Financial management can be intimidating for organisations looking to expand beyond a single entity. Fortunately, multi-entity accounting can serve as an integrated solution for parent businesses that oversee multiple companies and diverse entities. 

A singular cloud-based finance management software can empower and simplify multi-entity operations. Before choosing which software to implement, ensure you understand how well it can support businesses with multiple entities. 

To find out how Xledger’s multi-entity accounting software can help scale up your business, click here.  

What is multi-entity accounting? 

Multi-entity accounting consolidates the financial records of multiple business units, subsidiaries, or divisions under a single umbrella managed by a parent company.  

In other words, multi-entity accounting centralises the entire financial data for a company. Parent businesses can then maintain visibility into individual entities and the company, as a whole.  

Within accounting circles, an entity is a distinct and legally identifiable business that maintains separate and independent financial data. This method of independent operating captures the following information: 

  • Financial activities 
  • Assets 
  • Liabilities 
  • Liquidities 

When parent companies treat each entity as a separate entity, accounting standards are upheld, therefore increasing transparency, accountability, and effective financial management. 

A visual structure of multi-entity companies 

To understand the structure of multi-entity organisations, it’s easiest to break it down into three subsections; entity, subsidiary, and division. After grasping this structure, the concepts of consolidation and intercompany transactions become far more accessible. 

Entity 

Distinct financial and legal establishment operating within the larger structure. Maintains its own financial records and legal status, operating autonomously while connecting with the broader parent framework. 

Subsidiary 

Wholly or partially owned and controlled by a parent company. Ownership is established through equity shares or voting rights, giving the parent influence over financial and operational decisions. The subsidiary maintains independent legal status. 

Division 

Takes various forms, including distinct segments within entities, or a separate unit under the parent company.  

Benefits of using a software with multi-entity accounting capabilities 

Multi-entity accounting is the cornerstone to navigating the financial complexities of a growing corporation. Its benefits include financials and intercompany transaction consolidation, increasing visibility across all entities, and providing real-time data access. 

Consolidation 

Multi-entity consolidation is a fundamental step towards a comprehensive overview of an organisation. It merges disparate financial records to create unified and accurate financial statements. These statements then reflect the health and activities of an entire organisation.  

This kind of transparency is highly important for stakeholders and investors as it provides insights into overall business performance. 

Intercompany transactions 

Intercompany transactions refer to any financial activity — goods, services, or funds — between different entities within the same organisation, and is an essential part of transparent multi-entity accounting.  

Intercompany transactions are identified and eliminated to prevent data duplication during consolidation. This process works to maintain integrity and coherence in financial statements.  Through multi-entity accounting, intercompany transactions inform decision-making and heighten regulatory compliance. 

Operational visibility 

Multi-entity organisations can be spread across different geographical locations, with business entities operating under various local regulations. Differing time zones, compliance, taxation laws, and accounting practices can make it tough to track financial activities across each entity. 

Without multi-entity accounting processes, cost allocation and loans between entities may not be recorded accurately or efficiently. This ultimately will lead to struggles with reconciliation of important data between locations.  

However, with an overarching view of financial performances across all entities, delivering these insights becomes easier, and aids decision-making and cost allocation.  

Agile reporting 

Access to real-time financial reports and analytics is a must for multi-entity businesses. Without it, finance teams cannot inform CFOs of market changes or aid them in strategic countermoves to ensure the business stays ahead of the market. 

Parent companies can foster agile responses from financial experts by implementing an ERP system that supports multi-entity accounting. As a result, financial are encouraged to make swift and confident financial decisions. 

Elements of multi-entity accounting to consider 

Although the shift to multi-entity accounting systems like Xledger carries undeniable benefits, particular challenges require careful navigation regardless of your chosen software. What matters is choosing the software you can trust to help you navigate these challenges confidently—and that’s precisely what makes Xledger the #1 choice for multi-entity accounting. 

Integration with existing systems 

Businesses should aim for seamless integration between their multi-entity accounting software and existing business systems. Seamless integration is critical for successful adoption, however, organisations should be prepared for adjustments along the journey which may impact the integration timeline. 

Establish data security 

Each entity within the parent company must uphold stringent security protocols to ensure sensitive data is protected across all platforms. Enforcing data security and privacy protection will ensure each entity remains compliant and avoids the risk of fraud. 

Provide training and support for users 

To avoid user dissatisfaction and disengagement, businesses should provide adequate training when using multi-entity accounting. This training should be continuous and available to all staff members, not just the finance department. That being said, it’s wise to give full administrative access to CFOs or finance leaders.  

Xledger accounting software for multi-entity accounting 

We’re proud to equip multi-entity organisations with specially designed and tailored tools to meet their accounting demands. Xledger’s robust multi-entity and consolidation capabilities help multiple business entities to navigate complex financial structures and gain valuable insight into their organisations operational health. 

Our software caters to all businesses looking to: 

  • Generate consolidated financial reports 
  • Customise consolidated dashboards to suit broad and specific entity needs 
  • Ensure financial accuracy 
  • Achieve complete compliance 
  • Access all entities and enterprise levels with a single login 

Contact our Direct Sales Manager Tom Whewell tom.whewell@xledger.co.uk for more information and discover how Xledger can redefine your multi-entity organisation.