Financial Consolidation and Data Transformation

2020: The Year Everything Changed

In the pre-pandemic world, most companies consolidated their financial statements on a quarterly basis. Aggregating the assets, liabilities, expenses, cash flow and P&L across subsidiaries, divisions and product lines is simply too manual and time-consuming a process to create consolidated financial reports more frequently. Infrequent financial consolidation isn’t an ideal situation, but it was one that most companies learned to live with.

Then the pandemic hit and dramatically upended the way businesses operate in a very short timeframe. Lockdown orders required most white collar staff to work from home and, in turn, forced long-term skeptics to acknowledge that remote-work models were quite feasible.

And except for a handful of companies that allowed people to stay inside -- Instacart, Amazon, Zoom -- every business experienced some level of disruption from the economic slowdown. The uncertainty led to employees on every level to take a keen interest in the health of the company, and to seek ways to provide a positive impact on the financials. A number of CEOs told us that senior level department heads dropped the use-it-or-lose mentality of protecting their budgets, and that their CFOs received numerous emails from employees asking if their companies qualified for the SMB Payroll Protection Program.

As the pandemic raged on, finance teams were asked to take a leading role in steering the company’s ship. The cadence of cash flow and budget forecasting increased to a monthly or even weekly basis, and financial professionals were brought into conversations about non-traditional financial metrics, such as metrics used to monitor SaaS based services (e.g. retention rate, customer experience, brand efficiency). For better or worse, financial teams were tasked with identifying and monitoring business drivers that matter most to an organization’s financial health.

McKinsey & Company reported that the pandemic had crammed ten years of ecommerce growth into just ten months. But it’s also responsible for a similar rate of transformation in corporate finance teams. Over the past five years, corporate finance professionals reported they were being asked to serve as strategic business advisors to the teams within their organizations. The uncertainty of pandemic’s trajectory and economic conditions accelerated that trend as well.

Not surprisingly, the pandemic accelerated merger and acquisition (M&A) activity. Numerous companies were in survival mode in the middle of 2020, and distressed transactions, including debt restructuring and liquidity planning, were common. Mergers were sought to shore up a company’s balance sheet.None of these trends were new. Their appearance had been documented in numerous sources. Even before the phrase “novel coronavirus” entered the lexicon, I was writing about the changes in the financial team and the ways that technology expanded their function.

Still, the pandemic transformed the role of the financial team, and the expectations their organizations had for them. And that, in turn, meant that in less than a year financial consolidation, and the data transformation it both demands and accelerates, moved from a long-term goal to an urgent and immediate need.

A New Normal Emerges

As the impacts of the pandemic begins to ease, Board members, corporate executives and rank-and-file employees alike are asking questions that have profound and far-reaching impacts, such as: Is it necessary to provide office spaces that can accommodate our entire workforce?

According to the Washington Post, “A growing number of major employers of white-collar workers have announced return-to-work plans in recent weeks, outlining a mix of in-person and virtual work that is being described as permanent, or a new normal”. If “borderless employees” are the new norm, does that free up a company to recruit talent who live far from the office? And how do these trends affect expenses, cash flow and profitability?

These are big questions corporate leadership are now asking, and the new normal requires the financial team to take a lead in answering them. The advice they give demands a fast and accurate consolidation of financial data, combined with other business data to complete the view.‍