A holding structure is a business unit that includes multiple legal entities, and the budgeting process in it depends on the type used. We distinguish three main types of holding groups:
Directive.
Management.
Investment.
Directive holdings are teacher data package characterized by the centralization of management functions in one company, to the point that all budgets are developed in the management company, and management of all resources is carried out there. Such groups have a single treasury and are managed according to a common budget, which allows avoiding additional financial processes on the ground - all decisions are made by the parent company, and its decisions can adjust the actions of all legal entities present in it.
A management holding company is a more decentralized group, where the management company acts as a controlling body. Here, master budgets are formed in the parent company, consolidating operating budgets that are developed in each individual division and enterprise. Thus, the holding management process occurs at the management company level, but still leaves a certain freedom of management for subsidiaries.
In investment holdings, the owners, i.e. the management company on their behalf, exercise control only over annual reports, without directly influencing the decisions of subsidiaries, each of which has its own budget models. The owners can collect these final forms, or control only financial results. From this we will draw a conclusion: for investment holdings, it will probably be sufficient to only build reporting according to international standards, which can be controlled and on the basis of which management decisions can be made, and for directive and management decisions, it is necessary to develop budget models.
Financial management of the holding
When building a budget model of a holding, you can use two options: the first is a consolidated one, the second is a full-featured one. How do they differ?
The consolidated budget model is formed on the basis of the estimate data prepared in the group companies. They provide certain forms, and at the management company level, costs are distributed, intra-group turnover is consolidated, and advisory amendments are made, forming consolidated budget documents. The group companies provide only the data that is necessary for their creation, without conducting separate budget processes. The main financial forms may be the forecast balance and budgets: income and expenses; cash flow; some functional budgets of production or sales.
The advantages of this form are: quick and easy implementation, since the management of the management company does not need to delve into the business processes of subsidiaries, since this is not required for the consolidation of reports. However, there is a significant drawback: this option for forming a financial model does not provide for obtaining information on how each individual figure is formed at the company level. Since the management company provides only summary indicators, it is almost impossible to detail them or check how correctly the indicator is planned.
When it comes to a full-featured financial model , at the level of the management company everything remains the same as in the previous version, only the approach to the formation of budget forms by structures changes. Here, the budgets of each enterprise are built independently, then they are consolidated at the level of data aggregation, so group turnovers are removed, and after cleaning and supplementing the figures with adjustments, we can form the combined budget forms as a whole. That is, a full-featured financial model provides a more detailed, accurate budgeting process, but requires more effort.
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