What Is a Multi-Entity Company?
As businesses grow, there are opportunities to merge with other companies, acquire companies, spin-off businesses, or establish international offices with independent structures. We call these entities. Different entities can be subsidiaries, divisions, business units, brands, but what they’re called varies based on the parent company. While multi-entity companies enable each unique business to focus and grow with autonomy, parent companies have to contend with varied workflows, different business models, unique sets of processes, and a range of compliance and legal standards.
Media companies have some of the most complex entity structures because they often involve brands and subsidiaries. And because they primarily deal in intellectual property and creative content, which are easier to assimilate than say, technology, acquisitions are plentiful. Perhaps no better illustration is The Walt Disney Company.
Disney: The Multi-Entity House of the Mouse
Whether it’s Mickey Mouse or Moana or a Muppet, Disney’s staple is that each character is magical and unique. That is echoed in the way it treats each brand, from Disney Studios to Pixar, Marvel, and Lucasfilm. Each is a discrete part of the Disney family and often only blended together when those properties make sense (such as in their TV channels, retail stores, or theme parks and resorts). Olaf the snowman is unlikely to make an appearance in the next Black Panther movie. So, while the process might seem the same for creating content between various properties, there nevertheless is a need to set barriers and maintain a multi-entity approach.
What Does this Have to do With Financial Management?
Maintaining the identity of distinct brands while embodying the “happiest place on earth” promise is a challenge. Complex financial operations across brands/entities/segments (media networks, parks & resorts, studio entertainment, consumer products, etc.) can lead to disparate processes, but the finance team at Disney headquarters still needs a consolidated view to report financial results. In addition, unique offerings across properties such as planning and reporting on retail/apparel revenue are much different than planning and reporting on worldwide box office returns.
For multi-entity organizations, global supply chain management, sourcing, and payables are complex. Disney has to source suppliers around the world for different brands, business units, and divisions, and negotiate the best discounts with suppliers. The result?
- Thousands of contractors/freelancers are involved in the delivery of creative and services
- Onboarding suppliers effectively require proper documentation and tax forms to cut the risk of tax penalties and fines
- Invoice processing has to streamline to reduce manual touches and errors
- The process of paying suppliers around the world must comply with local regulations and cut the risk of payouts to bad actors
- Supporting suppliers with invoice and payment issues requires individualized branding and communications in multiple languages
- Reconciling payments and proper accounting entries across suppliers, payment methods, and currencies must be done per brand
- Strong financial controls are critical to limit data access based on brand/division/BU
The Multi-Entity Approach to Accounts Payable
While some ERP systems exist for supporting multiple entities, the act of paying suppliers, partners, contractors, and vendors for various business relationships is one of the last disciplines to go “multi-entity” where a single system accommodates all subsidiaries.
Often, because each entity might have individual bank accounts, jurisdictions, or even tax structures. That leaves either the home office centrally executing payments (either manually or through accounting software) or running decentralized payables departments, each meant to support specific subsidiaries.
Regardless of how the corporate structure is defined, none of this is ideal. Dealing with disparate payables entities is a recipe for control and reconciliation trauma. Risk goes up. Financial data accuracy goes down. These are the two things controllers and CFOs hate hearing. Organizations, even smaller ones than Disney with a handful of entities, can benefit from a centralized payables framework that can individually support each entity’s unique needs.