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Managing the Multi-Company Challenge

Business growth while welcome is almost always accompanied by increased complexity and this is magnified when an organisation grows to incorporate a number of subsidiaries or separate legal entities.  This brings an increased compliance burden in terms of meeting reporting requirements but that’s just the beginning. In fact, the accounting and management headaches can border on the nightmarish with very real implications for the performance of the business.

The first and most obvious issue is consolidation – the need to bring together the figures from each part of the group. Many firms find themselves using increasingly complex spreadsheets for this task. This is an incredibly labour intensive process which yields quite poor results.

The resulting accounts fail to give a clear picture of overall group performance and do not allow for the accurate apportionment of overheads. The sharing of data in any meaningful sense is also impossible.

The situation is made worse still when the entities are located in different jurisdictions. Accounting for different currencies and compliance requirements within a manual process is problematic, to say the least.  The difficulties intensify when it comes to monthly or quarterly accounting and management information.

A basic rule of business is that you can’t manage what you can’t measure. And manual accounting systems for multi-entity groups just don’t deliver the information required.

At the most fundamental level, it is virtually impossible to prepare profit and loss accounts on anything but an annual basis. The effort required to prepare monthly accounts and the time taken to do so render it less than worthwhile.

Broken Chain of ERPWhat typically happens is that each entity prepares its own accounts and these have to be consolidated at some later date. This means that it is not possible to run group budget or cash flow reports. It also means that there is little or no visibility in relation to the individual performance of the different entities.

Take the example of a company with three subsidiaries in three separate regions all selling the same portfolio of products. Overall, the group is profitable but one of the branches has actually run into losses owing to high rent, labour and distribution costs. The company is not in a position to address this problem as no one is aware of it and won’t be until after the year end when it may already be too late to take remedial action.

Similarly, a subsidiary’s losses may be disguised by inaccurate apportionment of overheads due to the lack of information being shared with the group. Take the situation of a group with a head office in Ireland plus five or six companies in different countries. How do you apportion costs without complex interactions and journal entries to account for different currencies, tax systems and so on? This will only be exacerbated by Brexit.

At an operational level, there is also a very high cost to the duplication of work involved. The potential for errors increases the cost still further. Research carried out by SAP among more than 50 financial services firms showed that if the data-entry associated with one document costs $1, the downstream costs incurred for one document with a data-entry error can easily add up to $300.

Intercompany trades just add to the complexity. If one company is selling goods or services produced by another in the group how is this accounted for in the different entities involved? With great difficulty, if it is a manual or semi-automated environment?

The potential for errors is magnified in these circumstances. Where entries are made manually there is the possibility that the same inventory item or service may have different codes in different companies creating confusion, to say the least.  There is also the prospect that entries in the accounts of one group company originating from another may result in a requirement for an audit of the originating company as well.

This is just a small flavour of the multiple problems which can arise in the absence of a tried and tested intercompany solution.

TRC Solutions’ intercompany integration solution delivers company by company and consolidated group financial reports, shares master data between companies, carries out transactions between companies within the group, and allocates costs across companies in the group.

The SAP Business One solution from TRC Solutions delivers all of this in a fully automated, real-time environment. It enables businesses to manage intercompany transactions for multiple companies by automatically replicating corresponding transactions between the company databases.  When a sales subsidiary buys finished goods from a manufacturing plant, the subsidiary creates a purchase order in its SAP Business One application, and the solution automatically triggers the creation of a sales order transaction in the SAP Business One application of the manufacturing plant.

The ability to automatically create a reciprocal transaction in the other application eliminates manual data entry, improves employee productivity, and reduces the potential for errors from rekeying data.  This also enables the automatic creation of centralised accounts, monthly and quarterly profit and loss accounts, and the generation of high-quality management information making for better and more timely business decisions.

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