• Intacct Blog: The Cost of Managing Multiple Entities in a Global Economy
  • The Cost of Managing Multiple Entities in a Global Economy

    Companies today face multi-entity and global business management issues far earlier in their life cycle than ever before. It’s not uncommon for a small company to start their business in one city, then open an offshore development office, house customer service in a yet another location, and grow to have sales offices scattered across the country and internationally—all within the first few years of business. As exciting as that kind of growth sounds, it’s a nightmare to manage for a traditional financial system.

    In a multi-entity environment, each office typically operates autonomously, subject to varying currency, tax, and reporting requirements—such as currency translation, exchange gain/loss accounting, local reporting, and an increased risk of non-compliance. But that’s not all they have to deal with. In addition to managing organic growth, mergers and acquisitions are common in many industry. And with each new business acquired comes more separate entities, their unique challenges, and often a second financial management system.

    Presented with these challenges, finance team often struggle to perform critical tasks such as consolidation, reporting, and analyzing operational and financial information across the disparate sites. They are forced to use cumbersome spreadsheets and add-on reporting solutions along with their traditional financial systems to try to cobble together meaningful data to help management make informed decisions. Instead, the process is manual, slow and error ridden. Data from the multiple entities is collected and consolidated manually, currency conversions are calculated by hand, and the number of inter-entity adjustments and eliminations increases.

    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.

    Be sure to subscribe to the Intacct blog to stay updated on future CFO Insights posts, and follow Intacct on our social media channels: Facebook, Twitter, and LinkedIn. To network with other people interested in cloud financial applications, be sure to join the Intacct Cloud Accounting group and the CFOInsights group on LinkedIn.

    Image Credit: 123RF Stock Photos 

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    Media Contacts

    Peter Olson Director of Corporate Communications 408-878-0951 | polson [@] intacct.com Twitter: @Intacct_Peter
    Brittany Benson Senior Corporate Communications Manager 408-620-3938 | bbenson [@] intacct.com Twitter: @brittanybbenson