A recent blog post from Intacct, The Cost of Managing Multiple Entities in a Global Economy, detailed the challenges and issues of operating within these environments. Below we will share more information including the challenges caused by a multi-entity environment, the two critical problems these challenges cause, and the solution.
Challenges of Multi-Entity Environments
In multi-entity environments each office typically operates autonomously, subject to varying currency, tax, and reporting requirements such as:
- Currency translation
- Exchange gain/loss accounting
- Local reporting
- An increased risk of non-compliance
In addition to managing organic growth, mergers and acquisitions are common in many industries. Each new business acquired means more separate entities, unique challenges, and often a second financial management system.
These challenges make critical tasks such as consolidation, reporting, and the analysis of operation and financial information more difficult for the finance team. The finance is therefore forced to use cumbersome spreadsheets and add-on reporting solutions in addition to their traditional financial systems. The process is manual, slow, error ridden, and the data from the multiple entities is collected and consolidated manually.
Two Critical Problems for Multi-Entity or Global Businesses
The use of multiple systems and the lack of automation lead to two critical problems for multi-entity or global businesses: diminished operational visibility and a dramatic increase in cost. For example:
- No real-time business visibility or consolidated view of your business – Traditional financial systems struggle to provide decision makers the information they need in a multi-entity environment. They are unable to drill down into supporting transactions, can’t compare performance across regions, and often end up with different versions of the same report. All of these factors contribute to confusion and the inability for leaders to properly manage the business as they are unable to measure performance, make informed decisions or control risk.
- Increased financial staff costs – It takes a tremendous amount of time to manually consolidate data from multiple entities, account for the currency, tax and reporting variances between them, and correct the evitable mistakes that result from manual work or duplicates. To handle the additional workload, finance departments are forced to hire additional staff just to keep up.
- Longer financial close process – The manual nature of the financial process leads to lengthened period-end closes. Without timely information, the business lags behind the pace of the market and their competitors, reducing business agility and response times. The only way to accelerate the close process is to add additional staff which, of course, increases labor costs.
- Increased IT cost for add-on functionality – When faced with an inept financial solution, a considerable amount of time and money is spent finding software that will fill gaps or provide workarounds. Multi-entity companies who choose to take this road throw spreadsheets, reporting software, and financial consolidation solutions at the problem only to wind up with higher costs, increased complexity, and a piecemeal solution that still doesn’t provide the functionality or real-time global visibility they need.
The only way to operate efficiently and effectively in a global, multi-entity environment is with a modern financial management solution that offers sophisticated support for the specific issues that these organizations face. A few of the key features that enable this level of support include:
- Cloud-based architecture – By its very nature, the cloud removes access restrictions and provides real-time and on-demand visibility.
- Automation – Automating time-consuming processes reduces errors, lowers labor costs and speeds closing, consolidation, and reporting efforts.
- Professional-strength financial functionality – With support for core accounting standards, as well as complex global financial management, a professional-strength solution will combine usability with sophisticated functionality and enterprise power and performance to make a tangible impact on the business.
- Flexibility – As a business evolves, the financial system should be able to adapt as well to support new geographic locations, acquisitions, or ownership structures.