In businesses with multiple companies, the same task is repeated every month: company reports are pulled separately, moved to a spreadsheet, and summed up manually. This process takes days and carries the risk of error every time.
The problem does not stem from each company keeping separate ledgers; that is already a legal requirement. The problem is the lack of a layer where management can see the big picture.
In this article, we explained how to set up a multi-company structure, common definitions, intercompany transactions, and consolidated reporting.
Table of Contents
Why is company separation necessary?
Records of separate legal entities must not get mixed up; this is both a legal obligation and a managerial requirement.
Each company has its own document series, tax registration, and financial statements. Keeping these separate is the most fundamental requirement of the system.
Separation also enables performance evaluation; it clearly shows what each company produces.
However, this separation should not mean setting up a separate system for each company. Separate systems lead to the duplication of common definitions and inconsistencies.
The right approach is to establish company-based separation on a single platform; multi-company structure makes this possible.
Common definitions
The greatest benefit of a multi-company structure is that definitions can be made once and used across all companies.
Product cards are generally commonly identifiable; even if the same product is sold by different companies, it is still the same product.
Current account cards can also be used jointly; you can work with the same customer through multiple companies.
Basic definitions such as units, brands, and categories should not be repeated either. This duplication inevitably produces inconsistency.
A common definition is also what makes consolidated reporting possible; different codes cannot be aggregated.
What must remain separate
Some data, however, must definitely be separated on a company basis, and mixing this separation creates serious problems.
Document numbers and invoice series are company-specific; financial legislation requires this.
Stock balances must also be kept separate. Goods in one company's warehouse are not the stock of another.
Current balances are also on a company basis; the debts of the same customer to two companies are tracked separately.
Cash and bank accounts are also defined separately and must not be mixed.
Intercompany transactions
Companies within the group can trade with each other, and these transactions must be recorded as real purchases and sales.
One company sending goods to another is a sale, not a warehouse transfer. An invoice must be issued and a purchase must be recorded on the other side.
Marking these transactions separately provides convenience during the consolidation phase. Intercompany transactions must be distinguishable in reports.
Transfer pricing is also an issue that requires attention and is subject to financial legislation.
It is recommended that you clarify the implementation of this issue with your financial advisor.
Consolidated reporting
A consolidated view is the collection of all companies' data in a single table and is the primary perspective management needs.
The automated generation of this view depends on using common definitions. Different product codes cannot be aggregated.
Total turnover, total stock value, and total receivables are the most frequently checked consolidated indicators.
Company-based breakdowns must also be visible on the same screen; the total alone does not provide sufficient information.
Having these reports accessible daily allows for decision-making without waiting for the end of the month.
Elimination entries
Double-counting intercompany transactions in consolidated reporting is the most common mistake.
If one company's sale is another's purchase, this amount should not be added to the group turnover. Otherwise, the turnover appears higher than it is.
The same applies to receivable and payable items; intercompany balances must be netted off.
This elimination process can be easily done when intercompany transactions are marked separately.
Financial consolidation rules are a separate area of expertise; you need to work with your financial advisor.
Segregation of duties
Authorization in a multi-company structure must be designed much more carefully than in a single-company structure.
Most users should only see the data of a single company; this provides both security and simplicity.
Group managers, on the other hand, have authorization covering all companies and access consolidated reports.
The accounting team may work in multiple companies; in this case, the scope is defined accordingly.
We covered this setup in the multi-company structure article.
Inter-company switching
For users working in multiple companies, having an easy transition directly affects daily efficiency.
Logging in with a separate account for each company both wastes time and generates errors.
Logging in with a single account and switching companies is a much more practical arrangement.
It is also critical that the active company is clearly visible on the screen; making a transaction in the wrong company requires serious correction.
Asking for company confirmation during document entry largely prevents this error.
Implementation approach
Activating all companies at the same time in a multi-company setup makes the project unnecessarily difficult.
Starting with the largest or most complex company ensures the structure is set up correctly. The others use this structure as a template.
Common definitions are created in the first company and subsequent ones use these definitions. This saves significant time.
Consolidated reports, however, become meaningful only after at least two companies are activated and are configured at that stage.
We explained the structure setup in the company branch warehouse structure article.
Points to consider
Duplicating common definitions on a company basis makes consolidation impossible from the start.
Failing to tag intercompany transactions also inflates revenue.
Transacting in the wrong company is the most frequent operational mistake in multi-company setups.
Leaving authorization scopes too broad results in unnecessary data access.
Recording intercompany goods movements as transfers also creates serious financial problems.
Frequently asked questions
How many companies can be managed?
It is determined by your license scope; we plan your needs together during the setup phase.
Do product cards have to be shared?
It is not mandatory; however, a shared code structure is strongly recommended for consolidated reporting.
Can different currencies be managed?
Different currencies can be used on a company basis; conversion rules must be defined for consolidation.
How does it work with existing accounting systems?
Each company can be synchronized with its own system; ERP synchronization check the article.
A multi-company structure, when set up correctly, both preserves legal separation and provides a holistic view to management. Thus, manual consolidation work at the end of the month is eliminated.
Be sure to keep common definitions in a single place; codes duplicated on a company basis make consolidation impossible from the start.
Also tag intercompany transactions separately; these untagged transactions inflate the group's revenue.
Ensure that the active company is clearly visible on the screen; transactions made in the wrong company are the most common mistake in multi-company structures.
Start the setup with the most complex company; the others will go live much faster by taking this structure as a model.
By consulting with the EQLEM team you can plan your multi-company structure.