Should You Link Finance or ERP Software to Your General Ledger System?

Posted by Deborah Jelley

Aug 1, 2014 10:57:00 AM

Considerations When Linking General Ledger System to Finance or ERP Software

You work for a mid-range to large company and revenue has been declining and at the current month’s mid-point, you have to give a presentation to your management team on why this is happening.  You need an immediate update of your monthly reports, so you ask your financial analyst to get it done by early afternoon.  She looks so horrified and you wonder if you’ve said something wrong, or if she’s just out of her mind.  Neither is the case, and here’s the reason:  It may not actually take her too long to pull up the current information from the General Ledger System, but it may take her hours to ensure the transactions are correctly consolidated, properly translated and applied to the report.  In addition, it takes her so much time to make sure everything is right on the report that she can’t focus on root cause analytics around your declining revenue.   

Wouldn’t it be nice to link current data from the General Ledger System directly into your financial system?

Updates could be a breeze: you pull (or have it update every night) the latest data, apply pre-set mapping and translation rules and ta-da!!!  Your report is ready much faster with a higher degree of confidence in its accuracy.  Now your analyst can dig into that detail you hired her to do in the first place!  Now you can adjust your path more rapidly to minimize the negative impact of business missteps.  Or if your business has already made a mistake, you can catch it, adjust course and recover faster. 

What key problems are you trying to solve?

All this is great stuff, but would the expense of getting a direct link from your GL to your finance system set up and configured ever be justified by the results?  What will this direct link do for your finance department, but more importantly, your company?  Some of the issues you might be facing, where a direct data link could help, may include the following:

  • It’s a laborious and error-prone process to produce standard monthly reporting:
    1. Want easy updates of the system after each monthly close with confidence in its accuracy
    2. The sheer volume of data you have in your GL system merits installation of the direct link
  • You see a slow operational response to changing market and consumer demands:
    1. Need faster reporting of actuals
      • Requires adherence to a standardized chart of accounts
      • Requires automatic (standard) financial reporting available after each close
  •  There is a lack of rapid root cause analysis: 
    1. Want to drill down to relevant detail
    2. Want to forecast trends without recreating actuals data within spreadsheets
    3. Want to budget without omitting any key expenses / revenue  expectations
    4. Want to review prior years' data as a comparison exercise
  • There is a lack of standard budgeting and forecasting analyses between international subsidiaries:
    1. Want to ensure management teams can read and understand what they’re getting with consolidated subsidiary reporting
      • Requires a standardized chart of accounts between international and local reporting hubs
      • Requires development of a standardized mapping process
      • Requires the ability to at least pull consolidated data by subsidiary (preferably in local currency) from the GL
    2. Want to eliminate currency fluctuations within the analytics
      • Requires ability to pull over actual rates from General Ledger System
      • Requires ability to pull over actuals in local currency with translation done in finance system
  •  You have questions about your current cash position:
    1. Need more rapid or more frequent liquidity analysis
      • Requires ability to pull over and recast data into MTD, QTD and YTD
      • Requires ability to pull over working capital accounts from the balance sheet
      • Requires ability to pull over investment and financing activities from the GL
        1. Hopefully you have isolated the non-cash items by account in your GL?
        2. If not, your forecasting system should allow you a template in which to do that, but it’s better to refine your Chart of Accounts (COA) at the source
  • You want to know the tax impact on your company of a new IRS ruling:
    1. Need a faster compilation of tax specific data from the P&L and Balance sheet

Results:

As you can read from the example list of key problems you may be facing above, the primary result of setting up a link to pull data directly from your GL to your finance system would be faster and typically more accurate delivery of standard and custom reports.  Your job will be to weigh the advantages gained by adding the link against the expense of putting one in. 

If you are currently in the market for a new finance system, you would be smart to have the direct link bundled into your software purchase – the price tends to be lower going that route than it would be to purchase and install it separately.  Depending on what GL system you have, this direct link may be already be available in the software, and you simply need to activate then configure it – but more likely, you will need to set up the direct link from your finance system into your GL. 

Either way, if you have boat loads of data to analyze each month, simply by setting up direct access to this data from your ERP software, you will significantly reduce errors and speed up delivery of quality reporting to your decision making process.  It’s all good, right?

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Topics: Budgeting and Forecasting, Financial Reporting, Enterprise Resource Planning (ERP)