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An intercompany transaction is when a sale occurs between two divisions, units, or entities within the same organization. There are many instances where modern companies must make these types of transactions. For example, a parent company might loan money to one of its subsidiaries or a department might transfer inventory to another unit.

At this point you may be wondering, how do you account for these types of transactions? This blog will answer some of the most commonly asked questions about intercompany accounting.

Interested in a specific aspect of intercompany accounting? Click on the question below to skip ahead. 

 

What is intercompany accounting?

Intercompany accounting comprises all financial and commercial transactions documented between separate legal entities belonging to the same parent company. These types of transactions may occur between:

 

What is an intercompany journal entry?

An intercompany journal entry is a financial record in the accounting ledger that specifically relates to intercompany transactions. Anytime a transaction occurs between two related entities, the exchange must be recorded and reconciled. A few examples of intercompany journal entries include:

 

Why is it important to record intercompany transactions?

Intercompany journal entries enable companies to meet the same standards of detailed accounting that are expected of all other financial activities. A transaction may only impact a business’ profit and loss statement when it involves an independent, external entity.

Since the entities involved in an intercompany transaction are related, they are not independent, and therefore it would be wrong for the parent company to record a profit or loss. However, by reviewing intercompany journal entries, companies can evaluate the full monetary value of their collective transactions and cultivate a nuanced understanding of their overall financial health.

Accurate financial records of intercompany transactions are vital to strict adherence to regulatory compliance. Accounting principles like ASC 810 and IFRS 10 provide the requirements for preparation and presentation of consolidated financial statements.

 

What are the challenges of intercompany accounting?

Intercompany accounting has become a staple of everyday business, increasingly companies must develop protocols to mitigate the risk posed by handling high volumes of transactions between related entities. The five core intercompany accounting challenges multi-entities face include:

 

What are the best practices for intercompany accounting?

To reduce the complications introduced by intercompany accounting, companies of all sizes must adopt rigorous policies and implement robust processes. Without a proper financial backbone, companies risk non-compliance and hours of lost time as their systems buckle from expansion. Below lists five intercompany accounting best practices all multi-companies can take advantage of:

 

What are the three types of intercompany transactions?

 

Intercompany transaction types (1)

Downstream transaction

A downstream transaction occurs when the parent company sells to its subsidiary. In this case, the parent company is responsible for recording the transaction and any profit or loss. The transaction is not transparent to the subsidiaries, only the parent company and its stakeholders.

Upstream transaction

An upstream transaction occurs when a subsidiary sells to its parent company. In this type of transaction, the subsidiary is responsible for record-keeping and documenting any profit or loss. Not only is the transaction visible to minority and majority interest stakeholders, but they can also share the profit or loss because they share ownership of the subsidiary.

Lateral transaction

A lateral transaction occurs when two subsidiaries belonging to the same parent company sell to each other. Similar to an upstream transaction, either or both subsidiaries may record the transaction and applicable profit or loss.

 

What is the purpose of intercompany eliminations?

The intercompany eliminations process involves deleting transactions made between related entities from the financial statements. This process is essential to mitigate the effects of intercompany transactions on the bottom line and present clear, consolidated financial statements that explicitly show third party transactions.

Further reading: The complete guide to financial consolidation

 

What are the three types of intercompany eliminations?

3 types of intercompany eliminations

Elimination of intercompany revenues and expenses

Transactions involving sales or interest payments between affiliated companies are referred to as intercompany revenues and expenses. These transactions are disregarded by the accounting team because a business cannot record sales of goods to itself as revenue, and the company’s consolidated net assets are unaffected by the removal of linked revenue, cost of goods sold, and profits.

Elimination of intercompany stock ownership

When intercompany stock ownership is eliminated, the assets and stakeholders’ equity accounts for the parent company’s ownership of the subsidiaries are eliminated. The accounting team must create an intercompany elimination to take the profit out of retained earnings.

Elimination of intercompany debt

Intercompany debt is eliminated when a parent firm lends money to a subsidiary, and each party has a note payable and a note receivable. The loan is reduced to a simple cash exchange when the two companies are consolidated; therefore, the accounting team must cancel both the payment and the receivable.

 

What are the best practices for financial consolidation?

Determining how to manage your intercompany transactions and maintain accurate multi-entity financial records can be a daunting task, but it’s well worth it to develop efficient and effective reporting protocols so that leadership can make data-driven decisions that maximize your company’s resources.

Implement the following eight best practices to streamline financial consolidation and master intercompany accounting:

 

How can innovation support coherent intercompany accounting?

A robust financial management solution, like Multi-Entity Management (MEM), provides a secure, centralized environment for intercompany accounting and empowers your company to gain better insights with real-time consolidated reporting. Directly embedded in Dynamics GP and Dynamics 365 Business Central, complete your intercompany transactions from end to end within a single database or instance while protecting your data with a scalable security setup customized to your organizational structure.

financial transformation case study Starboard CTA

Recent years have seen a rise in the number of transactions taking place between related companies. Intercompany accounting has become a fact of everyday business, yet, despite this, many remain unaware of the best practices for managing intercompany transaction challenges or have a plan in place to mitigate the risks that can arise when handling high volumes of transactions between related organizations.

If you’re new to intercompany accounting, then take a moment before we jump into the challenges of handling intercompany transactions and check out this short primer on the FAQs. If you’re already up to speed, then let’s jump straight into the core issues multi-companies are trying to overcome through automation.

A quick overview of the intercompany transaction challenges this article covers

 

The 5 core intercompany accounting challenges multi-companies face

 

1. Resource draining, time-consuming processes

Handling intercompany accounting involves tracking, settling, eliminating, and reconciling all intercompany transactions between entities. It involves numerous steps, transaction types, and scenarios that need to be worked through for parent companies to produce an accurate consolidated financial statement.

As companies grow and these transactions increase, finance faces an immense backlog of unprocessed data, improvising manual processes to try and meet deadlines, and error-riddled reports that are effectively useless. All these issues can exist as well as the problem of having the entire team tackling the task of trying to fix them, leaving little time for the many other duties on the average finance department’s plate.

If everyone is busy inputting data manually, rectifying errors and scrambling to get month-ends complete, what happens to the strategic elements of finance? How can your team grow operations if you are already struggling to keep up with the pace of intercompany transactions?

Solutions

solve common consolidation issues | merger checklist

2. Complications due to inconsistent intercompany accounting policies

A lack of documentation may not seem like the most pressing concern if you currently face a bottleneck of intercompany transactions. However, every minute spent defining processes and standardizing the approach to intercompany accounting will save you hours in the long run.

Often, parent companies adjust for all subsidiaries to produce a consolidated financial statement. Yet, there’s no reason individual subsidiaries can’t complete the bulk of this work with the proper guidance. One problem that regularly occurs is different approaches from different teams and little communication from the parent company regarding accounting expectations.

When acquiring new branches or expanding, companies need to sit down and consider every stage of the intercompany process. Building out policies for handling every transaction type, ensuring teams have adequate tools, establishing a global chart of accounts, and communicating changes to existing policies through continuous training and documentation.

Solutions

 

3. Researching discrepancies and rectifying errors across various entities

Accurate reporting already costs intercompany accounting teams a lot of time and energy without the additional stress of dealing with errors. Most companies will likely spend most of their time researching discrepancies between reports and rectifying errors on month-ends. Often transactions queried at the end of a month will be weeks old, and parent companies may have to go through multiple departments in a subsidiary to get answers as to what went wrong.

Rectifying errors can cost teams more time than it should take to process an intercompany transaction end-to-end. Wasting time in this manner can impact team productivity and morale, as strategy takes a backseat, and accountants figure out inconsistencies across multiple reports and teams.

 Solutions

financial transformation case study Starboard CTA

4. Lack of tools and disparate decentralized accounting systems

The biggest roadblock for accounting professionals is the lack of good tools to handle intercompany transactions challenges. Deloitte polled 4,217 accountants facing intercompany hurdles and found that the most common challenge was decentralized accounting systems.

