White Paper. Five Reasons to Move Off Excel for Consolidation and Close

White Paper Five Reasons to Move Off Excel for Consolidation and Close

Table of Contents Reason #1: Closing in Excel Is Not Fast 4 Company Spotlight: Zep Inc. 4 Reason #2: Data in Excel Is Not Always Accurate (and the Formulas Are Suspect, Too) 5 Reason #3: Excel Is Not Smart About Finances 5 Reason #4: Data in Excel Is Not Secure or Easily Auditable 6 Company Spotlight: SkyGolf 6 Reason #5: Excel Is Not as Flexible as It Seems 7 Company Spotlight: Baxa Corporation 7 Conclusion 8 Additional Information 9 Customer Stories 9

For a small, single-entity company, closing the books using the general ledger (GL) and reporting in Excel isn t so bad, and consolidation isn t even necessary. However, just a little bit of growth can change that situation fast. For example, when growing internationally, each new office in a new country adds an additional currency to translate into the corporate reporting currency. There s also the need to perform local reporting under different accounting standards, such as IFRS. If the growth strategy includes mergers and acquisitions, organizations face the challenges of closing and consolidating multiple sets of books that could have different charts of accounts (CoAs). Depending on the deal, there may also be multiple legal entities, some with the added complexity of partial ownership with controlling and non-controlling interests. Companies raising money through venture capital (VC) or private equity often find they re expected to have accounting books that are complete to GAAP, IFRS, or GAAP-like standards. On top of that, the SEC regulation time to report has compressed, 1 and accuracy and transparency requirements have increased. Financiers understand that, if a company is planning for an IPO or to be bought by a public company, having SEC-ready books will make the process easier. Excel is a great personal tool, but it can get messy very quickly when the multi-tabbed, linked spreadsheets are shared and edited by many people. Balancing the books, journal entries, and intercompany eliminations is difficult given that spreadsheets are notorious for having formula errors. Getting a fast, accurate financial consolidation and close process requires a secure, collaborative, financially intelligent application, such as a cloud-based, enterprise performance management (EPM) suite. Here are five reasons why Excel is not the right application for Financial Close and Consolidation for growing companies and how a complete EPM suite is a better choice. Copyright 2015, Host Analytics, Inc. All rights reserved. Host Analytics is a registered trademark of Host Analytics, Inc. 3

Reason #1: Closing in Excel Is Not Fast Closing is a linear process. It begins with exporting trial balance data out of GLs or ERP systems and collecting it into spreadsheets that are reviewed and processed with manual journal entries and intercompany eliminations. Working through all the steps of the consolidation process can be convoluted following data through linked, multi-tabbed spreadsheets, across a plethora of formulas. Most finance teams wait until all the data is processed before doing any reporting, even for individual entities, to reduce the possibility of having to go back and make changes. This long, arduous process is repeated every month, every quarter, and every year. Reducing the close process time, then, is extremely valuable. Company Spotlight: Zep Inc. It s a much more efficient process. Sydney Tucker, Director of Reporting Zep, Inc. Case Study Having one cloud-based financial EPM suite has paid off for Zep. In the past, analysis was a bottleneck during the close process. Analysts waiting for accountants to answer questions about transactional data could take an hour or more; now users drill into the details they need in minutes. It s a much more efficient process, says Tucker. Plus automatic data loading into Host Analytics Consolidation frees up time, shortening financial updates significantly. She adds that Host Analytics automates conversion of multiple currencies in the consolidation process, a new feature for Zep that saves time and minimizes risk. The process speeds up tremendously when using enterprise performance management (EPM) software that s connected to a GL or ERP systems. Data flows in automatically to one central location, eliminating data entry time and providing access to anyone who needs it. The Financial Close and Consolidation process is built into the system. It s easy to see what is complete, what is left to do, and who is holding up the process. Automated integrations and built-in reporting templates such as balance sheets, income statements, and cash flows make closing each month, quarter, and year a snap. Copyright 2015, Host Analytics, Inc. All rights reserved. Host Analytics is a registered trademark of Host Analytics, Inc. 4

