Global Expansion & NetSuite Multi-Book Accounting
NetSuite's Multi-Book Accounting feature simplifies global expansion for SaaS B2B companies. There are two flavors: Full Multi-Book and Adjustment-Only Books, each with its own advantages. Multi-Book Accounting supports functional and local currency reporting, adherence to different accounting principles, and transitioning to new revenue standards. It can be enhanced with NetSuite's other capabilities, such as localized tax reporting and audit functionalities for comprehensive financial management. Determining ROI involves assessing initial and operational costs against benefits such as efficiency gains, compliance savings, scalability, and improved financial reporting. Companies should also consider qualitative benefits such as strategic alignment and agility. For implementation, NetSuite authorized partners guide companies through the process, whether setting up Multi-Book on a new or existing NetSuite instance. This includes project initiation, sandbox environment preparation, feature provisioning, and configuration, ensuring a tailored solution for effective global financial management.
Challenges Addressed by Multi-Book Accounting
Expanding the reach of SaaS B2B companies to new markets often reveals challenges for Accounting Teams. These include reconciling different accounting standards, navigating various tax laws, reporting in multiple currencies, and consolidating international financial reports. NetSuite's Multi-Book Accounting is designed to address these difficulties, providing solutions that allow for smoother operations, such as:
Consistent reporting for entities operating in multiple currencies.
Compliance with diverse accounting principles.
Support during transitions to new revenue recognition standards, ensuring ongoing compliance.
Full Multi-Book vs. Adjustment-Only Books Comparison
NetSuite offers two versions of the Multi-Book feature, each tailored to meet different operational requirements: Full Multi-Book and Adjustment-Only Books:
Full Multi-Book
The Full Multi-Book version automates the simultaneous posting of transactions to multiple accounting books, leveraging rules and mappings tailored to different standards and regulations. This version has several benefits, including reduced manual workload and mitigation of the risk of errors, detailed compliance with global accounting standards, and comprehensive reporting capabilities. However, it has some downsides, such as higher complexity and associated costs for setup and upkeep.
Adjustment-Only Books
Adjustment-Only Books version provides a simplified approach that relies on manual entries to align the primary books with local requirements. This version has several advantages, including lower initial setup and ongoing costs, simplified management of global financial operations, and suitability for companies with less frequent or less complex adjustments. However, it also has disadvantages, such as a higher risk of human error and potential non-compliance issues, increased manual upkeep (especially with substantial revenue recognition and amortization activities), and is not ideal for detailed transaction-level activities due to its summarized nature.
Use Cases Supported by Multi-Book Accounting
Functional vs. Local Currencies
Multi-Book simplifies the complexity of reporting in multiple currencies for subsidiaries. When a company has subsidiaries in different countries, they may need to report their financials in multiple currencies, which can be complex. Multi-Book is a software solution that simplifies this process by allowing reporting in both the functional currency of the subsidiary and the local currency. For example, if a company has a subsidiary in Canada, but their worldwide reporting is done in US Dollars, Multi-Book can allow the subsidiary to report in Canadian and US Dollars. The primary book would be in US Dollars, and the secondary book would be in Canadian Dollars, making statutory reporting much simpler.
Differing Accounting Principles
It resolves the intricate pain points of adhering to different accounting practices for global SaaS businesses. When it comes to global SaaS businesses, adhering to different accounting practices can be a complicated process. One of the most challenging aspects is dealing with the differences in the amounts booked for various accounting principles in specific subsidiaries. Some examples of these differences can include variations between accounting and tax books, such as depreciation methods. Additionally, there can be differences in accruals, such as for audit fees, with GAAP allowing for accrual over the course of the year, while IFRS expenses them as incurred. Lastly, revenue recognition can also differ, with corporate books deferring revenue over the contract term while local purposes recognize it on shipment.
New Revenue Recognition Standards:
Multi-Book provides a framework that helps companies transition to new revenue standards while maintaining dual compliance. Use Case: Suppose a customer is in the process of adopting the New Revenue Recognition Standard. The customer's requirement is to modify its revenue recognition rules following the ASU 2014-09 revenue standard. It needs to maintain two separate accounting books - one with the new standard and the other with the old. Resolution: To meet the customer's requirement, the customer will need to maintain two sets of books for a period of time. To achieve this, the customer will need to adopt the Advanced Revenue Management system.
Supplementing Multi-Book with Other Built-In NetSuite Capabilities
Supplementing Multi-Book with NetSuite's localized tax reporting, GL localization, and audit functionalities delivers a comprehensive solution for managing global financials effectively.
