A key factor to consider when establishing an international business from Israel is the difficulties associated with controlling financial flows from multiple global offices as opposed to the more simplistic structure of just dealing with international sales.

As your Israel-based corporation becomes one corporate entity, other corporate entities will develop due to the company’s expansion into foreign markets and creation of domestic subsidiaries. As more financial transactions occur globally, there are increasingly complex systems developed to support those transactions which makes it difficult to obtain true visibility and control over the aggregate financial transactions.

When using Priority ERP to manage their international business, the company will essentially create a solid base on which to build their global business, but the need to be set up in the proper way from the beginning becomes increasingly important.

Managing Financial Activities Across Multiple Entities

The level of complexity involved when doing business with multiple subsidiary locations creates an unquantifiable degree of difficulty in terms of managing the financial aspects of the company’s global operations. Thus, it is no longer possible for any group of companies to effectively manage the complexity of having multiple, different multi-national companies using multiple financial systems without the use of an integrated financial management system.

Some examples of these types of challenges include the following:

Setting up separate financial records for each subsidiary.
Reconciling the intercompany transactions between subsidiaries.
Handling multiple currencies and exchange rates that may apply to financial transactions across subsidiaries.
Ensuring compliance with each country’s tax law.
Creating a system that consolidates all of the subsidiary’s financial performance into an easily consumable format for management and shareholders.

Global Financial Platform with Priority ERP

A strong methodology exists for businesses to manage their operations across multiple legal entities through a single application that is supported by an ERP package like Priority.

Companies can use Priority’s underlying technology to:

• Store multiple legal entities in a single database (One Base™)
• Create a common chart of accounts across subsidiaries
• Synchronise master files – customer, vendor and inventory
• Facilitate automated work processes between both entities
• Generate consolidated financial statements with limited manual intervention.

However, it is important to note that the effectiveness of these features is dependent on how well the system is implemented and established.

Developing the Appropriate Financial Structure

In order to develop a successful Priority environment, it is necessary to have an adequate set of financial design principles in place.

1. Unified Chart of Accounts

It is essential to establish a single representative chart of accounts for each legal entity and a standardised representation of all other legal entities. The primary legal entity structure must be created in a manner that enables it to be easily consolidated into a comprehensive set of group-level reports.

2. Defined Entity Hierarchy

The system must clearly define each sub-entity in the legal entity hierarchy including identifying their currency, tax structure and reporting requisites. A clearly defined sub-entity hierarchy will facilitate a smooth roll up, and reduce the complexity associated with reconciling the individual sub-entities.

3. Intercompany Framework

Intercompany transactions must be standardised and automated to the greatest extent possible (i.e.: predefined accounts, pricing structures, etc.), which will create consistency for intercompany transactions across all legal entities.

4. Currency Management Strategy

Develop currency management methodologies for managing multi-currency operations (i.e.: establish the methodology for determining transaction-level exchange rates, the reevaluation method/process, and the method for converting foreign currency for producing consolidated financial statements).

Maintain Control While Growing

The major challenge that is presented to organisations doing business in a multi-entity environment is not the processing of financial information but the control of that information.

A competent CFO must ensure that:

• All entities have representative, accurate financial information.
• Close processes are managed consistently and timely.
• All intercompany accounts (including the balances) are reconciled automatically.
• Financial reporting correlates to operational and investors’ obligations.
• All regulatory obligations by jurisdiction are achieved.

Priority provides the necessary support to satisfy all of these requirements only as a result of the strict establishment of financial controls.

Typical Problems with Priority Implementation

The following barriers are experienced by international companies that do not take a measured approach to implementing the Priority software.

• Each entity of the organisation is configured differently making consolidation impossible.
• Manual journal entries were used to record intercompany transactions in excess.
• No single, standard format for generating financial reports exists.
• The chart of accounts is poorly constructed.
• There is limited visibility throughout the entire organisation.

Almost always when these problems arise, they are the result of inadequate planning and not limitations of the software.

The Balance Between Flexibility and Standardisation

Priority’s application provides organisations with many opportunities to provide flexibility in providing the accurate financial operations for their constituents on a localised level. Therefore, this flexibility presents significant risk as organisations continue to grow.

Successful implementations have achieved a balance between:

• Flexibility for local business units (i.e.: tax and operational requirements)
• Standardisation throughout the organisation (to provide consistency and control)

This balance will provide an organisation with the ability to satisfy their constituents’ requirements at the local level while providing visibility on a consolidated basis.

The Impact of CFO Leadership

Technology can never fully resolve the inherent complexities of an organisation’s finances.

CFOs will play an important role in:

• Ensuring the implemented systems support the organisation’s overall business strategy.
• Ensuring the financial processes are scalable.
• Maintaining data accuracy across the organisation.
• Using financial transaction reporting to facilitate decision making versus meeting regulatory requirements.

As organisations continue to expand into new markets, the CFO will be continually revising their PriorityERP implementation.

Summary

For Israeli firms seeking to expand globally, Priority ERP presents a unique global platform; however, the success of that platform will depend on how it is configured, implemented and managed, rather than on the software itself.