This is a guest post from Michael Morrison, CEO of Fluence Technologies, a partner of Revelwood. 

Ask an artist to show you what a tree looks like and they might create a beautiful painting that shows a maple tree’s leaves changing from green to orange and yellow at the height of autumn.

If you ask a scientist the same question, they’re more likely to walk through a detailed breakdown about the genus and species to which they belong, how tall they’ll grow and where they tend to thrive.

Now imagine you have to make a strategic business decision about trees: though both of them are valuable, it’s pretty easy to see why the scientist would become your preferred source of expertise. Some disciplines may be a mix of art and science, but others are more clear-cut. The differences between financial planning and analysis (FP&A) and financial consolidation are a perfect case in point.

The strategic roadmaps FP&A teams develop for their organizations could be considered an art in the sense that they involve studying data in the context of organizational objectives and finding insights that will chart a successful path forward. While the results need to be firmly grounded in fact, there’s some creativity involved.

“Creative” financial consolidation, on the other hand, is of no help to anyone in an organization, especially its leadership team. When companies consolidate and close the books using manual, ad-hoc processes, they risk introducing errors, inconsistencies and wind up taking accounting teams more time than they should. Instead of a clear representation of where the business stands, the result is more like an abstract painting that’s difficult to interpret.

Financial consolidation needs the rigor of science because it provides the foundation on which all the creative thinking is built. This includes budgeting and planning, but also identifying growth opportunities and operational efficiencies.

Perhaps even more importantly, financial consolidation is key to meeting reporting requirements, where the accuracy of balances, journal entries and intercompany matching is essential to a successful audit.

With these kinds of requirements in mind, it’s no wonder growing companies often struggle to choose the right technology solutions. This is where a best-of-breed approach provides functionality with flexibility to address the needs of those involved in both financial consolidation and FP&A.  

A Brief History Of Best of Breed

Anyone who has ever gone camping with a Swiss Army knife can appreciate the versatility of an all-in-one platform.

When you’re spending time in the woods, for instance, a Swiss Army knife has the advantages of being small to pack, light to carry and containing all the tools you might need during your trip. This not only includes a blade for cutting but a tiny magnifying glass, a corkscrew and even a fork.

Once you’re back at home, though, using the fork in a Swiss Army knife for eating at your dining room table feels almost ridiculous. Instead, we turn to what might be called a best-of-breed fork – a utensil that was built specifically with a single purpose in mind.

Something similar has been going on within organizations that originally standardized many of their business functions on an enterprise resource planning (ERP) platform. This is the Swiss Army knife of software, handling not only accounting but procurement, project management, supply chain operations, payroll and more.

An ERP might be fine if the company using it never bought another firm, or if it decided never to expand into other markets or add more customers. The reality is that M&As often lead to a single company owning multiple ERPs, complicating financial consolidation by requiring deep integration and fine-tuning.

“Best-of-breed” can be defined in many ways, but think of it as technology that is purpose-built to do one job really well. You’ll recognize these solutions because they tend to be:

• Cloud-based: Traditional, on-premise solutions tend to lock companies into features that become difficult to update or change. Software-as-a-Service (SaaS) financial consolidation solutions make data more accessible while providing a streamlined upgrade path.
• Out-of-the-Box: Instead of bringing on an army of consultants to set up and deploy them, best-of-breed solutions can be set up in far less time, with key functionality ready to be used immediately.
• User-centric: An ERP might be designed with almost every business function in mind. A best-of-breed solution hones in on the specific needs and challenges of a particular team or set or role. In this case, it means finance and accounting professionals will see features that align with their ideal workflow.

Sometimes the prospect of researching and selecting best-of-breed software might seem so daunting that companies are tempted to put it off indefinitely. There’s a risk in doing nothing, however.

Sticking with an all-in-one platform like an ERP (or several of them) means finance and accounting teams might run into consolidation challenges that require them to figure out workarounds – another form of “creativity” with all the risks we walked through earlier in this post.

Maintaining the status quo could also make consolidating, closing the books and reporting on the data more of a chore for already-overworked teams. Companies that want to hold onto these valuable employees (or avoid the threat of “quiet quitting”) should think about what a best-of-breed solution could mean for the employee experience.

Finally, failing to make best-of-breed solutions a priority means you may become less agile, productive and strategic as competitors who opt for more modern technologies to navigate uncertain economic times.