Far too many multi-entity companies operate from disparate accounting systems, with teams handling finance in silos, importing, and exporting reports, and updating records manually. This scenario is an administrative nightmare and a recipe for financial disaster. It

is worth noting that transferring sensitive financial information in this way is a process vulnerable to security breaches and data manipulation. In the worst cases, it can lead to issues with filing taxes, the loss of essential documents, and reporting that fails to meet compliance requirements.

Finance needs to convince leadership teams of the cost of non-compliance and alert them to the amount of time and money commonly saved by investing in the right tools. Financial transformation often doesn’t begin until it’s long overdue, and when it comes to multi-companies, it should be a top priority before problems start to arise.

Solutions

 

5. Failure to keep up with local regulatory compliance and accounting standards

Non-compliance is a risk most multi-companies should not be willing to take, yet it’s a risk that many take every day when they postpone financial transformation. Global accounting standards like IFRS 10 and ASC 810 are non-negotiable, and teams must work to keep intercompany transactions in line with the expectations in these guidelines.

Often companies have developed high-level strategies to tackle compliance issues, but the real work happens at the line-item level. Creating smooth workflows involves implementing global policies and frameworks that meet the growing demands of governing bodies.

Solutions

 

Automation is the answer to all these intercompany transaction challenges

Although several solutions exist for each issue, automation is at the heart of each. Postponing the inevitable and trying to manually address the rising tide of intercompany transactions in your company will only lead to stressed teams without the tools to properly manage the issues.

Suitable ERPs will allow your team to manage end-to-end intercompany processes without headaches so that you can focus on growing operations through strategic initiatives. If you’re in the market for multi-entity management software, check out this blog on the features to look for in financial consolidation ERPs.

 

Finance leaders playbook CTA | retail expansion

Intercompany transactions often result in cumbersome workloads for accounting teams. This statement is as true for smaller organizations as for global corporations. The best practices presented below are essential for companies of all sizes and help teams reduce the complications of intercompany transactions across any number of entities.

Finance teams must be mindful of intercompany accounting policies and implement the robust processes needed to manage these transactions as complexity increases and organizations grow. Those that fail to prioritize intercompany accounting run the risk of non-compliance and hours of time lost to time-consuming manual processes. Companies can utilize the practices below to solve the everyday challenges of intercompany accounting for financial consolidation.

 

Not sure if this article is for you. Here’s what you’ll learn to do: 

Further reading: Your FAQs about intercompany accounting for multi-entities answered

 

A breakdown of the best practices for handling intercompany transactions

best practices intercompany accounting

1. Follow an intercompany accounting framework for the best results

Why a framework is vital for multi-entity accounting

Getting multiple companies to coordinate their reporting and intercompany transactions can be quite the headache. One of the best ways to get all entities on the same page is to choose an established framework. Frameworks should allow you to break down the end-to-end process while providing a vision for teams to understand new policies and where their efforts fit into the bigger picture. It also assists teams in drafting global accounting

A suggested framework from Deloitte Risk Advisory

This framework is an excellent place to start your intercompany accounting journey as it breaks down the approach into seven critical components. Below the image, we’ve quickly defined each area for consideration.

 Intercompany accounting best practices

 

Governance and policies

Intercompany accounting practices start with effective global policies governing data management, accounts charts, transfer pricing, and revenue allocation.

Intercompany pricing

Finance works to develop appropriate arm’s length pricing and introduce global pricing policies across all subsidiaries that provide transaction-level pricing and reporting guidance.

Transaction management  

Categorize intercompany transactions by type. Then develop specific workflows and procedures to streamline and simplify processing for each category and normalize reporting. These steps enable consistency, as well as effective dispute resolution between entities.

Data management

Developing a centre of excellence for data management and governance requirements is a critical component of intercompany accounting. Common charts of accounts and clearly defined reporting requirements are crucial to meeting global data management accounting regulations.

Reconciliations and eliminations

Companies who want to streamline this time-consuming element of intercompany accounting must consider the introduction of automated workflows and a centralized accounting environment that can handle multiple entities. Without this step, companies will find managing this will burn through resources, squandering valuable talent as teams struggle to balance statements and produce accurate financial information.

Netting and settlement

Companies need a defined cash management strategy and a multilateral settlement. It’s wise to determine policies for settlements requiring a cash transaction rather than an account entry. It’s also important to outline when to clear originating transactions son local ledgers.

Internal and external reporting

The consolidated financial statement presents the biggest challenge of intercompany accounting for parent companies and even for child companies trying to satisfy the requirements of their parent organization. Collecting consistent records across all entities can be daunting, and those that excel in this area generally have all the other components in place. Leaders tend to have a centralized intercompany accounting environment with minimal manual input from various entities.

2. Create global policies that include the nitty-gritty of intercompany transactions

How global accounting standards complicate matters

Deloitte refers to intercompany accounting as “the mess under the bed, ” a mess which involves serious risk for those who fail to clean up their processes. Regardless of the size of your enterprise, intercompany transactions increase with complexity as you grow. Whether dealing with two entities in the same city or twenty spread worldwide, you must be mindful of the guidelines governing your transactions between entities.

The challenges of intercompany transactions include everything from managing different currencies and exchange rates to varying compliance standards. To meet the financial requirements of global governing bodies, your organization needs to establish policies that account for these variations across all entities.

The state of global intercompany transaction policies for most organizations

The problem is that most companies believe they’ve already taken this step. Most can present several pages of high-level policies that cover intercompany accounting. However, these policies often fail to provide the level of detail needed to ensure smooth intercompany transactions. This level of detail is essential for proving compliance with global accounting standards like IFRS 10 and ASC 810.

How to ensure your intercompany accounting policies remain relevant 

3. Invest in a centralized master data management system to standardize all  intercompany transactions procedures

Security assessment in mergers | common financial consolidation challenges

Having standardized global policies that include intercompany transactions in their scope is only the first step. As anyone can tell you, the best-laid plans are rarely enough to achieve the desired results. Implement policies in a controlled, centralized environment that reduces the likelihood of human error.

These policies are often rigorous and challenging to implement across various entities. It’s best to consider the value added by a centralized ERP system, allowing you to create standardized charts of accounts that ensure consistency across all transactions and accounting.

Invariably, using appropriate software saves teams from spending many hours figuring out intercompany transactions and making adjustments in consolidated reports. It also helps with creating standard processes and calculations, which makes accounting for month-ends more efficient.

Features to look for in intercompany transaction software solutions

For more on the features to look for in financial consolidation software, check out this blog.

4. Automate transaction matching to speed up reconciliations and eliminations

Ask any team that deals with multiple entities where they sink the most time, and you’ll find that eliminations and reconciliations for intercompany transactions will be pretty high on the list. Reconciling transactions across various systems can be an administrative nightmare that can take days (if not weeks) to solve each month.

Plenty of software solutions automate this process by matching transactions between entities. These systems should be capable of identifying different types, automatically identifying and accounting for each in month-end reporting. This frees up time to deal with issues as they arise, allowing your team to allocate resources to only investigate the most complicated intercompany transactions rather than every single one.

5. Implement continuous close accounting practices

Accounting for intercompany transactions is one of the most time-consuming and cumbersome tasks that accounting teams face at the end of a period. Most companies require this task either monthly or quarterly, leading to hectic period ends, with all-hands-on-deck scrambling to consolidate financials from each entity into one comprehensive financial statement.

The problem is that teams are querying intercompany transactions that may have occurred four weeks ago. In most companies, a lot happens in a month, and the older a transaction is, the more time-consuming it can be to query.

The best practice is to introduce continuous close accounting practices that turn your usual period-end closing tasks into daily activities throughout the month or quarter. This allows your team to match, reconcile, and eliminate transactions on an ongoing basis, spreading the workload across the period and removing the need to scramble to account for all intercompany transactions at month-end.