Process for Determining the Need for Multi-Book Accounting
1. Comprehensive Regulatory Assessment: Catalog the accounting standards and tax regulations of each country of operation. A US-based SaaS firm, for instance, may need to reconcile its accounting practices with ASC 606 for US GAAP, IFRS 15 for its European subsidiaries, and other local standards in additional countries.
2. Operational Complexity Analysis: Conduct an in-depth review of your revenue streams, expenses, and assets, and understand how these are recognized across different accounting standards.
3. Reporting Requirements Evaluation: Determine the frequency and detail of financial reporting required by each jurisdiction. For example, quarterly reporting under US GAAP might differ significantly from the semi-annual requirements under Japan's JGAAP.
4. Internal Systems Audit: Analyze your current ERP and financial systems' capabilities to handle multi-book accounting. If you are using NetSuite, these capabilities are already built in and simply need to be enabled.
5. Growth Trajectory Forecasting: Factor in anticipated market entries and product launches. Will your current system scale if you enter two new countries in the next fiscal year or if you diversify your SaaS offerings?
6. ROI Calculation: Weigh the costs of a multi-book system implementation against the potential financial impact of errors, manual adjustments, compliance risks, and the opportunity cost of finance team labor.
ROI Calculation
To ascertain the return on investment (ROI) for implementing Multi-Book Accounting within NetSuite, SaaS B2B companies should adopt a comprehensive calculation framework that assesses quantifiable and qualitative benefits against the investment and operational costs.
Step 1: Identify Costs
· Initial Costs: Include the cost of NetSuite Multi-Book licenses, customization, integration, and any additional modules needed.
· Operational Costs: Factor in ongoing costs such as additional staffing, training, and system maintenance.
· Opportunity Costs: Consider the costs associated with the time spent managing multiple systems if Multi-Book is not implemented.
Step 2: Quantify Benefits
· Efficiency Gains: Calculate time saved by automating financial processes and reducing manual entries, translating into cost savings.
· Compliance Savings: Estimate the potential financial impact of non-compliance fines and penalties that Multi-Book could help avoid.
· Scalability Benefits: Assess the cost benefits of being able to easily add new books for expansion without significant additional investment.
· Improved Financial Reporting: Quantify the value of more accurate and timely reporting that could lead to better decision-making and potentially increased revenues.
Step 3: Project Long-Term Financial Impact
· Cost Avoidance: Estimate the reduction in audit costs due to more accurate books and records.
· Revenue Impact: Project any potential increase in revenue due to improved financial insights and compliance, enabling smoother market entries.
· Risk Mitigation: Assign a value to the reduced risk of financial errors and the enhanced ability to comply with diverse accounting standards.
Step 4: Calculate Net Present Value (NPV) and Payback Period
· NPV: Discount future cash flows back to their present value to understand the total value of the Multi-Book implementation over time.
· Payback Period: Determine how long it will take for the benefits to recoup the initial and operational costs.
Step 5: Consider Qualitative Benefits
· Strategic Alignment: Evaluate how Multi-Book supports the company’s strategic goals, such as global expansion.
· Agility: Consider the value of increased agility in financial operations and the ability to adapt to new financial regulations quickly.
· Stakeholder Satisfaction: Assess the impact on stakeholder satisfaction, including employees, management, investors, and regulators.
Step 6: Sensitivity Analysis
· Sensitivity Analysis: Perform sensitivity analysis to understand how changes in key assumptions affect ROI. This helps in assessing the risk and potential variability in the expected ROI.
Step 7: Make an Informed Decision
· If NPV > 0: The project likely makes financial sense.
· If Payback Period is Acceptable: If the payback period aligns with the company’s strategic financial cycle, it could be favorable to proceed.
· If Qualitative Benefits are High: Even if quantitative ROI is borderline, strong qualitative benefits might justify the implementation.
Implementation Steps for Multi-Book Accounting in NetSuite
Once an organization decides to move forward with NetSuite's Multi-Book feature, it is important to engage with a NetSuite authorized partner who has current Multi-Book Enabled Partner status. NetSuite will verify the partner's credentials and assess the suitability of the use case before providing the Full Multi-Book feature. The partner will guide you through the process from discovery to implementation and testing. The implementation steps will vary depending on whether the partner is implementing Multi-Books on a new or existing instance of NetSuite. Below is a summary of the implementation steps for each scenario:
Full Multi-Book Implementation Process for New Accounts:
Project Initiation: Begin with a professional services (PS) project initiation to outline scope and objectives.
Sandbox (SB) Refresh: Refresh the existing SB environment or request a new one if unavailable.
