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Corporate growth is often a combination of internal growth and external growth through M&A. When mergers or acquisitions happen, systems are often different in the newly acquired or merged companies. Part of the M&A integration process is converting the new business entities, if possible, to multi-entity accounting software.
Managing a multi-entity business means handling complex multi-entity accounting processes and challenges. Learn how to improve multi-company accounting for growing businesses.
What is Multi-Entity Accounting?
Multi-entity accounting is performing financial work like transaction processing, analysis, and preparing financial statements at the business unit level and consolidating accounting results. With multi-entity accounting, your business can view the company’s business processes like accounts payable, global payments, and financial statements at the entity level and for the entire organization.
What is a Multi-Entity Business?
A multi-entity business is a corporation, serving as a parent company, with subsidiaries, business units, divisions, brands, and legal entities for foreign office operations. In a decentralized company, business entities have autonomous operations and create financial reports. The parent has oversight, consolidated financial reporting, and global finance and accounting responsibilities.
Examples of a Multi-Entity Business
Small businesses usually start out as a single entity. Most established businesses are multi-entity companies because they acquire other businesses and establish international legal entities in various countries. With these initiatives, companies achieve their growth objectives with cost synergies and market expansion or acquire new technologies. Businesses expand through M&A deals either using a horizontal integration or vertical integration strategy.
Three examples of a multi-entity business are:
- Alphabet
- Amazon
- Salesforce
Alphabet
Alphabet, Inc. is the multi-entity corporate parent of Google and its other subsidiaries, divisions, and business entities, as listed in a January 2022 article about companies owned by Alphabet. In an overview, this Industry Leaders article mentions four primary subsidiaries:
“Alphabet, Inc. is a technology conglomerate that owns four significant subsidiaries: Google LLC, XXVI Holdings Inc., Google Ireland Holdings, and Alphabet Capital US LLC.
If you take a closer look, the Alphabet company structure is divisional. This means that each division is based on separate brands. One side is Google, while the other bets are Nest, Calico, Access (Fiber), among others. In the past seven years, the conglomerate has diversified far beyond Google.”
Amazon
Amazon is a multi-entity company with numerous businesses and partnerships, including its flagship eCommerce, AWS public cloud services, streaming and movie studios (Amazon & MGM), food retailing (including Whole Foods and Fresh), private label brands, manufactured products (including food, apparel, electronic devices), logistics and shipping, home services, and healthcare/pharmacy operations.
Salesforce
The CRM (customer relationship management) software company, Salesforce, is a multi-entity company that also owns non-CRM businesses and products it has developed internally or acquired. These businesses include the acquisition of companies with retained brands: Tableau for data visualization, analytics, and business intelligence, Slack for company-wide corporate communications, MuleSoft for customer experiences, and others.
How can your business achieve better multi-entity accounting?
Download our eBook, “Are You Using the Most Efficient Payment Method” to learn how your business can improve global multi-entity payments and accounting.
Use AP automation software combined with advanced FX software for self-service supplier onboarding, global payments with a choice of payment method, and validation and screening to ensure fraud risk reduction and global regulatory and tax compliance.
Accounting Challenges Faced by Multi-Entity Companies
Accounting problems and challenges faced by multi-entity companies can be overcome through effective multi-company accounting systems, adequate accounting team training, smart financial management, and using accounting best practices.
Accounting challenges for multi-entity companies include:
- Properly recording acquisitions in accordance with GAAP accounting standards
- Having a different chart of accounts in each different entity and subsidiary’s software system, resulting in complexity
- Paying suppliers on time, in multiple currencies with cost-effective payment methods, foreign currency conversion (FX), hedging FX transactions, and good global cash forecasting/cash management systems
- Accurately preparing consolidated financial reports on a timely basis
- Visibility and communications at the business entity, corporate levels, and external supplier/global partner level
How Multi-Entity Accounting Software Can Help
Solutions for a multi-entity company’s accounting challenges include migrating from each business entity’s existing accounting software to a multi-entity ERP and AP automation system with advanced FX features through integration. Multi-entity accounting software becomes much more efficient and accomplishes more with add-on accounting automation.
Many modern multi-entity accounting software, ERPs, and automation software products provide almost real-time visibility through dashboards, reports, and AI-assisted financial data analysis for business intelligence.
Consistent Chart of Accounts
With a multi-entity accounting system or ERP, the chart of accounts can be made consistent throughout the company to the extent possible for the type of underlying business entity. Many ERP systems can be used to prepare consolidated financial statements. Multi-entity companies eliminate intercompany transactions from accounts in the general ledger to prepare their consolidated income statement, balance sheet, and cash flow statements.
