For CFOs, overseeing the finances of multi-entity companies has always proved challenging. Today, that challenge is magnified by the need to show stability and resiliency, as companies endeavor to emerge from the difficulties of doing business in the midst of a worldwide pandemic.
The good news? As the pandemic’s impact fades in importance over the coming year, companies will be looking to take advantage of an improving business climate, with some showing a renewed interest in “offense-driven” mergers and acquisitions.
For instance, according to a recent Deloitte story in The Wall Street Journal, “By deploying offense-driven M&A strategies, CFOs can lay the groundwork for capturing market leadership in the post-COVID world.
“Astute dealmakers may emerge from the shock of the pandemic positioned to use M&A strategies defensively, protecting and strengthening value.
“But companies with healthy balance sheets can focus on offense-driven M&A, actively pursuing transformative acquisitions aimed at laying the groundwork for thriving by capturing unassailable market leadership as the economy recovers.”
Resiliency Is Key to Post-COVID Success
This is a story that investors will like, but only if the acquiring company can show its ability to maintain resiliency in the face of the challenges of a post-COVID environment that are still to come.
To do this, multi-entity companies will have to demonstrate a commitment to financial resiliency, and there’s no better way to do that than by automating intercompany transactions, according to BlackLine Director of Product Marketing David Brightman.
“Intercompany issues are one of the top reasons why companies have to issue financial restatements, and that can have a tremendous impact on investor confidence,” he says. “Investors and the larger business community are looking for companies that can close on time, and show zero balances in intercompany transactions.”
That can be a significant challenge when a company acquires or merges with another company, says Brightman.
“The company now takes on an entire new set of books and its systems. There’s an explosion of new transactions, and that can become a huge obstacle at month’s end. If these transactions aren’t accounted for and reconciled correctly, they can increase corporate risk and bring on real financial costs.”
Intercompany Automation: Solving the Waterfall problem
Companies with traditional, manual intercompany accounting processes face a dual challenge. They want to reduce intercompany imbalances to zero, but they’re under time pressure to complete the reconciliations within tight deadlines.
“This is how to think about a traditional month-end process,” he says. “Intercompany is not addressed until the end, like in a Waterfall approach. By then it’s too late. It puts business on the back foot, adding days to the close to resolve out-of-balances due to lengthy disputes.
“It’s made even more difficult because of the cross-functional nature of intercompany transactions, which involve multiple people and finance teams without a clear audit trail or action plan. This approach culminates in peaks in the month-end cycle, and further muddling the reporting for group accounts.”
By contrast, BlackLine’s Intercompany Hub automates intercompany processes, embedding agility in day-to-day accounting work, reconciling transactions continuously as they occur throughout the period. Finance and Accounting teams including controllers get a unified view into all intercompany activity and positions, so they can raise any questions in the moment, rather than at consolidation when data is often aggregated from multiple systems and geographies.
"Because the Intercompany Hub is a unified space for all related-party transactions, it eliminates the need to access different technology systems or deal with after-the-fact corrections. This shifts accounting work away from the peak period, greatly reducing the risk of misstatement, accelerating netting and settlement, and streamlining close-to-disclose cycles,” Brightman says.
“This frees up finance and accounting capacity, giving F&A teams more opportunities to create value by partnering with enterprise business units. And it promotes business resiliency to investors, business partners, and others—a critical advantage in today’s recovering economy.”
Read our latest issue of BlackLine Quarterly for more stories like this that can help you move through the current disruption and into a more productive future.