 

Consolidation best practices - starboard group case study

Understanding the most common financial consolidation challenges will give you the power to avoid them. Start by asking yourself these questions:

As these questions make evident, financial consolidation feeds into many aspects of your company’s growth. It allows investors to assess the opportunities and gives stakeholders, regulators and auditors a clear understanding of your company’s finances.

Effective financial consolidation is a rigorous process requiring accurate data, expert project management across all entities, and compliance with accounting regulations.

As you scale, consolidation increases in complexity. Despite this, many growing companies still rely on outdated tools and processes. This blog outlines the most common financial consolidation challenges companies face and best practices to avoid them.

The 7 most common financial consolidation challenges

1. Low quality or inaccurate data caused by manual data entry

Unreliable data is one of the most common hurdles companies face. Inaccuracies can be due to the use of multiple disparate sources. Often information is manually inputted into these sources, which is a cumbersome task that results in human-error.

Consolidating multiple sources and judging the accuracy of the data can become an almost impossible task, sinking resources into a process that may take months to resolve. It can be hard to know how inaccurate data arises and where to correct it. A failure to address this issue will result in companies facing issues across the board, including data entry errors and bottlenecks caused by cross-checking transactions.

Best practices to help avoid this challenge

2. Failure to automate consolidation processes

One of the most common financial consolidation challenges is failing to automate time-consuming processes. As you’ve seen above, manual data entry eats up time and resources. It can create more problems than it solves. It’s possible to implement an effective consolidation process by investing in automation to reduce errors and free up time and resources.

Best practices to help avoid this challenge

3. Using inappropriate tools and systems

Many companies make the mistake of using multiple systems without checking if they integrate fully. As you can imagine, this results in a headache for those responsible for consolidating all this information into one system. It’s not uncommon for each branch of a company to use a different reporting tool, which is problematic.

You need to invest in a single ERP system that creates a chart of accounts adhered to by all entities. For best results, look for one that integrates with your current tools and processes. It’s also wise to consider those specifically built for your industry. For example, hospitals should look for solutions that focus on healthcare materials management. Similarly, SaaS companies may want solutions designed to handle the complexities of subscription billing models.

Best practices to help avoid this challenge

Security assessment in mergers | common financial consolidation challenges

4. Making adjustments for intercompany transactions

Another of the most common financial consolidation challenges arises when companies try to record and make adjustments for intercompany transactions. These transactions happen between entities of the same company and include three categories.

  1. Lateral transactions: between two subsidiaries in the same company.
  2. Upstream transactions: from the subsidiary to the parent company.
  3. Downstream transactions: from the parent to the subsidiary company.

You need to adjust for these transactions to give a fair view of the group’s financial health. Making these adjustments can be a time-consuming process that leads to significant delays in the close cycle.

Best practices to help avoid this challenge

Complete guide to financial transformation

5. Changing reporting requirements

Reporting guidelines, statutory requirements and compliance regulations are continually evolving. As a company scales, it can be challenging to keep on top of all the changes to best practices. Compliance is an ongoing hurdle for most companies, one that is integral to financial reporting and consolidation. Look for an ERP system built to handle compliance as you scale.

Best practices to help avoid this challenge

6. Data manipulation and risk of fraud

One of the most significant issues with using spreadsheets for financial consolidation is security. It’s much easier to manipulate and change data. If it does occur, it is hard to track the source of fraud or data manipulation. One of the easiest ways to circumnavigate this challenge is to invest in software that makes security a priority, allowing you to control access and automate data input—making financial statements much harder to manipulate.

Best practices to help avoid this challenge

7. Complications arise between countries

Accounting standards vary from country to country, as do currencies. Each entity must compile a financial statement that meets the reporting standards of its country. These different reporting standards can make consolidation difficult, as you will need to remediate this information in the parent company’s consolidated financial statement.

Currencies and exchange rates are sometimes converted manually and imported to systems, but this is an error-prone process. The only way to accurately handle financial consolidation across multiple countries is to invest in a system built to handle the complexities of different accounting standards and currencies.

Best practices to help avoid this challenge

Starboard Group overcame the challenges of financial consolidation

Selecting the right Enterprise Resource Planning (ERP) software is rarely an easy decision, and the biggest mistake most companies will make is rushing into it without first establishing their functional requirements. A slap-dash approach will only end up costing you time, money, and resources. There are a number of downloadable ERP requirements checklists and templates online, but very few of them are useful as they tend to focus on generic features rather than the specific needs of the team that will be using the ERP for years to come.

Best practice is to establish a custom checklist based on your specific needs, that way you won’t end up wasting more money on flashy features that have very little to do with your company’s goals.

This blog will help you build a custom ERP requirements checklist that is right for your company and equip your team with the criteria and questions needed to assess each system and find one that will work best. You can also download this free ERP functional requirements checklist template, to explore the top features and get started.

 

Core topics covered in this blog (skip ahead by clicking on a topic) 

Understanding the basics, what is an ERP and why it matters

What is an ERP and what does it do?

ERP is an acronym that stands for enterprise resource planning. It’s software that centralizes work across multiple departments, so that you can streamline processes and ensure the secure management of your resources (financial and otherwise). ERPs cover functions such as marketing automation, financial management, customer relationships management, supply chain management, etc. They can be industry-specific and save teams considerable time and money by modernizing workflows and consolidating crucial company information.

What are the core benefits of an ERP system?

Benefits of an ERP system

ERPs serve a wide range of functions depending on industry requirements. Many of the solutions on the market can be modified or customized to meet the demands of a company. However, there are some core benefits regardless of the exact functionality an ERP is purchased for, and these benefits tend to impact all departments. So, whether you’re looking for an ERP to handle financial, human, or marketing resources, it’s likely that you will experience the following benefits:

Steps to stablishing a custom ERP requirements checklist

 (click one to jump ahead)

  1. Survey team and establish a list of business requirements.
  2. Get upper management to actively engage in the process.
  3. Consider in-house expertise and get full user support.
  4. Make a comprehensive list of all functional requirements.
  5. Figure out integration with existing systems and processes.
  6. Consider the capabilities the ERP should have as you scale.
  7. Set a realistic budget covering implementation, integration and onboarding.
  8. Crunch the numbers and calculate the total cost of ownership and ROI.
  9. Research industry-specific solutions and avoid expensive customizations.
  10. Decide what kind of team you want to work with.

1. Survey team and establish a list of business requirements

Make a comprehensive list of all your business requirements for the ERP. You will need to survey the people it will impact most i.e. the users and those directly impacted by its functionality. There is no one-size-fits-all checklist, and you will need to speak to employees at all levels of your company to get a feel for the right criteria. It might be useful to make a list of those who will use the system, and then start by asking them what they need it to be able to do with it. Then, you may want to ask upper management what sorts of reports they need to see to make financial decisions. You also want to ask trusted customers and suppliers what would help them.

Use this feedback to build a tiered list of requirements

If you do this well, you will end up with a large list of ideas. Take this list and use it to form a tiered list of requirements. Working with your team, establish what are the “must-haves”, “good to haves” and “nice to haves”. Your list may have more tiers than this. The overall aim is to get a clear picture of the essential features for your ideal ERP system and which features you can maybe live without.

Once the list is tiered, get the entire team to evaluate it. Can someone fight for a feature that got pushed to the bottom of the list? Be flexible and try to listen to everyone’s input. Weigh the costs and benefits of what they advocate for before you finalize the list.

At the end of this process, you will be able to start looking at some of the other technical requirements of a good ERP. Looking at solutions before you know exactly what you need can have dizzying results. It may even prevent you from making a decision grounded in your business requirements.

2. Get upper management to actively engage in the process

Leadership buy in and financial transformation | ERP requirements checklist

It’s up to you to convince upper management of the importance of the project and get them to have total buy-in and give full support. Your list of business requirements should be one tool that will make it easy to show them the potential of the right ERP system, but really, you need more from them than just budget approval. Without their buy-in, you may end up getting a cheaper solution with less functionality than you require and find that it costs you in the long run.