Reason #2: Data in Excel Is Not Always Accurate (and the Formulas Are Suspect, Too) Excel is a flexible tool. It allows anyone to make changes to data, charts, and formulas. As businesses grow and the original spreadsheets are updated by several people, errors are inevitably introduced into both the formulas and the data itself. These spreadsheets are assumed to be correct even though research shows that 88% of spreadsheets have errors. 2 Something as small as having the wrong range on a VLOOKUP table can accidentally eliminate an entire category of data from a balance sheet calculation. Plus, when making changes, it can be difficult to remember everywhere the formulas appear across all tabs and workbooks. Many professionals have entire pages for cross-checking calculations to help ensure the validity of the data. Spreadsheets, even after careful development, contain errors in 1% or more of all formula cells. In large spreadsheets with thousands of formulas, there will be dozens of undetected errors. 3 Ray Panko 4, Professor of IT Management University of Hawaii Loading data directly from the GL and ERP systems vastly improves accuracy. It reduces the opportunity for manual data entry errors, giving you data you can trust. Built-in templates and reports such as balance sheets, income statements, and cash flow statements have been vetted and used by countless Finance professionals for years. In addition, all reports use the same dataset a source of consistent, accurate information. All parts of the organization stay in line with the corporate plan and performance. Reason #3: Excel Is Not Smart About Finances Excel is a flexible, but dumb tool. It only becomes smart when humans add formulas such as those for taxes and tax credits, credit and debit summations, and loan repayment calculations. Whenever a new product or account is added, many formulas need to be adjusted to correctly use the new information in the calculations. Even the logic associated with GAAP and IFRS reporting has to be programmed into Excel and updated whenever the standards change. Enterprise performance management suites are flexible and financially smart. They have built-in formulas, templates, and an understanding of finance including how to add credits and debits, as well as calculate income, expenses, and taxes for each entity. Changes in accounting standards or company guidelines can be reflected in templates and then available everywhere immediately. An EPM system also has an understanding of the whole Financial Close and Consolidation process. It provides focus by highlighting where intercompany accounts are not balanced and identifying issues to be addressed with built-in journal entry and automatic elimination functionality. Recurring accrual transactions can be saved in the system, so they aren t forgotten, maintaining accuracy and reducing the time to close. Copyright 2015, Host Analytics, Inc. All rights reserved. Host Analytics is a registered trademark of Host Analytics, Inc. 5

Reason #4: Data in Excel Is Not Secure or Easily Auditable Do you really know which spreadsheet is the right one to use when they re emailed around, modified by different people, or saved, renamed, and deleted from a shared server? Version control in this situation is anything but controlled. Keeping track of who changed what is a herculean task. Often, the revision notes are not sufficient enough for auditors. Some companies spend months and hire extra people to support the external auditors because it s so difficult to find the requested data. Company Spotlight: SkyGolf [Auditors] can follow our accounts all the way forward to their audit report. Roger King, Corporate Controller SkyGolf, Inc. Case Study SkyGolf streamlined its compliance procedures. The company has a standard chart of accounts in Host Analytics, but its auditing firm uses a different format. It used to be a major headache to rework the data for the auditors and make sure it still matched the originals. King set up a structure in Host Analytics that produces it automatically. They can follow our accounts all the way forward to their audit report, he notes. This not only speeds the audit but saves money on it, as the auditors bill fewer hours. In addition to this version control nightmare, Excel poses a big security risk. Users could easily see data that they should not have access to, such as salaries and other confidential information. Preventing that is nearly impossible with the everyday use of email and attachments. In a cloud-based EPM system, everyone uses and edits the same data and reports. The system records each change, who made it, and when providing a detailed, reportable audit trail that will satisfy any internal or external financial audit team. Data security is controlled via access control tailored to each individual. Users only see data that they have permission to see. The systems are backed up regularly and run in Tier 4 level colocation facilities providing more physical security and redundancy than most organizations provide to store their Excel files. Copyright 2015, Host Analytics, Inc. All rights reserved. Host Analytics is a registered trademark of Host Analytics, Inc. 6

Reason #5: Excel Is Not as Flexible as It Seems Change is the new normal. Internally, as an organization grows, new accounts, cost centers, entities, and products are added every period. Externally, there are new requirements, time tables, and reporting formats for GAAP and IFRS. Every new thing needs to be manually placed or programmed into Excel and propagated through cascading formulas and interconnecting spreadsheets. While, arguably, someone can make Excel do all this, the process to update an Excel financial model is not fast, not accurate, and not robust. Excel is not a scalable database. It can hold only so many columns and rows of data, calculations, links, and charts before reaching its crash point. 5 Even if the information is in Excel, it s also difficult to get the information back out in the way people need to use it. Different groups want to see the data in different ways whether it s for the SEC, the board of directors, or corporate operational leaders, tweaking reports for each group takes time and slows down the reporting process. Company Spotlight: Baxa Corporation Host Analytics gives us the ability to trend and forecast in local currencies, translate that information into the subsidiary s own currency for their reporting and then roll it up into U.S. dollars for global reporting. Irene Krysiak, Finance Director Baxa Corporation Case Study As well as automating manual procedures, the new tools added functionality previously nonexistent at Baxa. Its foreign operations involve several currencies, but the company couldn t exclude currency fluctuations when forecasting revenue, which made it difficult to forecast growth. That uncertainty is gone. Host Analytics gives us the ability to trend and forecast in local currencies, translate that information into the subsidiary s own currency for their reporting and then roll it up into U.S. dollars for global reporting, says Krysiak. This capability supports better decision-making. We can forecast accurately in terms of growth for a particular market then apply currency forecasts, she adds. With an EPM suite, changes like new accounts are made in one location and automatically applied throughout the system. They can accommodate financial-specific situations, such as multiple currencies, partial entity ownership, and chart of accounts (CoA) translations. Unlike Excel, EPM can quickly slice and dice report data. For example, show the corporate financials with and without data from a proposed acquisition target by simply clicking a checkbox. Built-in financial templates make reporting go quickly and cleanly each period. Templates are adjustable to your organization s specific needs. Cloud-based systems allow lots of users to have access to the data they need (and have permission to see). They can create their own reports with simple drag-and-drop interfaces or use Excel formulas for programming seeing the financial data from their chosen point of view whether that s for a project, product line, or business entity. Copyright 2015, Host Analytics, Inc. All rights reserved. Host Analytics is a registered trademark of Host Analytics, Inc. 7