Business Entity and Consolidated-Level Visibility and Communications
Multi-entity accounting software provides more visibility at the business entity and consolidated levels for multi-entity organizations. Multi-company accounting, accounts receivable automation, AP automation, and global partner payments software give business entities the ability to streamline and efficiently manage their:
- Operations
- Back-office processes, including
- Accounts receivable
- Accounts payable
- Invoice processing
- Global payments
- Recording accounting transactions and generating financial statements
- Growth with scalability
With digital transformation from AP automation software, companies can eliminate manual data entry and paper-based systems.
Automated Invoice processing includes error detection, 3-way matching with purchase orders and receivers, guided approvals, fraud risk reduction, and checking for global regulatory compliance when making payments.
Multi-Entity AP Automation Platform with Multi-Entity ERP Integration
Tipalti AP automation software is a multi-entity platform designed to streamline business processes for global payables, invoice processing, approvals, and payments when integrated with multi-entity accounting software and ERPs.
You can use Tipalti’s multi-entity features with an ERP system or accounting software that provides multi-entity capabilities. Examples of ERPs with multi-entity functionality are NetSuite OneWorld, Microsoft Dynamics 365 Business Central, and Sage Intacct.
Tipalti AP and accounting automation software works for decentralized business entities that use their own payables processes and workflows for invoice processing.Tipalti finance automation products give you the visibility that you need for payables and global payments at the business entity, parent corporation, and supplier levels.
The Tipalti AP automation solution saves companies 80% of end-to-end payables processing time and helps close the books 25% faster by using its automated large batch payments reconciliation feature.
Supplier Payment Methods and Currencies
Tipalti AP automation software offers payees a choice of cost-effective country-available payment methods in 196 countries and 120 currencies. Tipalti payment methods include:
- ACH for domestic U.S. transactions
- Global ACH (like SEPA in Europe for euro transactions in member countries)
- PayPal
- Prepaid debit cards
- Wire transfers
- Paper checks
ACH is a bank account to bank account electronic funds transfer (EFT). Tipalti has money transfer licenses (MTL) and uses some major global banks for payments. Wire transfers include domestic and international wire transfers.
Advanced Tipalti FX Products Integration
Tipalti also offers advanced FX products working in combination with its AP automation software for foreign currency conversion into local currency, supporting 30 currencies and transaction hedging. These optional add-on products, which are ideal for multi-entity companies and subsidiaries with foreign exchange, are Tipalti Multi-FX and Tipalti FX Hedging.
With Tipalti’s Multi-FX product, your company won’t need to set up a network of regional international banks to make payments through foreign bank accounts. Instead, Tipalti Multi-FX uses a virtual account for global payments.
Tipalti Customer Testimonial for Multi-Entity AP Automation and Global Payments
When we started towards full automation, we decided to implement Tipalti across the entirety of our organization due to the ability to have the multi-entity set-up, the international payment set-up, and just the ease with how Tipalti handles this. If we open up any offices in the future, this is a system that we’ve got in place that allows us to do that, because it’s super simple to add another entity into the system, and then we’re up and running straight away.
—Bradley Clifford, Assistant Controller at Stack Overflow
Multi-Entity Accounting FAQs
Frequently asked questions (FAQs) with answers follow.
What is multi-entity consolidation?
Multi-entity consolidation is combining the financial statements of all business units, subsidiaries, and divisions, and then making intercompany elimination journal entries to prepare and present the financial statements for the entire corporation.
What is multi-entity reporting?
Multi-entity reporting is preparing reports and financial statements at the business entity level and rolling them up into a combined total corporation (through consolidation) to view the underlying source of business operations, transactions, and financial results.
Why would a company have multiple entities?
A company has multiple entities as a result of international expansion with the establishment of legal entities, the completion of M&A deals, and the strategic division of operations into groups or entities for better management and grouping of similar operations.
M&A deals are to wholly acquire, merge two corporations, or take a significant stake in other companies. The rationale for acquisitions is to buy companies with additional technology expertise, acquire suppliers, and achieve business growth through greater market share, geographic expansion, and synergies resulting in cost reductions by combining operations and reducing redundant staff.
Conclusion
Multi-entity accounting presents time-consuming challenges best solved with multi-entity accounting software solutions that allow business units autonomy but give the parent corporation of multiple companies visibility into business operations and results, cash flow needs, and financial statements. Visibility is provided at both the business entity level and the consolidated corporate level.
Multi-entity accounting solutions and automation provide efficiencies and other benefits to the CFO, Controller, and finance team, including freeing more time to take on value-added projects. To start improving multi-entity accounting, download our white paper, “How Multi-Entity Businesses Scale Payables.”