Before you approach upper management, be sure to have read through this list comprehensively, as it details many things that you may want to be aware of (and have answers for!) before you book a meeting.

It’s also wise to consider the adoption of a new ERP as a financial transformation that is a major decision which impacts every aspect of your company. Framing it this way can help leadership understand the importance of the change and get the support you need to drive what will be a transformative process for the entire organization.

Recommended reading for financial transformations:

3. Consider in-house expertise and get full user support as part of your ERP requirements checklist

Chances are that there are members of your team who have a wealth of experience using different ERPs at previous jobs. Many of these ERPs will be specific to your industry’s needs. As part of your checklist, get their suggestions on the systems they’ve loved throughout their careers. This is important information and can cut down on training costs later. If you end up choosing a solution that some of the team is already familiar with, they can help with training the wider team. It’s also important to understand what they loved about those systems so that you can be sure any new ERP will get their full support.

You need your team’s full support to make the system work. After all, they will be using the system, and the learning curve can be steep. Sometimes, companies make the mistake of landing their teams with a new system, without first supporting them in the transition. Think about how to manage the change to a new ERP from a human perspective. Your team needs to know that documentation and training will both be readily available.

4. Make a comprehensive list of all functional requirements

Once you’ve got a clear understanding of your team’s abilities and requirements, it’s time to get technical. Consider what functional requirements your ERP needs to make your company run smoothly. For instance, should it be hosted on-premise or in the cloud? Will you be using this in addition to a CRM system or run your sales processes out of your ERP? Other functionalities might be the ability to manage multiple currencies and companies.

It’s as important to establish the functional requirements you don’t need. For instance, if you don’t manage inventory, then the system you choose won’t need to have that functionality. Many ERPs are built specifically for certain industries. It’s worth considering which functionalities are crucial to your business.

Some general functionality questions to ask:

5. Figure out integration with existing systems and processes

Make sure your ERP requirements checklist has a section for integration

Your company already has processes and systems in place. Your new ERP solution should not interfere with these workflows and technologies, unless necessary. The ERP must be easy to integrate. Otherwise, you will end up creating an administrative nightmare that will make it impossible to fully optimize your systems.

For example, if you’re already using Microsoft 365 it makes sense to opt for ERP systems that will integrate with that system. Basically, you need to actively look for companies that have built solutions for your industry. These companies will likely have processes in place to integrate your systems with the ERP.

In some cases, you may find your current systems are all out-dated. It will end up making the most sense not only to invest in an ERP but also the other tools and systems that integrate with that system. Although this may feel daunting, it will save time and money in the long run.

Whatever you decide, make sure your ERP requirements checklist has a section outlining the systems it will need to integrate with. There’s no point wasting time researching ERPs that won’t function in your workplace.

6. Consider capabilities the ERP should have as you scale

It’s also important to think about the future when deciding on your ERP requirements checklist. Most likely, your company plans to scale, and as it grows your systems need to be able to seamlessly manage that growth. That means choosing a solution that will be as good for your company tomorrow as it will be today.

If you do plan to scale and won’t need all functionality immediately, it’s important that you think about scalability and updates to the system as time passes.

7. Set a realistic budget covering implementation, integration and onboarding

Deciding how much money is realistically available for an ERP system is crucial. This is an investment in a system that will operate at the very heart of your business for at least a decade. It’s important to weigh up how much you’re going to spend. Be sure that management understands the benefits before you start whipping numbers out of the air.

In 2019, a report  that analyzed data from over 2,000 projects. They found that the average budget per user for an ERP project was USD 7,200. Training costs, integration costs and the system cost are all part of the expenditure you can expect in getting your ERP up and running. Make sure your requirements checklist understands the true budget required to get the job done.

8. Crunch the numbers and calculate the total cost of ownership and ROI

Calculate ROI | Step for building custom ERP requirements checklist

Once you establish a budget, it’s time to calculate your return on investment. Make sure these costs and benefits are spread over time so that you get a clearer picture of the ROI over time. Once you know how much it will cost, you can start to think about the improvements and benefits of the system and calculate the money that can be saved. E.g. processes that once took hours, may now only take minutes.

Now that you will have a system taking care of labour-intensive work, you may be able to free up staff to provide valuable services that were impossible in conjunction with arduous reporting and invoicing processes. This will be very different for each company and comes back to the business requirements. Your team must understand the time and money that will be saved and that this is an investment that will have a measurable ROI.

9. Consider industry-specific solutions to avoid expensive customizations when creating ERP requirements checklist

One of the biggest costs in implementing any ERP system is requiring a lot of customizations, this is often because the solution is too general and not fit for purpose. Ask yourself is your company so unique that no other company has ever needed the same tools? Although this is possible, it’s not likely. You should be able to find an ERP that has been tried and tested and that has functionality specific to your industry. Whenever you find an ERP system pushing customizations, ask yourself if those features might be standard in a system built with your industry in mind.

For instance, a healthcare provider looking to manage materials is going to have completely different requirements from a SaaS company that wants to streamline its subscription billing. Both companies will need a system that can support industry-specific extensions that supplement the core ERP rather than relying on overpriced customizations built by ERP providers who don’t usually operate in their industry.

One way of establishing whether or not a software provider has the tools you need is to look for case studies or examples that exist where similar business models to you have successfully implemented and used that ERP. If you are going to need customizations, be sure you focus on providers who have a team of skilled developers who will be able to quickly and efficiently tweak your system.

10. Decide what kind of team you want to work with

One component that often gets left off ERP checklists is deciding what sort of team you intend to work with. It’s a piece of software! Why does it matter as long as it has the right functionality? The people behind the product matter when a system is integral to the day-to-day running of your company.

Make sure you know how helpful they’re willing to be? If they will be hands-on with training? If an implementation framework exists? How have other companies found working with them? The right global ERP system will also have demonstrated success in the countries where you operate, so make some of your selection criteria the availability of useful resources, case studies and references that are relevant and industry-specific. Compare and contrast how well different ERP systems work within your space.

By establishing what it is you’re looking for as part of your ERP checklist, it will then be easy to research different solutions and make sure that the team behind the system will be as responsive and helpful as you need.

The top ERP requirements template or checklist

For those who don’t want to build a custom ERP checklist, it’s possible to use this requirements template which outlines the top functionality you should consider when prioritizing features. Even if you are building a custom checklist, defining some of the most common functionalities can be helpful before you get started. Below is a list, segmented by department, to help you choose an ERP or facilitate the discussion about company requirements. Alternatively, download the free ERP requirements checklist here. 

 Financial and accounting top requirements

Given the demands of modern finance, it’s no surprise that one of the core functions of an ERP is to streamline and automate processes so that the finance team can focus on more strategic initiatives. Here’s a list of the requirements accounts teams usually request:

Subscription management and recurring revenue requirements

Most industries have seen the adoption of complex pricing models, and SaaS migration has become a necessity for many forward-thinking companies. You could easily consider subscription management tools under the finance section. Still, it’s valuable to give this functionality a separate heading given how central these tools are to the future of organizations. Below is a list of requirements your ERP needs if you plan to incorporate recurring revenue strategies in your future plans.

Integration requirements

Integration is one of the most critical core requirements, yet it’s also easy to ignore. Double-check all solutions and explore options built to integrate with your current processes and workflows.

Data-management and security requirements

One of the central conversations in choosing an ERP is effectively managing sensitive data. It is essential across all industries, even more so for those navigating stringent regulatory guidelines such as healthcare and finance. It is imperative that your ERP handles the complexity of modern data management and protects sensitive information against security breaches and attacks.

Business intelligence tools and enterprise reporting requirements

One of the most compelling reasons for any leadership team to invest in an ERP is the ability to attain business intelligence that will help set your company apart from the competition. Reporting and analytics empower teams to make strategic decisions based on accurate and timely information. Here are some of the requirements leaders look for:

Managing commercial leases

Whatever your industry, it is likely that commercial leases are part of how you do business. Health care companies find themselves converting retail spaces or leasing out equipment, retailers lease multiple locations, and manufacturers and SaaS companies spend a considerable amount of their budget on leasing storage facilities. Whether you are the lessee or the lessor, it’s likely that as operations grow, lease management requirements will increase. Below are some of the features you should consider.

