In a host of industries, the idea of setting up special purpose vehicles (SPVs) to handle separate projects or initiatives makes good business sense.
The only drawback is that some accounting systems aren’t built to keep up with that way of running things.
In fact, the finance teams in ambitious, visionary organisations can sometimes be found struggling with inadequate software, as though they were working for an under-resourced small business.
Fortunately, there are alternatives which can give a business the visibility to ensure their SPVs are performing as they should.
Why are SPVs set up and who uses them?
SPVs have a pretty wide range of applications across many sectors where one business activity needs to be cordoned off from another. They may be used because of tax advantages, the need to minimise risk or just the necessity to see very clearly the relative performance of a number of initiatives.
Among the sectors which use SPVs are:
- The property industry;
- Investment businesses, including private equity;
- Renewable energy and other infrastructure businesses;
- Media production companies;
- Asset management.
SPVs might be set up by a holding company which has low turnover and few staff, but which needs to compare data for the millions of pounds in turnover generated by its ventures.
The drawbacks of SPVs for finance teams
Desirable as SPVs might be, they can be a headache for finance teams using traditional accounting software designed for smaller businesses.
Many systems require each SPV to be set up as a new installation of the same software. Effectively, you establish the latest SPV as another small business and have to buy another licence to use the finance program.
Under this model, you soon end up with a lot of separate, expensive instances of the same software. But when you need to extract the right figures to provide standardised reporting to the business’s leadership, none of the systems speak to each other.
Instead, the finance team has to pull the necessary data from each of those software packages and compile it – usually by spending many frustrating hours working with Excel spreadsheets.
The amount of thankless labour involved in this can be considerable.
Intercompany transactions are a serious burden in these circumstances. A single incoming invoice with 10 line items on it might take an hour to process, as the finance team attributes each charge to the right SPVs.
Software that handles finances for SPVs
To properly handle SPV finances, you need to move away from setting up another installation of the same entry-level software for each vehicle.
On the other hand, enterprise resource planning (ERP) systems, designed for large and complex corporate businesses, tend to be overkill.
A cloud accounting package designed for medium-sized businesses can be the solution for several key reasons:
- It can provide a pack of management reports, putting real-time, accurate data in front of decision makers.
- Setting up a new SPV as its own legal entity can be done in moments, with no need to pay for another software licence.
- The software can eliminate many hours of work in spreadsheets – although for those who still want to use Excel, live integration features ensure information is easily extracted and kept current.
- It can easily consolidate the accounts, ensuring that income and expenses are allocated correctly between SPVs and that intercompany transactions are stripped out of the figures.
- Where different currencies come into play, the figures can be automatically converted into the preferred currency, with no need for the finance team to do calculations.
The importance of data for SPVs
SPVs are created by sophisticated businesses whose leaders understand the need to segment the data for different ventures.
But standardised, accurate and up-to-date figures are vital if leaders are to make the most effective decisions. The right finance software is essential to providing that data.
To find out more about how iplicit can help multi-entity businesses, you can take a quick tour or get in touch for a demonstration.
ON-DEMAND WEBINAR: Moving to a Modern Cloud Finance System
Take a peek at how modern cloud accounting can transform your finance operations. Many vendors are discontinuing on-premise products so now is a good time to see what cloud accounting has to offer.
This on-demand webinar will cover:
- Advanced workflows and approvals
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- Intercompany management
- Multicurrency and multi-entity consolidation
- How Oxford Brookes Union transformed their finance operations by switching to iplicit.