Branch accounting made easy

Companies have been operating branches for hundreds of years. Think of all the big international brands that have foreign branches across the world, then there are many national companies that have branches across America, or it might be a mid-sized company that has 4 types of branches in different locations in Philadelphia for plumbing or heating.

To manage these branches well and to give them accountability and control; branch accounting is useful because you can track the profitability and efficiency of each one.

What is branch accounting?

Branch accounting, like most types of accounting, involves using a double-entry bookkeeping system to manage the financial operations of multiple branches within the same company. There are traditionally two ways to carry out branch accounting. Either the accounting records are maintained at the company’s headquarters, or the branch keeps their own accounts and then sends them through to head office by a certain date so they can be connected with the other branches and then consolidated.

How financial technology addresses performance of each branch

Now with the evolution of accounting systems that include Business Intelligence (BI) and Financial Planning & Analysis (FP&A) all this work can be managed from one single platform regardless of where the business is taking place. In Phocas BI and FP&A all the sales, expenses, wages from branch A to Z all come into one system and the data is automatically validated and updated to the right cost centers and journal entries. The data platform is integrated with the ERP, retail, CRM and HRIS and data sources of your business be it a manufacturer, distributor or retailer. The finance team now has all the financial and operational data to create branch or consolidated financial reports: income statement, balance sheet and cash flow statements and the branch team have all the necessary information to drive autonomy while satisfying the requirements of head office.

Previously, it might have taken days to create 15 different sets of financial statements, with a BI and FP&A platform these need to be created once and then they are automated and shared with independent branches.

With the need to have access to more up-to-date reports in branches, finance teams using a BI and FPA platform can choose to share interim results more regularly as a flash report or dashboard.

Branch accounting rules all accounted for in the BI and FP&A platform

In branch accounting, each branch (defined as an operating unit that is geographically distinct) is treated as an individual profit or cost centre. The branch has its own account. Like any double-entry bookkeeping system, the ledger keeps a tally of assets and liabilities, debits and credits, and branch profits and losses for a set period. In bookkeeping terms, the branch account is a temporary or nominal ledger account. It lasts for a designated accounting period - usually a month.

The platform will also manage inter-company transactions as the built-in data integration and validation will help avoid double-counting during consolidation. It will also have features to set up and automate the allocation of shared costs or revenues across the branches. In Phocas, companies that have international branches can take advantage of the currency conversion so you can standardize reporting into a single currency.

Compliance with different accounting standards can also be applied to different branches. For instance, when you are carrying out financial accounting and preparing financial statements that follow generally accepted accounting principles (GAAP), these rules are baked into the reporting templates.

Supporting decision-making tasks for branches

Typical management accounting tasks for branches often focus on providing detailed operational and financial information to support decision-making at the local level. Depending on whether you choose to run dependent or independent branches, technology can help you supply as much information to branches or limit to what is necessary to run their day-to-day operations.

A BI and FP&A platform like Phocas allows companies to create branch-specific planning which allows each branch to have its own budget and forecast with roll up to the master budget. You can include revenue projections, expense planning, and cash flow estimates in your budgeting and forecasting for branches.

The platform also allows for cost analysis so you can do detailed analysis of branch costs both fixed and variable. Many customers also find cost management to be useful by monitoring and forecasting cash flows specific to the branch's operations. Those companies who run inventory-related businesses also track inventory levels, turnover rates or cost price of products across various branches. Analyzing costs and market conditions to inform pricing strategies for the branch's products or services is also beneficial as companies learn about different buying behaviors across locations.

If done well and with the right tools, there are not many disadvantages of branch accounting.

The main goal for branch accounting is being able to review individual branch performance to help identify profitable and underperforming locations. Branch accounting allows for localized decision-making and with accurate data and analysis your branches can best serve their customers, adapting to local preferences and drive retention.

The physical presence of branches in different areas improves customer service, allowing for face-to-face interactions and serving a local community so it’s worthwhile making them work to your advantage by understanding the financial position of each one you run.