Company and industry specific ERP requirements  checklist

The list above is by no means comprehensive and merely acts as a launch point for companies trying to set expectations and define requirements. It’s also essential to consider the demands of your operations, the struggles with your processes, and any custom requirements you might encounter. It’s worth creating a list of what this looks like department by department, getting marketing, HR, product, and customer service all to weigh in. Here are some industry-specific requirements you might need to consider, depending on your goals for the ERP.

ERP requirements checklist template and downloadable

 

 

Recent years have seen the trend of healthcare mergers and acquisitions continue to grow. In 2020 at least ten “mega mergers” (i.e. mergers with at least $1 billion in annual revenue) were announced in the U.S. alone. Evidence of smaller hospitals joining hospital systems continues to escalate, with a report by Deloitte indicating that nearly 60% of hospitals in the U.S. are part of a health system.

The prevalence of such deals continues to present challenges and opportunities for organizations, both big and small. Handled well, they can lead to unprecedented opportunity and growth. Handled poorly, they can lead to administrative chaos. In any deal, there are steps both parties take that ensure success in these transactions.

The first step is to stop referring to mergers as a “transaction”, a word that paints the merger as a singular event to be stamped and dated. Changing mindsets begins with the terms used by our organizations, and it’s essential to treat deals of this magnitude as an ongoing process that requires buy-in at every level of organizations to be successful.

Healthcare mergers and acquisitions impact all aspects of standard operations, and it’s important to recognize this to avoid an onslaught of administrative issues, which will ultimately impact patient care. There are many benefits to mergers and acquisitions for both parties, but only if an appropriate strategy or checklist is in place to manage the aftermath.

Four secrets to healthcare mergers and acquisitions success

1. Don’t underestimate leadership’s impact on healthcare mergers and acquisitions success

Leadership teams need to prepare a plan which allows for a smooth transition and adequate change management. An appropriate program allows your team to make sure patients continue to receive the care and services they need. Without this in place, the organization can falter, and patients may get caught up in the mix.

In 2017, Deloitte analyzed the impact of mergers and acquisitions on a hospital’s performance and reported commonalities between leadership teams that succeeded and those that struggled. Below is a list of traits that successful leadership teams exhibited.

 8 traits of successful leadership teams in healthcare mergers and acquisitions

Successful M&A healthcare leadership usually have the following in common:

  1.  Develop a strong strategic vision for pursuing the merger and acquisition activity
  2. Set clearly defined financial and non-financial goals to be achieved through the process
  3. Held the leadership team accountable for integration efforts pre- and post-merger
  4. Unify culture by investing in change management
  5. Convey decisions clearly on executive and mid-management leadership
  6. Align clinical and functional leadership early in the process
  7. Follow best practices for integrating the acquired or merged organization into the parent organization
  8. Implement project management best practices that allow for the tracking of targets and milestones from day one of the merger and acquisition

2. Establish a governance committee that includes your best project management talent

Healthcare is one of the most regulated industries globally, and creating a culture of compliance is one of the keys to successfully merging two organizations. It’s wise to designate roles for governance and establish compliance standards early in the process.

Establish a committee accountable for complying with all rules and regulations as your teams work together to consolidate operations and finances. Some healthcare organizations can be tempted only to include c-suite employees, but it’s best practice to include effective project managers in the mix. It will be essential to have critical voices from across both organizations to get a clear picture of challenges and roadblocks as they arise.

This committee will be instrumental in addressing barriers to success and will require the support of executives from all levels of both organizations. Because of the many moving parts involved, project managers are often uniquely positioned to give realistic projections and timelines based on current workloads and capabilities. They’re also aware of challenges and struggles on the ground floor that might not always make it to the c-suite level.

You may want to hire additional project managers to help. It’s also possible that the talent you need exists within the merging organizations. Task these individuals with setting up processes that will enable stability for years to come. The governance committee should ultimately be held accountable for the merger’s success. They can break this down into four key stages: pre-merger deal-making, post-merger day one, post-merger first 100 days, and post-merger integration.

The 4 key projects management stages in healthcare mergers and acquisitions

3. Prioritize the conversation about post-merger ERP integration

After any healthcare merger, ERPs often become one of the central topics of conversation, but this is often too little, too late. If you’re only starting to talk about this on day one, your team will likely face administrative challenges. Not least, that first month’s close where they will need to consolidate financial statements for the first time. Without adequate technology in place, this will be time-consuming and riddled with errors from manually transferring data between systems.

It’s usually better to start planning for the effective integration of software long before kick-off. The ERP is central to how any healthcare organization operates, and it’s almost impossible to succeed if you postpone finding the right solution and aligning all parties on how to use and manage processes within it.

Best practice would dictate that a centralized ERP solution with advanced security options is the best fit for securing data from multiple entities post-merger. It allows you to consolidate financials easily and manage the supply chain across the entire organization, giving you actionable insights into performance.

Prioritizing ERP integration is not a step unique to healthcare organizations. This blog on why you need to worry about post-merger ERP integration now offers further insights into the impact this crucial step can make.

Complete guide to financial management in healthcare CTA

4. Unify culture by investing in change management

Often it is assumed that change and project management are somehow the same. However, change management concerns itself more with the cultural aspects of the merger and acquisition process. An effective change management strategy helps deliver insights on how people in both organizations feel about the merger and then use these insights to build a culture that unites the organizations.

It’s rarely a good idea to imprint the parent organization’s culture on the smaller organization, so this is a role that requires a tremendous amount of tact and empathy. Ideally, change management should help identify and diagnose gaps between the two organizations and resolve these differences through measurable initiatives, creating a culture that serves the future of the merger. There are several ways to invest in change management. Within the Microsoft community, both ProSci and the ADKAR model come highly recommended.

 The 4 stages of culture change in healthcare acquisitions and mergers

The 4 stages of culture change in healthcare acquisitions and mergers

In conclusion

Although it is possible to manage the complexity of healthcare mergers and acquisitions, some organizations still struggle to meet the administrative demands of the process. This blog hopefully serves as a jumping-off point to help your team navigate the transition and enable you to advocate for the resources you will need.

Further reading for healthcare administrators:

MB2 Dental scales monthly invoicing for 250 locations without adding overheads

For the 11th year in a row, the healthcare industry had the highest average data breach cost. Healthcare data breach costs increased from an average of $7.13 million in 2020 to $9.23 million in 2021. For reference, the average cost of a data breach across all industries in 2021 was $4.24 million. Now more than ever, it’s crucial that your healthcare organization prioritizes data protection.

Although some healthcare providers worry that an enterprise resource planning (ERP) system will be a prime target, it’s much easier to use adequate resources and technology to protect information stored in one place. That being said, not all ERPs offer the same calibre of data protection. This blog delves into the challenges facing healthcare ERP security, so you can adopt the best practices for protecting your data.

 

Click on the healthcare security topic you’re most interested in to skip ahead:

 

Cyber-attacks vs security breaches

Before getting to the nitty-gritty of cybersecurity, it is essential to distinguish between cyber-attacks and security breaches (as many get the two confused). A cybersecurity attack is a severe offence whereby data or confidential information is stolen by electronic means, including ransomware and hacking. A security breach, also known as a data breach, is any unauthorized or unintentional disclosure of confidential information.

Therefore, all cyber-attacks are security breaches, but not all security breaches are cyber-attacks. This blog focuses on security breaches of all kinds, as they cause concern and complications for security experts and impact patients, stakeholders, employees, organizations and businesses. To best defend the data in your healthcare ERP, it’s essential to understand the common causes and symptoms of a security breach.

 

Why decentralized ERPs might leave your data vulnerable

If security is a vital concern for your organization, you must research the pros and cons of centralized and decentralized ERP systems before you invest. Centralized systems consolidate information across various entities and departments, such as accounting, warehouse, inventory, HR, etc. Unifying data across different business units allows them to function efficiently and generates a seamless data flow stored within a centralized database.