Conclusion Even a small amount of growth can make a once simple financial close process aggravating. Major changes can cause hair-tearing frustration, and change is the new norm. The flexibility of Excel becomes fragile and brittle after years of formula tweaking by different people. Time is spent providing increasingly more reports for each group in the organization showing information sets in their own special way. The Financial Close and Consolidation process slows to a crawl as data accuracy is called into question or the auditors look for more detail. Five Reasons to Move Off Excel for Financial Close and Consolidation 1. Closing in Excel Is Not Fast Data entry and reconciliation is a long, manual, and tedious process. 2. Data in Excel Is Not Always Accurate (and the Formulas Are Suspect, Too) Manual data entry is error-prone, and 88% of spreadsheets have incorrect or broken formulas. 3. Excel Is Not Smart About Finances EPM systems know how to handle financial elements like credits and debits, while Excel formulas must be written to correctly add or subtract them. 4. Data in Excel Is Not Secure or Easily Auditable On cloud-based EPM systems, users can only see and edit data that they have been given permission to access. The software traces all changes in detailed audit logs. 5. Excel Is Not as Flexible as it Seems While Excel can be programmed to do many things, it can be slow and easily breaks when there s too many formulas, links, and gigabytes of data. If your company struggles with Close and Consolidation in Excel, move to a system that can support you now, change with the times, and scale with you as you grow. Cloud-based enterprise performance management (EPM) suites are as easy to use as Excel, yet provide the power, flexibility, security, and auditability necessary for a growing organization. Copyright 2015, Host Analytics, Inc. All rights reserved. Host Analytics is a registered trademark of Host Analytics, Inc. 8

ADDITIONAL RESOURCES Chart of SEC Filing Deadlines - 2015 White Paper 5 Reasons to Stop Using Excel for Planning and Performance Management White Paper Streamline Board Reporting from 4 Days to 4 Hours CUSTOMER STORIES icims Video Roger King SkyGolf Video Tony Meister, CFO, Intermatic Video Baxa Corporation Case Study Excel Specifications and Limitations About Host Analytics Host Analytics is the leader in cloud-based enterprise performance management (EPM), offering a suite of financial applications for planning, consolidation, reporting, modeling, and analytics. World-class companies like NEC, Burlington Coat Factory, and Sanmina trust Host Analytics to power their strategic financial systems. An established industry leader and a low-risk choice for public companies and private organizations, Host Analytics is the only cloud vendor to be on the Gartner Magic Quadrant for Corporate Performance Management Suites for the last six years. Footnotes: 1 2 3 4 5 SEC Filing Deadlines http://www.skadden.com/newsletters/corporate_finance_alert_sec_filing_deadlines_2015.pdf Olshan, Jeremy. (April 20, 2013). MarketWatch.com http://www.marketwatch.com/story/88-of-spreadsheets-have-errors-2013-04-17 Olshan, Jeremy. (April 20, 2013). MarketWatch.com http://www.marketwatch.com/story/88-of-spreadsheets-have-errors-2013-04-17 http://panko.shidler.hawaii.edu/ssr/mypapers/whatknow.htm Maximum Memory or File Size Exceeded - This message appears when the maximum memory or file size limit for a Data Model is exceeded. In the 32-bit version of Office, the maximum file size for a workbook containing a Data Model is 2 GB, and the maximum memory that can be consumed by a workbook is 4 GB. If you exceed either of these limits, the workbook cannot be saved. https://support.office.com/en-us/article/maximum-memory-or-file-size- Exceeded-2b43e34d-bb20-49e1-b168-7866206f3669 Copyright 2015, Host Analytics, Inc. All rights reserved. Host Analytics is a registered trademark of Host Analytics, Inc. 9

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