan Business Solutions we genuinely believe in putting the needs of our customers first. We offer impartial advice and pick from our hand chosen, best of breed trio of leading ERP software solutions. We have invested heavily in training and vendor accreditations and our experienced consultants and developers have real expertise within our product portfolio. Customers seek to gain their own competitive advantage by investing in software solutions and in partnering with a leading VAR and we make sure that we are focussed on this and that we deliver. Prospective clients can trust us to offer the best solution with no hidden agenda.