The Hub-and-Spoke Finance Model: Why Multi-Entity Businesses Don't Need a Finance Department in Every Country

If a business operates through multiple entities, countries, currencies and regulatory jurisdictions, does it need a separate finance function in each jurisdiction?

Our experience says no, not by default. In fact, structuring the finance function around jurisdictional compliance requirements can solve the wrong problem.

The business needs one finance function capable of producing accurate, timely and useful financial information across the organization. It also needs people with the specialized knowledge necessary to comply with the tax, statutory and regulatory rules of each jurisdiction.

Those are two different requirements. Treating them as though they require separate finance departments can result in the tail wagging the dog.

Key Takeaways

• Run finance for the business as a whole. Bookkeeping, accounting policy, reporting, oversight, consolidation, controls and financial analysis should generally operate as one coordinated function.
• Use technology to deal with complexity. Modern ERP platforms can handle multiple legal entities, currencies, intercompany transactions and consolidated reporting within one accounting environment. DualEntry, for example, is specifically designed around multi-entity, multi-book and multi-currency accounting.
• Keep local expertise where local expertise is required. Tax returns, statutory financial statements, payroll compliance and other jurisdiction-specific requirements still require knowledge of the local rules.
• Don't confuse compliance with finance. A business needing a tax specialist in Germany, a payroll provider in California or a statutory accountant elsewhere does not automatically need separate bookkeeping, reporting and financial-management functions in each location.
• One source of financial information matters. Management should be running the business from consistent numbers, policies, processes and reporting, not assembling the overall picture after several local finance functions have each finished their work.

A Simple Test

Before going further, here's a quick way to apply this thinking to your own business. For every finance activity in a multi-country business, ask two questions in order.

1. Does this activity need to be different because the law or regulation is different? If the answer is no, there is a strong argument for centralizing it.
2. If the answer is yes: do we need a separate finance function to deal with that difference, or simply access to someone who knows the local rules? Very often, it is the latter.

That is where the tail can start wagging the dog. A requirement for local expertise should not automatically become a requirement for local finance.

The Operating Model

The distinction we think matters most is this: centralize the financial management of the business, and localize the expertise required to comply with local rules.

A multi-country business does not necessarily need multiple finance functions. It needs one finance function capable of operating across multiple jurisdictions, supported by specialists who understand the requirements unique to each jurisdiction.

Central Finance Hub: owns the financial system and the numbers

• Bookkeeping and transaction processing
• Accounts payable and receivable
• Month-end close
• Intercompany accounting
• Consolidation
• Management reporting
• Cash management
• Budgeting, forecasting and FP&A
• Financial controls

The hub operates on one accounting platform, one chart-of-accounts philosophy, one set of financial policies, one reporting timetable, and one source of financial truth.

Local Compliance Specialists: own or advise on jurisdiction-specific requirements

• Corporate tax
• VAT / GST / sales tax
• Payroll compliance
• Statutory accounts
• Regulatory filings
• Local registrations

The local specialists provide the expertise. The central finance team owns the financial information from which that compliance work is performed.

What Belongs Where?

Use this as the reference table when deciding who owns a given finance activity.

Ownership Is the Important Word

This doesn't mean every transaction must physically be processed by someone sitting in one central office. A business might outsource accounts payable. It might use an external payroll processor. A local accounting firm might prepare statutory accounts. A tax specialist might calculate a VAT return.

The question is who owns the process and the financial information.

In the centralized model, those providers operate within or around the company's finance architecture. They don't each create their own finance architecture. That distinction becomes increasingly important as companies grow.

Think Hub-and-Spoke, Not Country-by-Country Silos

Consider a Canadian company operating subsidiaries in Canada, the United States, the United Kingdom and Germany. A decentralized approach gradually evolves into four parallel finance functions:

• Canada finance: Canadian bookkeeping, Canadian reporting, Canadian tax
• U.S. finance: U.S. bookkeeping, U.S. reporting, U.S. tax
• U.K. finance: U.K. bookkeeping, U.K. reporting, U.K. compliance
• Germany finance: German bookkeeping, German reporting, German compliance

Someone then has to combine four independently produced sets of financial information so management can understand the company as a whole.

The better architecture is a single central finance hub that owns the books, the policies and the reporting for all four entities, with Canada, the United States, the United Kingdom and Germany attached to it as compliance spokes, each served by local tax, payroll, statutory and regulatory specialists.

The jurisdictions become compliance spokes attached to the finance hub, rather than separate finance departments.

Why This Matters

The decentralized model can create several predictable problems.

• Duplicate work. The same accounting activities are repeated jurisdiction by jurisdiction.
• Different processes. Each provider develops its own approach, timetable and procedures.
• Different interpretations. Accounting policies and classifications gradually diverge.
• Slower reporting. Consolidated information can't be completed until each local finance function finishes its work.
• Poorer visibility. Management receives financial information only after it has travelled through several separate systems and processes.
• Higher cost. The company pays multiple providers to perform work that could often be performed once.
• Fragmented accountability. When something goes wrong, it can be unclear whether responsibility sits with headquarters, the local bookkeeper, the local accountant, the tax advisor or the system.

One finance function creates one point of accountability.

In Practice

Two situations illustrate why this matters.

Timeliness. A company relying on five regional bookkeeping providers has to coordinate five different timelines, five different formats and five sets of follow-up emails just to close the books each month — the finance equivalent of herding cats. A single central function only has one cat to herd.

Broken telephone. Financial information that passes from a regional bookkeeper to a regional advisor to head office to a consolidator picks up small distortions at every handoff, much like a message garbled by the time it has travelled down a line of people each repeating what they think they heard. By the time it reaches the people making decisions, it may no longer resemble what actually happened in the business.

Technology Has Changed What Is Practical

Historically, decentralization was partly a technology problem. Different entities maintained separate ledgers. Foreign-currency translation required considerable manual work. Intercompany balances had to be reconciled by hand, and consolidation happened only after the individual companies had closed their books.

Modern multi-entity ERP systems are designed to deal with much of that complexity directly. DualEntry, for example, supports multi-entity and multi-currency accounting, intercompany transactions and consolidated reporting within the same platform.

This is consistent with how the major advisory firms describe the modern finance operating model. Deloitte frames the finance operating model in terms of organizational structure, processes, technology and talent, with the ERP serving as the core technology enabler. PwC describes an integrated global compliance model supported by local-country specialists who supply the jurisdiction-specific regulatory knowledge, while noting that multinational organizations still need formal processes for local statutory accounting alongside centralized accounting policies.

When the technology can accommodate the legal entities and the currencies, the organizational question changes. Instead of asking "Who will keep the books in each country?", the business can ask "What is the best way to run finance here, and where do we need local specialists to keep that model compliant?" Those two questions produce very different answers.

Back to the Original Question

If a multi-country company is having trouble with its bookkeepers, the first question probably shouldn't be "How do we find better bookkeepers in each jurisdiction?"

It should be "Why is our finance function organized around jurisdictions in the first place?"

Sometimes the bookkeeping problem is the symptom. The structure is the problem.

Talk to Savvy

If you're running finance across multiple entities, currencies or jurisdictions and the numbers are arriving late, inconsistent or hard to trust, we can help you assess whether the issue is your bookkeepers or your operating model.

Get in Touch to Arrange a Conversation

Sources

• Deloitte: Service Delivery Model Design
• PwC: Finance, HR and Tax Compliance Managed Services