Despite continued economic pressures, deal volumes in the logistics industry appear to be on the up. According to research from BDO, transaction volumes in the logistics industry in Q4 2023 reached a peak of 27 Merger & Acquisitions (M&A) deals, compared to 21 in the previous quarter. Despite the total disclosed deal value for Q4 2023 being £53m, compared to £288m in the prior period, it is the highest number of quarterly deals recorded in the last five years.
With high-profile acquisitions including British logistics firm Wincanton’s ongoing sale, already taking place this year, we could see more logistics firms operating as multi-entities as the M&A market heats up. Whilst becoming a multi-entity business is a great show of business growth, managing finances across the entire business can be challenging.
Differing entities often have different financial processes, whether this be year-end, calendar, or cost centres. This makes juggling finances across the business difficult. Simplified financial processes are critical to business development and a seamless acquisition process. With disjointed finances, businesses will struggle to maintain regulatory compliance, foster, and strengthen collaboration, and fulfil the needs of all key stakeholders. This is particularly pertinent post-M&A.
Overcoming different processes
There are various pain points associated with multi-entity accounting, however there are ways to tackle them.
Most businesses recognise the importance of financial reporting when it comes to monthly reviews and the M&A process. But it can become challenging in a multi-entity company, especially if the reporting processes are different across the new business. While each operating entity will have its own balance sheets- and this structure can continue- at least once a year there should be a group-wide consolidation of results. This report can offer insight into intercompany sales, purchases and creditors which are important to acknowledge and analyse on a bigger scale. This process can be challenging if costs are classified differently across the entities, which means the finance teams may have to manually export the relevant data sets and merge them outside of the system.
The other option is introducing an interoperable finance system that allows the entities to share real-time data with uniform classifications. With this software comes a centralised platform that holds all financial data across the business, removing the need for manual data entry and coordination. This platform can then produce reports that give a full picture of performance across the organisation and can provide specific reports on one single company if necessary.
Invoicing is another challenge to consider for multi-entity logistics firms. When it comes to splitting costs for rent and utilities for example, it can be difficult to determine how best to split the costs, particularly if there are size disparities between companies sharing the same premises. To avoid conflict, software systems that have a designated multi-entity module can be used to pre-determine cost splits, on either a fixed-value or percentage basis.
Avoiding the risk of human error
One of the primary motivations for logistics firms adopting a more sophisticated finance system is mitigating the risk of human error. The manual entry and processing of data across the entire organisation is not only labour intensive and time-consuming, but it also leaves room for human error.
An accumulation of small human errors can have a significant impact on the financial health of a business. But with automated processes such as optical character recognition (OCR), data entry is processed correctly in real-time to minimise risk. But beyond data efficiency, the removal of mundane tasks also frees up the finance team’s time to focus on supervisory, strategic and revenue-generating tasks.
Minimising permission restrictions
For any financial operations to be successful, the finance team needs access to data from all entities. This traditionally involves merging data from multiple systems, which is unnecessarily complex and costly, due to the multiple software licenses this requires. Therefore, when selecting a new finance software system, multi-entity logistics firms must look for systems that have customisable user access controls. This ensures that the finance teams across the business can access all necessary data.
This functionality has also grown in necessity as many businesses commit to hybrid working. Team members need secure access to the system and its data, regardless of location, to facilitate business-wide hybrid working.
Moving forward as a multi-entity business
With M&A activity appearing to be on the rise within the logistics industry, companies considering a sale need to question how their financial processes will fair post event. When operating as a multi-entity firm, there are challenges that come for the finance team after the sale. They will be tasked with ensuring accurate and timely consolidation of financial data, providing clear and insightful reporting, and streamlining invoicing, all of which can become more difficult if the financial processes are not built to support them. By introducing a cloud-based finance system the finance team can have all their data centralised and automated to make operations much easier and insights much stronger.
Author: Rob Swan, operations director at cloud-based accountancy software, bluQube
