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5 Steps to Create a Meaningful Financial Reporting Structure

Posted by Rudy Ortiz, Solutions Consultant on Oct 31, 2017 9:06:22 AM
Rudy Ortiz, Solutions Consultant

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CFO’S, Controllers and managers have a lot on their plate.  Managing a business is a challenge on its own.   Imagine running a business without data or information that helps provide a basis for change.  Not having a solid financial reporting structure in your business will prevent you from making the necessary changes, or in some cases, from preventing significant losses.  The same can be said with too much data or “information overload” when that information is not meaningful to your business. 

The key is to find a balance. Create a reporting structure that provides meaning and drives decision making.  Below I have outlined some guidelines to consider when setting up or revising a reporting structure and the impact it will have on your chart of accounts, segments and your business.

  1. Evaluate your business.

    Ask yourself, “What segments will help me make better business decisions?” As you setup your business, consider what segments you need to view to help you drive business decision making. Ask yourself, your peers or your senior management what they need to see to help them make better decisions. As you gather your data, you will notate things such as “Revenues by Product Line” or “P&L by Sales Territory”.  When you get this information the “segment” in these examples would be “Product Line” and “Sales Territory”.  Many ERP systems call these items “dimensions” or in the case of NetSuite “segments”.  NetSuite has the standard 4 reporting segments (Location, Class, Department and Subsidiary) with the ability to add custom segments as required by your business.  Remember, NetSuite allows users to create unlimited custom segments!

  2. Map out the reporting hierarchy.

    Once you have gathered the information, organize them into the reporting hierarchy you need.  This is a good time to confirm if the structure is sustainable (can you or your team manage these segments?), or requires some changes such as consolidation or expansion.  Make sure you clearly define the hierarchy for your reporting segments.  Start from the top and work your way down to the last segment.  Confirm which segments must have dependent or parent/child relationships.  Understanding your Parent/child relationships is important when creating your SOP’s and requesting help from outside parties.  At this point you will also want to confirm what Chart of Accounts will be required to reflect transactions with these segments.

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    Segments must be reflected on my “Revenues and Contra revenues” accounts during transactions posting.

    Segments should be assigned on my “customer accounts” as defaults.

    Remember that all segments that will be included in your reporting structures should be meaningful and provide insight into your business.  Remember to think about each segment as reporting structure you create and ask:

    - What audience needs this information?
    - How does this help them manage the business?
    - Is there any alternatives to adding reporting segments?
    - Can you leverage existing reporting capabilities?
  1. Leverage your current or future ERP capabilities.

    As you proceed to update your reporting structure it is important to understand what you can and cannot do.  Often companies are at the mercy of what their ERP can do.  If you have a legacy system, find out what are your options.  If the question is a limitation of segments, ask yourself:

    - “Can we operate using only x or no reporting segments?”
    - “What are the risks if we do not have these segments?”
    - “Have I confirmed that all of these segments are absolutely necessary?”
    - “Can my segments be tied to the Chart of accounts that I specified, customers, items or other?”

    If your goal is to continue using your legacy ERP system, you can use this information to confirm what it would take to customize your system to meet these requirements.  Customization to support these requirements is not uncommon in many ERP systems are often developed with the understanding that customizations will be implemented.

    Many factors go into making any changes of ERP systems, and a lack of reporting power can be used to drive management to discuss the need for upgrading to a system that will meet your reporting needs.

    If you are already considering moving to a new ERP system, you can review all of the segments and requirements you discussed so far with your ERP consultants. 
  1. Once you setup your ERP system, test Setup, Transactions and Reporting.

    If your configurations to are complete and you assigned your segments to your customers, items and other, it’s time to post some test transactions and pull the data (if you can).  Again many ERP systems require extra development and customization to get the reporting that you need.  This becomes exponentially expensive if you decide to make additional changes after you go live with some systems.  As you test your reporting, make sure you have your configurations well defined, and set with no intentions to change your business process anytime soon.

    With NetSuite configuration of segments and custom segments can be done by the user, so no developers required!  The reporting the can be created within NetSuite using the standard reports and modifying to your business needs.  Reporting configurations includes drag and drop, filtering and reporting access permission levels and all of this can be done if you have a NetSuite role with permissions.

    During the configurations and setup, make sure the users that will be coding your transactions are able to complete the configurations without too much impact to their daily routines.  In my experience, the parties responsible for coding your transactions will help you determine if your process is sustainable.  Complex or time-consuming setup and transaction processing will cause your staff to spend non-value-added time coding transactions such as a sales orders, invoices and configuring a new Customer.  It is very important the process is sustainable so find ways to reduce the impact of implementing or changing the coding process.  NetSuite default settings can be configured when creating new customers or transactions for your reporting segments.
  1. Train everyone who will impact the reporting segments!

    I cannot tell you how many times I’ve worked at companies that run a report, and find data that is out of place.  You may have a product lines Segment report that appears with such data as “Electronics” and “Electronic Devices” or “Food” and “Food General” and “Food Other”.  If such information is appearing on your reporting, you may have either failed to consolidate or failed to train your staff on the reporting segments.  Lack of training can result in data that is completely useless, which after all the time, effort and money it takes to implement a system, it is important you can benefit from the process.  There is no workaround on the training process if you wish to achieve meaning financial reporting, so make sure you make the time to tell train everyone on the configuration process.  Examples include:

    - Train the inventory team, if they create new inventory items with reporting segments.
    - Train the Sales Operations team, if they create new customers with reporting segments.
    - Train the Accounts payable team, if they are required to assign reporting segments to an invoice.
    - Train Administrators how and when they should add segments, and how they should consider a segment meaningful to your business.

Want to know more? Or looking for help following this step by step process? Contact us today and a NetSuite expert will walk you through these best practices and more! 

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Tags: NetSuite, Reporting, NetSuite How To's