The Truth About Why You Need Multi-Entity Accounting Software for Modern Businesses

27 September 2024

Managing multi-entity accounting can be a tricky task. When a business has subsidiaries, the accounting work multiplies, and it becomes necessary for the financial accounts of each entity to communicate with one another. This can be frustrating for financial leaders who may feel overwhelmed by the added responsibilities.

To better grasp this concept, it is helpful to consider what multi-entity accounting entails and why it can be challenging.

In essence, multi-entity accounting refers to the financial management of a company or organization that has multiple subsidiaries, operations, or locations, often controlled by a parent company. This structure typically develops when a company acquires or merges with another business or establishes a subsidiary.

Each subsidiary is required to maintain independent finances, regardless of being part of a larger organization. However, the parent company, chief financial officer, and chief executive officer need to have a comprehensive understanding of the overall financial state of the corporation. Tax authorities may also require this information. Coordinating and consolidating financial information from several organizations can be a daunting task, which is why multi-entity accounting often proves to be quite challenging.

One notable example of a multi-entity business is Nestlé. Nestlé is both multinational and spans multiple sectors. For instance, while it is primarily a food and beverage company, it has subsidiaries in a variety of industries, including coffee, bottled water, and pet care. Additionally, they have brands in perfumes, skincare, beauty, and more.

Here are a few examples of Nestlé subsidiaries:

• Coffee: Nescafé, Nespresso, Coffee-mate, and Taster’s Choice.
• Water and Drinks: Perrier, Nestea, S. Pellegrino, Poland Spring, and more.
• Pet Care: Purina, Friskies, Dog Chow, and others.
• Snacks and Candy: KitKat, Aero, Smarties, Butterfinger, Crunch, and more.

Each of these subsidiaries has its own unique accounting needs and operates independently in their respective industries and countries. Considering the various countries, industries, and subsidiaries, the accounting differences between a large multi-entity company like Nestlé and a single-entity company can be significant, with complexity increasing exponentially with each additional entity.

What Can You Do?

Imagine that every subsidiary has different ledger codes and procedures, and they may even have different definitions for their categories and subcategories. It can be very difficult to use single-entity accounting software, often resulting in cumbersome manual spreadsheets that attempt to consolidate everything. Additionally, there are tax implications to consider between countries and the parent company.

Keeping track of different currencies can also be challenging, as currency values fluctuate frequently. For instance, if Nestlé has a subsidiary that creates packaging for products sold to another subsidiary, different teams may perform the same work, even though they are technically all working for Nestlé.

Visibility issues arise when ultimate controllers, such as the CEO or CFO, want to see how the business is performing in specific areas, countries, or by-products. To form accurate budgets and strategies, real-time visibility is essential. Gathering data from numerous subsidiaries that provide substantial information can be a major challenge for multi-entity companies.

Why Should You Use Multi-Entity Accounting Software?

Numerous spreadsheets and inefficient practices might serve a purpose, but ultimately, many multi-entity companies solve their accounting problems by integrating subsidiaries within the same accounting software. This approach saves time and effort, allowing for real-time data that is always up to date.

This can help CFOs and CEOs make better strategic decisions, as they will have a clear, real-time view of the company’s finances, rather than relying on traditional month-end reports that require extensive compilation from various subsidiaries—a process that is prone to human error and may not contain the most current data.

Multi-entity accounting software provides a digitalized one-stop shop for subsidiaries to input their data, reducing the time buffer for the leadership team. It also alleviates the workload for employees at the subsidiaries, as they will no longer need to duplicate efforts when selling to one another.

However, it is essential to choose the right software for your company’s needs. Not all multi-entity accounting software is created equal, so it’s important to do your homework and select a solution that performs best for your organization. When selecting multi-entity accounting software, consider the number of entities being managed, the complexity of your financial procedures, and the ability to integrate with other systems.

Multi-entity accounting is a vital component of running a multi-entity business. By adopting the correct tools and following best practices, finance teams can better manage their multi-entity accounts and focus on other important tasks. Choosing the appropriate multi-entity accounting software can enhance efficiency, accuracy, and compliance with tax regulations, resulting in improved overall financial management.

Qashio can help you handle your multi-entity finances without micromanaging your employees. By using the same spend management solution across all entities, you can make quicker and more informed spending decisions based on real-time data. Qashio’s multi-entity financial software can help save time and resources by automating tedious manual tasks. Learn more about how Qashio can assist you with your spending management today!

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