Wielding compliance as a weapon for growth

REGULATORY COMPLIANCE has long been an accepted cost of business, with companies spending huge sums and dedicating countless hours to the task. With requirements regularly changing and the economy still struggling – Europe in particular faces a volatile environment – the burden of meeting compliance requirements is only going to increase.

However, achieving compliance while also striving to delight customers and grow the business can be a headache – particularly when expanding into new countries. Each new region comes with its own currency, rules and tax regulations, meaning that the cost and time spent on compliance will continue to grow. Any CFO who can find a way to cut through the red tape and deliver compliance, without spending a fortune on consultants, will be a hero in the eyes of the board.

The spiralling cost of compliance
When it comes to international tax and compliance, businesses have traditionally faced the same challenges – different regulatory requirements in each country, with different or disconnected systems. The extent to which it differs can be extreme. For example, take the average time required for preparation, filing and paying activities to do with VAT. In Switzerland it takes eight hours, but Bolivia requires 480 hours and Brazil is as high as 1,374 hours. To put this into perspective, the latter figure equates to employing one full time finance professional just to meet regulatory reporting requirements in just one country.

Companies turn to enterprise resource planning (ERP) to help reduce the regulatory burden, but the unfortunate fact is that most traditional ERP packages don’t support international compliance effectively. While they may function well in a domestic environment, they struggle to handle the complexity of multi-national requirements and the result is a hairball of disparate ERP systems in each country, and/or a network of spreadsheets and external systems. When combined with the time required for each and every corporate entity in each country, the cost of compliance rapidly adds up.

If the problem wasn’t bad enough, organisations are now bracing themselves for this cost to increase further in the face of new regulation. There are things that we know about, such as mandatory e-filing of VAT returns for UK businesses from April, which many businesses were unprepared for, and the threat of more changes to help the economy, such as the recent changes in VAT. The consequences of non-compliance aren’t limited to losing ground to competitors; large fines and even jail terms are possible.

A new approach to regulation
However, a different approach to the way finance departments are structured can reduce the time needed to achieve tax compliance, submit returns and maintain full auditability. Multinational companies should look at the possibilities internet based systems offer to consolidate multiple regional subsidiaries into a single financial platform and provide the ability to produce accurate country or region-specific tax reports at the click of a button. Cloud-based ERP also brings a major benefit in compliance efforts by being automatically updated to reflect any changes in regulation. For example, if the VAT rate were to change again, the software could be updated instantly.

Take a company like Groupon, the daily deals company which operates in 500 cities and 46 countries around the world. Each time it entered a new market, the amount of time and effort needed to close the books grew, turning financial reporting into a time consuming and labour intensive process. The collection of different programmes, processes and spreadsheets made it difficult to understand the full scope of its international operation, and made standardisation of practices impractical. Recognising the inefficiencies of this approach, it adopted a cloud-based ERP system which allows it to support multi-currency management and local taxation compliance as well as reporting and analytics. Within three months, the system was live in 26 regions, with the rest following within a year. As a result, Groupon now has global visibility on all aspects of its business at any given time. By removing the headaches around compliance in each new region, Groupon has been able to expand at a phenomenal rate, and is now widely regarded as the fastest growing company of all time.

With many organisations facing increasingly tough trading conditions, extra regulatory requirements are an unwelcome additional outlay – but the high cost of compliance no longer needs to be blindly accepted. By removing this cost, rapid international expansion can be enabled. Organisations need to review how their ERP systems work and how they are handling compliance – and consider what savings could be made by switching to an alternative. As Groupon has shown, the CFO that does this can get rid of the unproductive burden, allow that time to be focused instead on growth and become the hero of the boardroom.

Craig Sullivan is VP & GM international at NetSuite