Finance Management

Subsidiary company: what is it and how to do financial management?

The structure of a company does not need to be formed only by the parent business. Depending on the type of activity and the needs of the business, it is possible to resort to other configurations, such as the existence of a subsidiary company.

Through it, there are ways to obtain advantages when operating in the market. At the same time, financial management can be more challenging and require extra attention. Therefore, it is interesting to know the essential strategies and tools to carry out this process efficiently.

Next, find out what a subsidiary company is and understand how to manage the financial management of such a business!

What is a subsidiary company?

A subsidiary company is a business subordinate to another company. Thus, it is called the subsidiary, while the other company is known as the parent company.

Therefore, this concept foresees a relationship of subordination between organizations. However, it should be noted that a subsidiary company has its own name, CNPJ and market positioning, just like its parent company.

How does this type of company work?

In addition to understanding the concept, it is important to understand how a subsidiary company works. To start, know that there are several ways to establish this type of business relationship.

The first path involves the business opening another venture and including it as a subsidiary. It is also possible to acquire more than 50% of the shares of a company so that it becomes a controlled company. Also, if the parent company owns 100% of the shares, then the subsidiary will be considered a wholly-owned subsidiary.

What is the difference between branch and subsidiary?

By knowing the concept of a subsidiary, it is possible that you will find similarities with the branch of a company. However, the relationship of the main business with them differs and the results are also different.

In the case of the subsidiary, it works as an extension of the main company. Therefore, it has the same identity, the same name and the same brand positioning as the parent company.

In addition, it performs the same activities as the main business. A branch of a retail business, for example, will also be a retail business and will sell the same items under equivalent conditions.

A subsidiary is under the control of the main company, but is a separate entity from it. As you have seen, this makes the name, identity and other issues different between parent and subsidiary.

Furthermore, a subsidiary may develop a different business activity from the parent company. Furthermore, it is common for it to have a little more autonomy than a subsidiary, since each controlled company of this type may have specific management characteristics, for example.

Benefits of  subsidiary company

The next thing to know about subsidiary companies involves the advantages they can offer to the business. One of the benefits is the versatility of working with a controlled company of this type.

It can perform non-essential functions for the parent company, letting the core business focus on more strategic issues, for example. This can facilitate the operational efficiency of the enterprise, generating more results.

Having a subsidiary can also be a way to increase market share and, consequently, to reduce competition. This strategy is especially used by transnational companies.

Still, this structure can offer tax and fiscal advantages, such as a more advantageous framework for the parent company or the subsidiary. Therefore, it is a composition that can help the business achieve better results.

How to do the financial management of a subsidiary company?

By now, you’ve understood how a subsidiary company works and how it differs from a branch company. Now, it is necessary to understand how to carry out financial and business management in this case.

For this, it is worth following some tips that can help make the process more efficient. Follow!

Centralize the information

When thinking about the management of the subsidiary, consider that it should be done simultaneously with the management of the parent company. Because of this, it is essential to have all the data gathered in one place.

With centralization, it will be possible to better visualize the information, follow the movements and make an effective control. This step also serves to create a better flow of information, ensuring that data is shared across teams and even across companies.

Create integrated financial plans

In addition to centralizing data, it is essential to integrate financial planning. After all, it is common for the parent company to finance the subsidiary — and this needs to be included in the budget. At the same time, the subsidiary must correctly manage the money received.

By creating separate but communicating schedules, you can increase the chances of using resources more strategically.

Get help from technology

In order to have an efficient financial management capable of overcoming the challenges of the parent-subsidiary relationship, it is worth resorting to technology . With the right tools, you will perform tasks more simply and use reliable information.

In this case, a financial reconciliation tool is especially important. Through it, you can compare sales data with recorded values, such as cash flow, and perform financial audits.

Considering that the existence of a subsidiary multiplies the volume of operations carried out, it is essential to have a tool to automate these steps. Thus, you will have strategic and validated financial data, which can serve for more effective decision-making.

Leave a Reply

Your email address will not be published. Required fields are marked *