Decentralized systems silo data by entity offering management maximum flexibility; however, their defence protocols are usually stretched too thin, creating a spider web of cracks in your security. Every time your data moves between different systems, there’s a risk of a security breach. Each data transfer needs its own form of high-level security, and each of these processes needs to be monitored and routinely updated to ensure that nothing slips through the cracks.

The protocols needed to achieve the same level of security in a centralized system are easier to keep track of than in a decentralized system. You can also usually afford better protection when using a centralized system because your budget isn’t split across multiple business units and processes.

A successful cyber-attack can be very lucrative for hackers but incredibly detrimental to your organization. In the eyes of cyber-criminals, critical data like patient and employee personal identifiable information (PII), patient personal health information (PHI), financial information, and proprietary formulas are the crown jewels of your organization. Therefore, protecting your data with every available precaution is necessary.

 

Read more: How healthcare providers benefit from implementing an ERP

 

The cost and cause of healthcare security breaches

The three prominent causes of security breaches in healthcare arise from accidental disclosures, lost/stolen/discarded physical records or devices, and hacking or malicious attacks. It would be best if you had security measures to prevent all three types of breaches from occurring.

In the first half of 2021, the U.S. Department of Health and Human Services reported that 72% of healthcare security breaches were due to hacking incidents. One of the biggest data breaches of 2021 uncovered a seven-year security breach targeting the Florida Healthy Kids Corporation compromised upwards of 3.5 million records. However, the 2015 Anthem security breach remains the worst case for the industry, with over 80 million documents leaked from a cyber-attack. Anthem settled multiple class-action lawsuits for $115 million and paid the fine of $16 million to resolve HIPAA violations uncovered during its breach investigation.

Despite the recent increase in hacking and malicious attacks, it’s not the only way to compromise healthcare ERP data. The other two leading causes are serious threats. Health Share of Oregon compromised 654,362 records due to a laptop stolen from their patient transportation vendor in November 2019. Elkhart Emergency Physicians leaked 550,000 records from 2002–2010 because a third-party vendor didn’t shred patient files before disposing them.

Accidental disclosures commonly occur from sending emails containing PHI to the wrong recipient or leaving servers publicly accessible. In 2018, an employee at Independence Blue Cross accidentally uploaded the names, birthdays, diagnosis codes and provider information of 17,000 members to the company website.
Causes of U.S. healthcare data breaches from 2015–2019

The aftermath of a security breach

In 2021, the average cost per record lost in a security breach was $161, and if PII was compromised, that price increased to $180. However, the cost of a cyber-attack is often more than just the money spent to restore and re-secure your healthcare ERP systems—recovering from a security breach impacts the day-to-day functionality of your business. The downtime while the systems are out of operation will result in a loss of revenue and productivity. Anyone’s job could be at risk, and if production drops to a low enough point, you may be facing the possibility of letting people go and paying them damages.

Most importantly, your patients care about the safety of their PII, so a breach could cause them to lose confidence in your organization—jeopardizing your brand value and compromising your company’s reputation. These risks and improper handling of a cyber-attack could have a negative influence on future sales. In some ways, the loss of trust imposed by a security breach is a more significant threat to your revenue than the costs of recovering the data. Without essential safeguards in place, ERP systems are vulnerable to attacks, which is why it’s so important to invest in solutions with robust cybersecurity measures to protect your organization.

 

5 of the largest U.S. healthcare data breaches in 2021

 

Protect your healthcare data with these best practices

Advancements in hacking and cyber-crime require a shift in mindset. It is no longer enough to focus on keeping the bad guys out; the bad guys are in your network. Now, it’s essential to consider how to protect your data from getting stolen. In 2021, it took companies an average of over 200 days to identify and 75 days to contain a data breach; however, if they kept the lifecycle of a data breach below 200 days, they reduced the average cost by $1.26 million. If there’s a security breach, can you spot it, contain it, and deal with it as soon as possible? To answer this question, let’s go through some of the best cybersecurity practices.

 

Best practices for protecting your data

 

Keep your system patched and updated

The very first thing you should do is update your system and, going forward, ensure to keep it updated. Cyber-criminals actively look to exploit outdated healthcare ERP software because it’s more vulnerable without the latest security patches, and it’s harder to rectify technical issues, like crashes, when you’re running an unsupported version of the software. To ensure that you’re always running a fully up-to-date system, it can be a good idea to approve automatic updates or set up a schedule that will install available updates during non-operating hours. Even better, invest in software with a reputation for consistent updates and robust security features. For example, Microsoft has a very secure ecosystem and invests $1 billion in cloud security each year.

It’s not just the ERP system that needs to be routinely updated. Users are accessing the system in multiple ways. Any device that accesses the system must be secured and updated. If any of the methods are compromised, it poses a risk to the entire ERP application.

 

Control data accessibility

Successfully managing staff across different departments and locations can be a challenge, so you must consider what access rights each individual needs to do their job effectively. For example, the CFO needs access to performance reports across all entities to understand the big picture for the organization. Still, employees from one entity don’t necessarily need access to reports from the other entities. Similarly, you may want junior accountants to enter data but not edit existing data without requesting additional permissions. Full access rights and permissions should not be the default, and each user should have strictly controlled data accessibility.

The IT department should also monitor and assess the risk of every device that connects to the network, creating an inventory of approved devices. It is crucial to reassess the level of access rights awarded to an individual as changes occur within the organizational structure of your employees. Opportunities for re-evaluation include hiring new employees, changing job roles, after promotions, or after mergers and acquisitions (M&A).

 

Encrypt data flow

The nature of ERP systems means a constant stream of data between different departments and across a multitude of devices. In addition to protecting your network through security tactics like a virtual private network (VPN) or a firewall for local connections, your organization must invest in solutions with advanced encryption. Using these methods in tandem will offer you the absolute best defence for your data flow, even across wireless networks and messaging systems. Data encryption has the added benefit that it will help keep your organization HIPAA compliant by protecting personal information from a security breach.

 

Comply with regulations

Ensure that your security is up to the standards of the rules and regulations governing your geographic region. The healthcare industry is highly regulated, and compliance is non-negotiable, especially regarding data security. For example, the minimum fine for willful violations of HIPAA Rules is $50,000. The maximum criminal penalty for a HIPAA violation by an individual is $250,000, with the likely addition of restitution paid to the victims and jail time.

 

Examples of national security compliance standards that apply to healthcare:

 

Read more: A guide to creating a culture of healthcare compliance in your organization

 

Invest in scalable security

Whether your organization has a handful of clinics or a network of hospitals, your security software must maintain a high level of data protection throughout your growth journey. Relying on older technology coupled with constantly adding new devices will put a strain on your security measures. When choosing an ERP system, it is best to look for ones that offer scalable security options, ensuring that your data remains safe through growth. Some even come with industry-specific features or add-ons that can help you to stay compliant.

As much as upgrading your systems to newer technology can be time-consuming and costly, sometimes it is the best decision to make. Systems that are out of date not only slow down the efficiency and productivity of your organization but can also pose a severe security risk to your data. Knowing when it is appropriate to upgrade your technology is vital. If you notice that future ERP software updates would be unsupported by your current system, that’s a good indication that it’s time to think about upgrading. Keeping up with advancements will help you determine whether there is value in updating your technology.

 

Build a culture that prioritizes security

Social engineering is one of the most frequently used methods by cyber-criminals to manipulate humans. Spear phishing emails prey on your employees’ emotions and can look legitimate enough to dupe them into leaking vital healthcare ERP data. Undertrained staff who regularly handle sensitive data may be a greater risk to your business than external cyber-attacks.

Developing a security training program that features regular and easily understood sessions will enable your employees to maintain healthy security habits. Implementing two-factor authentication, routinely changing passwords, and not exporting data across multiple systems (like storing ERP data in spreadsheets and sharing it via email) are just a few protocols that can greatly increase your security if practiced consistently.

