Treasury management is a big enough challenge when dealing with just one entity. It means dealing with multiple bank accounts across a wide range of providers, reconciling payments and transactions from hundreds or thousands of vendors and customers, as well as managing cash flow, liquidity and even dealing with foreign exchange.
But multi-entity finance exponentially increases the complexity of those challenges. Now not only do you have to keep track of the cash position of each of these entities individually (or leave them to it and hope they manage it well enough), but you also need to find a way to report on it and analyze it.
These issues not only make reporting and strategic planning more difficult, they increase risk as well. The more moving parts in the finance teams process, and the more manual work involved in collating, reporting on and analyzing the data, the more chance there is of an error. A simple typo in a spreadsheet formula or a copy and paste error can significantly increase the risk of major financial problems. One such error cost Crypto.com $10.5 million, all due to a typo spreadsheet error.
Multi-entity treasury management is complex, but there are now software solutions that make the process easy and efficient, while significantly reducing risk at the same time. In this article we’re going to get deeper into the details on the challenges of multi-asset treasury management, and show you what can be done to simplify it.
Data Accuracy Remains a Problem for Treasurers
Data accuracy and integrity is key for treasurers, regardless of whether they’re dealing with multiple entities or just one. But while it’s incredibly important to have accurate and up to date financial information, actually getting it is still a challenge for many treasurers.
In fact, a recent survey showed that 49% of executives have concerns over the accuracy of their data, and a massive 98% said that they could be more confident in the visibility of their cash flow. According to many finance executives in the survey, this lack of accuracy and confidence is resulting in “misinformed decision-making.”
Not only that, but these issues are expected to become even more critical in the face of a challenging economic environment, with companies having to deal with stagnant consumer spending and sustained high inflation and interest rates.
The Added Challenges of Multi-Entity Cash Management
All of those challenges are magnified when dealing with multiple entities. Multi-entity finance means taking all of the processes of cash management for a single company, multiplying them, but then also having to account for the interactions between those entities.
Plus, in many cases companies of a size to warrant multiple entities will have a variety of additional complications in ownership structures and transitional arrangements, such as joint ventures and mergers and acquisitions.
If you’re a treasurer or finance professional dealing with a merger or a company that already has multiple entities, these are some of the key challenges you’re likely facing:
Lack of Visibility
One of the biggest challenges is also the most simple. Gaining a clear overview of your cash position when there are multiple accounts under multiple companies can be a major headache.
The process of getting that information together is traditionally heavily manual and time consuming, with finance teams having to log in to multiple different bank portals, export balances and transaction information and then normalize and organize all of that data.
The length of time this takes means that by the time the data is collated, it’s already out of date.
One of the ways businesses end up with multiple entities is through mergers and acquisitions. A large part of why these deals make sense is the ability to find synergies between the two companies, bringing down costs and boosting profit margins.
But that relies on properly integrating the two companies. Without visibility of the cash management process for them, that can be seriously difficult. Treasurers need the ability not only to see the financial position of all parts of the parent entity, but also forecast how and where the integration is going to happen and the impact of that on the overall bottom line.
Global Entity Management
Managing a business across borders isn’t just about dealing with a time difference. It introduces additional complexity for treasurers, who now need to be aware of local tax implications, manage exposure to multiple currencies and stay on top of relevant legislation and regulations in different jurisdictions.
Managing that is far more difficult if you can’t quickly and easily see where your cash is and where it’s coming from and going to.
Banking Mix Complexity
But you don’t need to be working in multiple countries to have complexity in the makeup of your banking arrangements. Sometimes through legacy operations and sometimes through design, companies can have cash and transactions spread across hundreds of different accounts, with each provider needing a separate set of login information and providing and exporting their data in slightly different ways.
And it’s not just limited to traditional banks either, with treasurers now needing to include oversight of a wide range of payment providers like Stripe and WePay.
Labor Intensive Bank Reconciliation
This complexity means the traditional reconciliation is very labor intensive. As accounts grow and you increase the number of entities, the reconciliation process becomes more and more time consuming, with employees having to spend far more time ensuring payments and invoices are matched correctly.
All this time dedicated to low value data crunching means less time spent on high value strategic work, such as identifying opportunities for growth or cost synergies.
Check out our recent episode of Fintech Corner as our very own Joseph Drambarean chats with McKenzie Knudson, Senior Treasury Analyst at Sealaska, about her team’s transition from spreadsheets to the almost magical experience of API-based treasury tech, and how it helped to centralize data, streamline reporting, and foster collaboration among their 30+ global subsidiaries!