Fortunately, making the shift to best-of-breed finance software isn’t as difficult as you might imagine.

Best Practices For Choosing And Deploying Best-of-Breed Software

Your search for the right best-of-breed financial consolidation and close solution will depend in part on the catalysts that started you on this journey in the first place.

For fast-growing companies, it often stems from a combination of outgrowing tools such as static spreadsheets or facing enough complexity (M&A, international growth, intercompany transactions, etc.) that ERPs no longer make sense.

As you evaluate the options, consider the following principles:

1. Tie Clear Goals To Finance And Accounting Performance KPIs

FP&A and accounting groups already track plenty of metrics, from working capital to net profit margin, compound annual growth rate and beyond. In this case, though, you want to think more about the key performance indicators that demonstrate success among your team members.

These could include time spent completing the financial close, time spent reporting, error rates and more. Make sure you’re not constrained by a platform where the number of scenarios or versions you can work with are limited – you may only close the books once a quarter, but modern FP&A needs to support continuous planning processes. 

Settling on a few of these KPIs – and setting goals to move the needle on them – will ensure you select the right best-of-breed solution for your business.

2. Scope The Full Breadth Of Feature Capabilities That Matter

It’s easy to get used to the way things have always been done in FP&A and close and consolidation. This is an opportunity to dream a little, looking at the functionality that will meet your current needs and those that may come up as your firm continues to grow.

For instance, some of the most burning issues could be integrating data from multiple locations and subsidiaries, or consolidating and reporting financial results across multiple hierarchies. 

Over time, though, you may also want to think about how your potential solution can streamline the dissemination of financial data into board books, dashboards and other forms of reporting to help key stakeholders. The right product should also assist with what-if analysis for those doing the “creative” work in FP&A.

3. Assess Current And Future Finance Data Complexity

Regulatory compliance is an ever-evolving beast, as is the nature of what guides strategic direction in a company. Best-of-breed technologies should therefore offer a seamless way to bring together both financial and non-financial data to create a more comprehensive picture of business performance.

Why non-financial data? Because a true best-of-breed solution supports company-wide planning, where line-of-business leaders and their teams can adapt models to reflect their specific goals and allow them to easily collaborate with other functional groups. 

Factor in variables such as having to contend with multiple languages, multiple currencies and any planned M&As or growth tactics will affect the chart of accounts you’ll need to manage.

And of course, all this should come with strong security and a complete audit trail. Data integrity is not a nice-to-have. It’s essential.

4. Determine The Degree Of Finance Ownership

Given the technical nature of ERP and similar enterprise-grade software, it has traditionally been up to IT departments to procure and make changes to the technologies used by finance departments. Cloud-based platforms today should require less oversight and intervention by the CIO’s team, however. Instead, accounting and FP&A groups should steer the overall roadmap for which new features should be turned on (and when), as well as any changes to business processes like the monthly close.

A good example is reporting: best-of-breed platforms should mean an end to the days when IT had to help finance teams develop reports. Instead, self-service reporting capabilities should support the development of ad hoc reporting so the company can respond to changes with intelligence and speed. 

Calculating Best-of-Breed ROI And Next Steps

Automation should always accomplish a few key objectives. It should bring speed and simplicity to otherwise difficult or complex processes. It should position employees to focus more on the tasks that make the best use of their time, experience and expertise. And it should create greater standardization and consistency as it offers more trustworthy data for the business’s strategic use.

Best-of-breed financial consolidation and close software can tick all of these boxes, and many more. The return on investment should be based in part on factors such as:

• The ability of the solution to scale with the business
• The ongoing development of more sophisticated features tied to user needs
• The ease with which the platform can work with related solutions and technologies
• The ability to answer increasingly complex questions

The shift to best-of-breed finance software is also not one fast-growing companies have to make on their own. Watch this on-demand webinar by Fluence and Revelwood, where we go into more detail about actionable steps that will help you reduce the time to value and reap the biggest benefits.

This blog post was originally published on the Fluence Technologies blog.

Read more about Financial Close and Consolidation:

Nucleus Research Finds 50 – 150% ROI on Financial Consolidation and Close Solutions

FP&A Done Right: The Role of Narrative Reporting in ESG

Fluence Technologies Earns “Outstanding” Overall BPM Pulse Rating from BPM Partners