In addition to frequent security training, an incident response (IR) team and IR plan testing are invaluable tools in the event of a security breach. In 2021, companies with an IR team and IR plan testing saved on average $2.46 million off the total cost of a data breach. The IR plan contains some variation of six steps; preparation, identification, containment, eradication, recovery, and lessons learned. By creating a procedure for handling security threats, you can minimize the damage while maintaining a record of the incidents to prevent follow on attacks or similar events in the future.

 

MoxiWorks saves 80 days annually

 

The healthcare industry is undergoing enormous changes with unprecedented levels of international healthcare mergers and acquisitions (M&A), which presents unique challenges for medical financial management. One of the tasks that’s impacted by the evolving nature of the healthcare industry is financial consolidation. Despite hesitancy to adopt new technologies, modern accounting software can simplify the process of consolidating your financial statements and empower your healthcare organization to overcome common limitations and barriers.

 

trends in the global healthcare industry

Provider consolidations are a global trend

There is an explosive trend internationally towards consolidated and integrated healthcare organizations. As with any other industry, all multi-companies are required to consolidate their finances. Whether it’s a multi-practice clinic or a chain of hospitals, consolidated financials are essential for a period end to close your accounting records and for stakeholders to understand service lines, allocate capital, and fund the organization.

 

Digital transformation is changing accounting methods

In a 2019 annual report by the Financial Executives Research Foundation and Robert Half, 48% of all U.S. companies and 40% of all Canadian companies still use manual accounting practices. While these percentages are significant, in 2018, the numbers were even more astounding at well over half for all Canadian and U.S. companies.

The trend towards implementing digital transformation is not random—it gets results. The average time it takes annually to complete financial reports went down between 2018 to 2019, from 31 to 24 working days in the U.S. and 42 to 20 working days in Canada. Automation reduces the potential for human errors and frees up staff to focus on value creation initiatives.

Unfortunately, healthcare tends to lag other industries when it comes to adopting technological solutions. Most healthcare organizations are not positioned to reap the benefits of accounting software, like enterprise resource planning (ERP) systems, and continue to deal with inefficiencies due to not adjusting their processes along with their systems. These inefficiencies stack up and contribute to health spending consuming large shares of public expenditure.

 

Complete guide to financial management in healthcare CTA

 

An evolving industry presents challenges to financial consolidation

The international push for provider consolidations and integrations means that healthcare financial management increasingly requires financial consolidation. The evolving landscape of the healthcare industry coupled with the sheer scale and complexity of handling a healthcare organization’s financial accounts presents unique limitations and barriers that manual accounting practices can’t overcome.

Below are 4 common conditions that cause financial consolidation to be a challenge for multi-entity healthcare providers:

1.) Emphasis on business growth demands agility
2.) Rapid geographic expansion strains infrastructure
3.) Intercompany activity complicates financial statements
4.) Financial reporting timelines are compressed

Read more: 6 essential financial consolidation software features for your company

 

Emphasis on business growth demands agility

Healthcare organizations are focusing on growth to keep up with the explosive number of M&A opportunities in the industry. To accommodate these integrations, your finance department must have the capacity to rapidly establish records that align with the rest of the company. Low quality or inaccurate data caused by manual entry errors or bottlenecks caused by using multiple systems that do not fully integrate are unfortunate problems that can be solved with the implementation of a system that automates the grunt work for you. However, to truly optimize your operations for agility, investing in software that offers real time consolidated reporting will revolutionize finance’s role from a mere preparer to the analyzer and reviewer—freeing up leaders to decisively carry out quick pivots based on better business intelligence.

 

Rapid geographic expansion strains infrastructure

The prevalence of integrations and consolidations means that your organization needs to be able to seamlessly add virtual and physical entities, like new services or multiple care facilities. These additional entities often exist in a different region, enabling your company to expand into new territories; although, traditional accounting and finance systems struggle to adapt to these changes. Modern accounting software leverages a centralized database, which enables you to seamlessly add new business entities and access financial information across geographic jurisdictions. You will be able to see patients and vendors across all entities housed within your organization. They can also be programmed to handle multiple currencies and remain compliant as you scale.

 

Intercompany activity complicates financial statements

Increasing the number of facilities or entities also increases intercompany activity, which can complicate financial statements. Consolidating your finances eliminates all intercompany activities and balances to report transactions with external third parties as if the entire group of companies was operating as a single entity. The centralized database offered by accounting software does away with siloed data so that corporate accounting staff have all the data from every geography, business line, or specialty at their fingertips. Some software solutions also offer a centralized environment for transaction processing allowing you to complete intercompany transactions in an instant rather than over the course of a few weeks. This can be a huge time saver that also saves a complete record of historical transactions.

 

Financial reporting timelines are compressed

All healthcare organizations are under pressure to tighten their reporting deadlines with improved transparency for stakeholders, as well as industry and government regulators. There is a need to adhere to a well-documented and strictly controlled consolidation process that enhances financial reporting integrity. Accounting software allows you to meet your reporting goals by automating time-consuming tasks and centralizing your data for better decision-making. You can also meet your deadlines with the confidence that your data remains secure if you opt into scalable security features that include SSL encryption, two-factor authentication, advanced firewalls and automated notifications for new sign-ins.

Further reading for healthcare administrators:

Signature HealthCARE saves $120,000 a year while scaling from 55 to 239 entities

Healthcare organizations are dependent on accurate and reliable information so they can provide the best possible care for their patients. At any given moment, there are typically hundreds of individual processes happening that all rely on accessing accurate data. However, the ever-growing amount and increasing complexity of data make it vital to invest in solutions to store and manage it efficiently.

Enterprise resource planning (ERP) software acts as the central nervous system within your organization. It gives you the power to manage and direct the different functions that need to occur to keep your organization healthy by integrating information from other departments into a centralized database.

ERP implementation in healthcare organizations modernizes your processes and operations, helps reduce costs, improve strategic and financial planning, and most importantly, enables you to provide better patient care.

benefits of ERP implementation in healthcare

 

1. Streamline operations with a central database

Your organization can see an increase in productivity and a decrease in overhead when switching to an ERP system, as it creates a readily accessible, centralized database by integrating a wide range of operational requirements and departments (billing, inventory, supplies, finance, human resources, etc.).

For example, many facilities struggle with medical materials management resulting in expensive rush deliveries and shelves crowded with expired materials. Advanced supply chain management simplifies the process with automated replenishment from warehouses to sites while taking advantage of the best pricing available and collecting insights into all your vendor contracts.

 

Read more: 4 ways ERPs simplify financial consolidation for multi companies

 

ERPs integrate into central database

 

2. Reduce costs and chance of error by automating tasks

Implementing an ERP can reduce expenses in a variety of ways, but they mainly cut costs by automating a range of operational processes. They can be programmed to precisely monitor finances and inventory levels, which reduces expensive administrative errors and optimizes operations at the back end like payroll, accounts, and inventory management.

Medical facilities with multiple entities need to perform intercompany transactions, consolidations, and mergers efficiently. The labour force and time required to finish these tasks manually can rack up a load of expenses. Look for centralized transaction processing to complete these transactions instantly with a lower rate of errors. That way, your staff can focus on the most important items without worrying about duplicated tasks or broken links.

 

COmplete guide to healthcare CTA

 

3. Improve strategic planning with consolidated reporting

The precise financial monitoring offered by ERPs not only helps keep track of cash inflows like patient payments, but also helps providers oversee their own expenditures. It can spot the needed and necessary improvements, offering key insights into budgeting, status of requisitions, and patient visitation analytics so decision makers can have a clearer understanding of the organization’s overall financial health.

It’s important that whichever software you choose provides real-time consolidated reporting because it allows your leaders to have the most up to date information at any given moment, increasing the agility of your organization and making it easier to overcome disruptions through quick pivots and future forecasts. Information is power and the depth of knowledge facilitated by ERPs lead to better financial planning, smarter business intelligence, and more accurate cost monitoring.