Multi-Book (MB) Feature Provisioning: File an internal issue to provision the MB feature in SB.
Configuration: You will work with your partner to establish a hierarchy for your subsidiaries, create a secondary accounting book, and set up account mappings. NetSuite provides two types of account mapping - Global and Item. You need to develop a mapping structure to record transactions in each set of books. You will also need to define a revenue treatment for each book (if applicable) and set default revenue recognition rules on a per-book basis for each item record. You will also set up amortization schedules for each book. Use filters to configure Multi-Book transaction Searches and reports.
Data Migration: Transfer financial data into the SB environment for MB.
Testing: Conduct thorough testing in SB to ensure the MB setup meets the required functionalities.
MB Feature Provisioning in Production: Provision the MB feature in the production environment.
Production Configuration: Configure the MB settings in the production environment.
Production Data Migration: Migrate the data to the production environment.
Go-Live: Launch the MB accounting system for live operations.
Full Multi-Book Implementation Process for Existing Accounts:
Project Initiation: Start with PS project initiation to define the project's framework.
SB Refresh: Refresh SB, or request one if not present.
MB Feature and Historical Transaction Pairing (HTP) Provisioning in SB: File an issue to provision MB features and HTP in SB.
Configuration: Configure MB in SB, ensuring all existing subsidiaries are included before activation.
HTP Process: Historical Transaction Processing assists customers in migrating old transactions to the secondary books and gives them the ability to select the secondary book start period (non-zero effective date). This can be achieved by selecting an effective period in the accounting book. It helps migrate old transactions to secondary books and select the secondary book start period with a non-zero effective date. To enable Multi-Book for subsidiaries with existing transactions in the primary book and before activating the accounting book, you need to select the effective period in the accounting book and run Historical Transaction Processing (HTP). HTP has additional functionality to perform the following tasks: - Processing open transactions without GL impact on the secondary book before the effective date. - Applying or unapplying payment links to historical transactions before the effective date. - Creating rev rec and amortization schedules in secondary books based on a historical transaction, with a start date before the effective date. There are seven options for processing historical transactions in HTP:
· 1. Process open transactions: Ability to process open AR, AP, revenue recognition, and amortization transactions before the secondary book effective date.
· 2. Process accounts to be revalued: For accounts where the option "Revalue open balance for foreign currency transaction" is enabled.
· 3. Process transactions after the effective date: Only transactions dated after the effective date will be processed.
· 4. Process extra secondary book transactions: Process any new transactions entered while the book is pending. This option is the only one available when the book is active.
· 5. Delete transactions: Ability to remove GL ledger impact of historical transaction processing.
· 6. Process Statistical Journals: This option copies statistical journals in the primary book to the selected pending secondary book, regardless of the statistical journal posting date.
· 7. Process Transactions to be Eliminated: If there are transactions with balance sheet accounts (non-A/R or -A/P accounts) before the effective date, this process creates opening balances covering their elimination impact in the secondary book. The system displays all applicable HTP processes based on the setup of the accounting book (Effective Period, for example). It's important to run all the offered HTP processes to ensure the proper functioning of the accounting book.
Testing: Thorough testing in SB to ensure all features function correctly.
MB Features Provisioning in Production: Implement MB features in the production environment.
Production Configuration: Configure the MB settings in the production environment.
HTP Process in Production: Complete the HTP process in the production environment.
Production Data Migration: Migrate financial data to the production environment.
Go-Live: Begin using the MB system in the production environment for daily operations.
Adjustment-Only Implementation Process for New and Existing Accounts:
Project Initiation: Begin with a professional services (PS) project initiation to outline scope and objectives.
Sandbox (SB) Refresh: Refresh the existing SB environment or request a new one if unavailable.
Adjustment-Only Book (AOB) Feature Enablement: Enable the AOB feature in SB.
Configuration: Configure the AOB
Data Migration: Transfer financial data into the SB environment for AOB.
Testing: Conduct thorough testing in SB to ensure the MB setup meets the required functionalities.
AOB Feature Enablement in Production: Provisioning of the AOB feature in the production environment.
Production Configuration: Configure the AOB settings in the production environment.
Production Data Migration: Migrate the data to the production environment.
Go-Live: Launch the AOB accounting system for live operations.
Conclusion
NetSuite's Multi-Book Accounting has the potential to significantly streamline accounting operations and reduce risk for SaaS B2B companies confronting the challenges of global expansion. That said, the decision to implement Multi-Book Accounting in NetSuite should ultimately be grounded in a thorough ROI analysis that considers all aspects of the company's operations and aligns with its financial management objectives and growth strategies.