How Technology is Helping to Simplify Multi-Entity Finance
With all that said, one thing that software is incredibly good at is dealing with complexity, and there are now tools and technologies which can help address many of these challenges.
The right technology can help treasurers and finance teams overcome hurdles in multi-entity finance, allowing them to regain control, improve data accuracy and streamline reconciliation.
Data Lakes Provide a Consolidated Source of Truth for Financial Data
The consolidation of all your financial data is the first step to running a multi-entity finance department smoothly. Eliminating or significantly reducing the time it takes to gather information from a large number of different sources means that treasurers can immediately reallocate time to working on strategic objectives, instead of data entry.
Data lakes like Trovata are the answer, providing a single source of truth for all of your financial information. It means not having to dig around in one of 20 different spreadsheets, no need to check which versions are current, and no risk of losing valuable institutional knowledge if an employee managing a particular dataset leaves.
The beauty of using software for this is that you’re not limited to a single combined overview cash position. It’s possible to segregate and group entities in almost any way you can think of. For example, you might want to have a consolidated view for the whole company, another for all of your entities in North America and a separate view for entities involved with joint venture partnerships.
Customizable dashboards and reports allow you to visualize data in a way that is far more flexible and adaptable than a spreadsheet based approach.
100% Accurate, Real Time Data with Open Banking APIs
But something’s missing, right? How does the data get from your bank portals, into the data lake? If it needs to be manually transferred, then how is that a real benefit over using spreadsheets? Because it isn’t a manual process at all. In fact, the entire process is automated, in real time, using open banking APIs.
APIs are what connects data from one source and sends it to another. It’s the same technology that’s been used in the consumer space for years. Many of the apps on your phone use APIs, for example by sending health or workout data from a specific app like Strava or Calm, into Apple Health.
Open banking has a lot more security and complexity behind the scenes, but the concept is the same. Banking data is automatically sent from your bank into a centralized data lake like Trovata. It means that finance and treasury teams gain the ability to see real time cash balances across every account they connect, with no manual data entry at all.
Even better, APIs can work both ways, allowing treasurers to initiate payments across all of their entities, right inside Trovata. These can be done individually, or in groups using bulk transfers. There’s no need to initiate an entirely separate process for payments across multiple entities, with APIs they can all be combined in one.
And best of all, because the process is fully automated, there’s no potential for typos or transcription errors. With so many finance executives and treasurers concerned over their data accuracy, open banking APIs provide a legitimate solution to the problem.
Cloud Native Platforms Allow Seamless Collaboration
With a centralized source of truth for all of your financial data and a direct API link ensuring that data is always accurate and up to date, the natural next step is a way for teams to work on that data together.
Again, spreadsheets are severely limited in this respect. Different file versions need to be saved on shared drives or individual computers, and then sent by email, Slack or Teams across the company, always introducing security risks and the potential for an incorrect or outdated file to be sent by mistake.
Having the entire treasury operation run on a cloud-native platform, means that collaboration is seamless, with everyone working off the same data set and able to see changes made or tasks completed by anyone else, anywhere in the world, in real time.
This collaboration adds real value to the way businesses make decisions. Another member of the Sealaska team, Senior Treasury Analyst McKenzie Knudson, shared her insights on a recent episode of the Fintech Corner podcast, explaining that Trovata allows her to “Give people information that they didn’t have (previously), which has given us a huge insight into data, which we never had before.”
By making the sharing of information easier, it happens more, keeping departments better informed when it comes to their analysis and strategic decision making.
Managing Multiple Entities with Trovata
True, centralized treasury management for companies with multiple entities seemed like a complete pipe dream just a few years ago. Now, Trovata has combined the power of open banking APIs and cloud technology to create a data lake environment that gives finance teams access to all of their financial data in one place.
Not only is it accurate and up to date, but Trovata also provides treasurers with a wide range of powerful tools to analyze that data. Sophisticated forecasting and scenario modeling tools allow projections to be conducted for all of your entities, and Trovata AI adds generative AI functionality, making it possible to interact directly with your financial information, as if you were speaking to a highly qualified analyst.
As James Krikorian, VP & Treasurer at Krispy Kreme found, all of this enabled him and his team to focus on strategy and growth, instead of wasting hours on data entry and searching for errors.