 

Read more: 6 essential financial consolidation software features for your company 

 

4. Protect your patients and yourself with scalable security

U.S. healthcare data breaches of 500+ records

Medical records are confidential and involve sensitive information regarding the patient. Despite the high stakes associated with sensitive data, breaches still occur. In 2019, 32 million US patient records were exposed or otherwise impermissibly disclosed. In 2020, 1.76 data breaches of 500 or more healthcare records occurred each day.

The risk of a data breach increases when you’re transferring reports and sensitive information between multiple systems. When data is decentralized and managed via manual practices, strict maintenance of each system is required to prevent cyber threats. ERP software with a robust, scalable security system is more straightforward and will significantly reduce the risk of compromising your patients’ privacy.

One of the best parts is that it simplifies industry compliance. Failure to adhere to regulatory compliance can result in hefty fines and penalties. Violating HIPAA standards can cost anywhere from $100 to $1.5 million per year. It’s better to avoid the risk entirely by investing in infrastructure that facilitates compliance.

 

5. Deliver better patient care

Paper-based and manual systems can make it difficult for nurses and medical staff to respond to a patient’s concern promptly, whether that’s booking their next appointment or discussing their billing plan. By switching to ERP software, a patient’s information can be stored in the master record and is accessible in one click. Easier access to financial records dramatically improves the patient experience.

ERP systems facilitate transparent communication between patients and medical staff and can retain that information across multiple facilities. The clarity of this data stream protects providers and patients alike in case an issue arises. Medical staff can also pair the software with patient portal services and manage the security settings to allow patients to see their records.

Further reading for healthcare administrators:

MB2 Dental scales monthly invoicing for 250 locations without adding overheads

Multi-entity accounting can be riddled with issues if you do not proactively scale your software with your growing company. Manual practices introduce a high risk for data errors, lengthy bottlenecks, security breaches, and non-compliance. By being fully embedded in Dynamics GP, Multi-Entity Management (MEM) provides real-time consolidated reporting, centralized transaction processing and a scalable security model without requiring users to learn a new system. Read on to learn how transforming your financial systems can help simplify your most tedious processes and reduce period-end headaches.

Why multi-entities struggle with financial consolidation

One of the essentials of multi-entity accounting is financial consolidation. It is required for all multi-companies under global accounting standards. Manual accounting practices for single entities will no longer work when applied to multi-companies for tasks such as period-end closing and reporting or maintaining regulatory compliance. Using software to automate these processes saves time and money while maintaining regulatory compliance and protecting you from security breaches.

When is it time to consider financial consolidation?

A multi-company business must consolidate when one company has majority voting power in another company (i.e. over 50% of the subsidiary’s outstanding common stock). Consolidation is also necessary if the parent company has minority ownership but exerts significant influence over the subsidiary’s business decisions.

A single company with various departments, segments, operating units, and regions may also be considered a multi-entity and need consolidated accounting if those units are treated as separate entities. If your company has added new entities through growth, acquisitions, or mergers, it may be time to consider financial consolidation.

Further reading for companies looking to consolidate:

  1. The ultimate post-merger financial consolidation checklist
  2. Multi-company financial consolidation FAQ 

Why does manual accounting not work for multi-entities?

Manual accounting methods cannot keep pace with companies that have grown out of the start-up phase. As accounting increases in complexity, the likelihood of human errors increases as well. Failure to update accounting systems can create costly problems due to errors, wasted time and security leaks.

common challenges of financial consolidation

Higher probability of introducing errors

Links between spreadsheets could break, causing loss of function, improper back-ups could lead to the loss of critical data, and the likelihood of problems just increases with the number of people closing period-end across entities. With these kinds of problems, it can be an extensive undertaking just to figure out where the issue is coming from, let alone resolve it.

Multi-entity companies need to add additional companies and databases within an ERP to accommodate their growing structures. If this is done by manually managing separate data files and spreadsheets for consolidation, the resulting process becomes labour intensive and prone to errors. Common manual tasks such as copying the master records and chart of accounts from one company’s database to another are laden with risk for human errors.

For instance, links between spreadsheets could break, causing loss of function, and improper back-ups could lead to critical data loss. The likelihood of problems increases with the number of people closing period-end across entities. With these kinds of issues, it can be an extensive undertaking to figure out where the issue is coming from, let alone resolve it.

Recommended reading: How to improve data management for financial consolidation

Time consuming tasks resulting in bottlenecks

If you use email and spreadsheets to share information, manual entry and collaboration won’t happen in real-time. It can also introduce potential lag time in each stage of closing the accounting records for a period end.

Even after each entity has input their data, the head office for the parent company would need to log in and post entries for each entities’ accounting system and eliminate intercompany entries. Late entries or other adjustments at any point would further delay the process of closing for a period end. To complete these reports on time, some companies resort to hiring more people, which is an unnecessary expense compared to automated multi-entity accounting software.

Recommended reading: 4 best practices for handling intercompany transactions

Lack of consistency with security and compliance

Data leaks and non-compliance are significant risks that may result in hefty fines and penalties—complying with accounting standards like IFRS 10 and ASC 810 is crucial to any company’s scalable growth. Although it’s common for security breaches of some kind to occur, you don’t want security breaches to become standard for your company.

There’s a high risk of a data breach when you’re transferring reports and sensitive information between multiple systems. Manual accounting practices exacerbate these concerns because the data is decentralized, and strict maintenance of each system is required to withstand cyber threats.

A centralized ERP built to manage the demands of financial consolidation will not only centralize and bolster your data against security issues but will also reduce the risk of non-compliance.

Recommended reading: 5 simple ways an ERP system improves compliance for your company

3 key issues with manual accounting for multi-entities

What to look for in multi-entity accounting solutions

Dynamics GP on its own is not built to handle the complexity of multi-companies; however, there are solutions that can fully integrate to augment its functionality so that multi-companies do not have to look for a new ERP system. Companies should focus on core features that enable compliance and a consolidated financial statement without running into the above issues/challenges.

Processing intercompany transactions can take weeks and involves a ton of redundant, repetitive tasks required by the accounting team. A centralized environment for intercompany transaction processing can be a huge benefit. This feature allows intercompany transactions to happen in an instant, even across multiple entities, and grants complete insight into historical transactions.

Month-end reports and consolidated financial statements can also take weeks to complete without proper software. Look for solutions offering real-time consolidated reporting, this feature will allow your company to have access to actionable insights about performance throughout the process and far faster than before. It also enables enhanced data integrity and accuracy because it manages a single set of master records.

There are costly penalties if you cannot prove compliance with global accounting standards, including the risk of losing company licences in severe cases. Security breaches can likewise incur expensive fines. It’s best to avoid the hassle and prioritize comprehensive compliance management and a rigorous security setup as requirements of any software you choose to invest in. Bonus points if the security features are scalable and include SSL encryption, two-factor authentication, advanced firewalls and automated notifications for new sign-ins.

Additionally, software that exists in the cloud gives you the ability to tap into the database from any location, which can be especially useful for parent companies that need insight into their subsidiaries. It also cuts the cost of having to maintain and upgrade on premise servers.

Recommended reading: 6 essential financial consolidation software features for your company

Essential features of multi-entity accounting solutions

How MEM fills the gaps in Dynamics GP

To get the most out of Microsoft Dynamics GP as a multi-entity we recommend investing in Multi-Entity Management (MEM). MEM can be deployed in the cloud, in a hosted environment, or on-premises and includes essential features of any accounting software you may be considering. MEM offers real-time consolidated reporting, so you can gain better insights and remain up to date on your performance with flexible reports across all your companies or business units, centralized transaction processing, which permits multiple legal entities to be in a single transaction with proper allocations and reporting, comprehensive compliance management, and a scalable security set up, so that you never have to pay the price of being caught off guard. We also offer friendly customer service and comprehensive training to make the transition as smooth as possible.

Starboard Group overcame the challenges of financial consolidation