I own multiple companies – What should I know?

waterfalls multiple companies

If you own more than one company, you want to keep your accounting records clean. You likely have transactions that affect two or more companies, but you are unsure of how to enter them correctly.

Many of our clients run two or more companies. If you are in this situation, what should you know about handling transactions between multiple companies?

Keep separate books for each company

path multiple companies

Some business owners are tempted to keep the bookkeeping data for multiple businesses in one accounting file. This is not a good idea. 

Why should you keep your bookkeeping separate for each company? Some reasons include:

  • To have accurate data for each business
  • To have insight as to the profitability for each business
  • To provide records for tax preparation or in the case of an audit for each business
  • If one of the businesses is a corporation, to preserve the integrity of the corporate veil

Additionally, you should keep separate bank accounts and credit card accounts for each business.

Use the same accounting platform for all of your companies

Using the same accounting platform for all of your companies makes sense whenever possible. This way you do not need to learn and keep up with changes in multiple accounting systems. You will feel more confident in navigating your accounting system if you are using only one platform.

Many online accounting systems have multiple subscription levels available. So you may be able to be on the same accounting platform but have different subscription levels for each business to suit each business’ needs.  

For instance, QuickBooks Online (QBO) offers four subscription levels. You may need to have your primary business on QBO Plus or QBO Advanced to accommodate your staff’s access, but you could have your secondary business on QBO Essentials.

Reconcile the related Accounts Receivable to Accounts Payable balances 

puzzle multiple companies

A common type of transaction that affects two companies is when an invoice is generated by one company that then needs to be recorded as a bill in another. A common example is one company billing another for services rendered. 

For example, let’s say that Your Company A creates an invoice to Your Company B for services of $10,000. 

In Your Company A’s books, you will create an invoice for $10,000.The accounting behind the scenes related to the invoice will be a Debit to Accounts Receivable for $10,000 and a Credit to Services Income for $10,000.The Accounts Receivable Aging Summary for Your Company A will include this:

In Your Company B’s books, you will enter a bill. The accounting behind the scenes will be a Debit to Subcontractor Expense for $10,000 and a Credit to Accounts Payable for $10,000.  Your Accounts Payable Aging Summary for Your Company B will include this:

For this example you would reconcile the line on Your Company A’s Accounts Receivable Aging Summary for Your Company B of $10,000 to the line on Your Company B’s Accounts Payable Aging Summary for Your Company A of $10,000. 

Comparing the two balances in each accounting file and verifying the related balances are the same (in this example, the $10,000) is a way to reconcile the related transactions between the two companies.

Reconcile the related receivable and payable account balances

Another common type of transaction is when one company loans money to another company. The best way to handle these transactions is to create a receivable account in the company that loaned the money and a payable account in the company that received the money.

For example, let’s say Your Company A loans Your Company B $50,000.  

In Your Company A’s books, you will enter a check or expense of $50,000 and code it to Your Company B Receivable. The accounting behind the scenes will be a Debit to Your Company B Receivable for $50,000 and a Credit to Checking for $50,000.  The balance sheet for Your Company A’s books will include this:

In Your Company B’s books you will enter a deposit for $50,000 and code to Your Company A Payable.The accounting behind the scenes will be a Debit to Checking for $50,000 and a Credit to Your Company A Payable for $50,000. The balance sheet for Your Company B’s books will include this:

Comparing the balances for the related receivable and payable accounts between the two companies and verifying that the balance is the same ($50,000 in this example) is a way to reconcile the amounts between the two companies.

The examples above are fairly simple with single related transactions. You might have many transactions going back and forth between your companies. If the activity in these accounts has not been monitored closely and reconciled frequently, It is common for the balances not to match. 

If you are struggling with the books for your multiple companies, Beyond can help! We specialize in working with clients that own multiple businesses. Reach out to us if you need help to untangle your related company balances.