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When merging general ledger software, a careful approach is advised

Determining the best way to bring two companies general ledgers together after an acquisition relies heavily on the nature of the business and the reason for the merger, industry experts say.

To pull off a successful acquisition, it takes a lot more planning than simply finding the right price at which...

to bring a new company into the fold -- because after the deal is done the real work starts.

At the heart of any acquisition is the financials, the general ledgers. Companies undertaking an acquisition or merger need to approach their general ledger bookkeeping very carefully, determining how to bring the books together -- if they should be merged at all.

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Such questions lead to more questions, like how to determine which general ledger (GL) software is better, when to migrate and how to minimize major interruptions.

“The answers all depend on the logic of the acquisition,” said George Lawrie, vice president and principal analyst for Forrester Research Inc. in Cambridge, Mass. “Some people make an acquisition because they want to propagate their products into the acquired company’s market, and very often in that case, they’ll say, ‘You can use our financials right away.’ Why? It’s because they want to get control over the vital financial aspects of the new business.”

General ledger software management

In these situations, merging the general ledger software is often a foregone conclusion.

“We often see people saying, ‘We don’t really care whether your GL is better or not because we don’t think a general ledger can be particularly differentiated.’ What we do want to do is have everybody on a common chart of accounts, a common reporting cycle and a common set of accounting policies so that we know that when we talk about apples you mean the same thing we do when we talk about apples,” Lawrie explained.

“The only time I see people say, ‘Keep your own systems,’ is when the logic is totally different -- where the logic of the business is more of a conglomerate, where business units are not going to share customers or suppliers,” he added.

This sort of acquisition tends to be about investing in a company at arm’s length, and all the acquiring company wants to know is how the financial reports turn out at the end of each quarter. In terms of best practices, it’s always smart to take a step back and survey the operational landscapes of the two companies first, according to Lawrie.

According to Alan Fang, chief operating officer for ERP Logic, an SAP reseller in Irving, Texas, “The first question the organizations need to ask is, what is the value that the merger or acquisition is supposed to bring? Is it to increase revenue? To gain operational efficiency and synergy to bring better top-line and bottom-line growth? Are you buying a technology or specific know-how or looking to increase market share?”

When those questions are identified, it’s easier to determine if integrating the operations is a priority. “If so, a singular system platform may be the right way to approach this, and if that is the case, the system landscape comes into play, and when the system landscape comes into play, GL is usually the least of the concerns,” Fang explained. Why? When it comes time to merge entities, especially into single ERP-focused applications, the operational transitions may be more difficult than the financials. So merging general ledgers might be like putting the cart before the horse.

Once it’s clear that general ledger software should be merged, there are several key places to start and several strategies to ensure success, noted Jonathan Gross, vice president and corporate counsel for Toronto-based Pemeco Consulting.

“The first place to start is to determine an appropriate GL structure for the combined entity,” he said. “To do so, relevant executives and finance department personnel from both companies should meet to determine which structure best applies. In some cases, it may be one GL structure, the other, a combination or some evolved iteration.”

In fact, there are two scenarios that play out when merging financials, according to Gross. If the charts of account between the two companies correspond, the GL software merger is fairly straightforward. If they don’t correspond, businesses should develop a comprehensive mapping scheme to bridge the gap between the GL account structures.

As for timing, organizations can avoid peak areas of risk by paying attention to the company calendars -- and Gross acknowledged that it can be a serious balancing act.

“Businesses should avoid timing the integration with key reporting periods and heavy-volume shipment cycles. They should steer clear of financial year-ends and quarter-ends, as well as peak seasons,” he explained. “Ideally, businesses will schedule GL integration for a low-volume month-end that is not likely to have a significant impact on deliveries.”

Last of all, Gross recommends that companies go into the merger process with clear-headed views not of how it should come together, but how it can fit. His consultancy has often been asked to come in and clean up poor general ledger integration following mergers and acquisitions (M&As).

“One piece of advice: Don’t shoehorn a system into an acquired business if that system isn’t the right fit,” Gross said. “Business plans that map out M&A economies of scale and scope simply assume that departments can be integrated and processes standardized. However, forcing a square system into a round business peg is a sure way to impede the realization of any of projected benefits. There are alternatives. Understand them. Study them.”

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