Multi-Entity Accounting: Strategies for Small Businesses with Multiple Legal Structures

Published January 7 2025

Table of contents

• What is multi-entity accounting?
• Who needs multi-entity accounting
• How to set up multiple legal entities
• How to manage intercompany transactions
• How to consolidate and report across entities
• Make multi-entity accounting easier with Xero
• FAQs on multi-entity accounting

Key takeaways

• Multi-entity accounting helps business owners manage the finances across two or more legal entities. It helps them stay up with all their businesses’ performance and make sure each business’s accounts are accurate and compliant.
• Setting up a multi-entity accounting structure early helps streamline everything from tax reporting and intercompany transactions, to consolidated reporting for multiple companies.
• Cloud-based tools like Xero simplify centralised bookkeeping for multiple businesses and make compliance with ATO and ASIC requirements easier.
• With the right setup, you’ll gain real-time visibility across everything – saving you time and reducing errors while keeping individual entities audit-ready.

What is multi-entity accounting?

Multi-entity accounting refers to managing financial records, reporting, and compliance across two or more related businesses or legal entities – such as a holding company and its subsidiaries, or multiple franchises – under one owner.

Each entity typically has its own Australian business number (ABN), bank accounts, payroll, and tax obligations, which can also mean separate ledgers and compliance requirements. This means it’s important you keep a clear view across your group of connected businesses – while making sure each set of books stays accurate on its own.

In practice, multi-entity accounting involves:

• Using intercompany transactions accounting software to record and reconcile shared expenses, loans or asset transfers across all your entities
• Preparing accurate consolidated reporting for multiple companies to understand group performance in one simple view
• Managing multiple businesses’BAS and GST for group companies, free from manual work or duplication
• Simplifying multi-entity accounting and centralised bookkeeping for multiple businesses so your data stays consistent across every company

Who needs multi-entity accounting

If you’re managing multiple businesses, you’ll likely benefit from a structured multi-entity accounting approach if you’re operating as a:

• Business group or franchise operating under shared ownership but with separate trading businesses
• Professional services firm with different legal structures for certain parts of the business, such as consulting or property holding
• Family groups using separate companies or trusts for risk management or tax efficiency
• Growing SMEs looking to expand into new regions or product lines under separate entities

The complexity of managing multiple businesses means you’ll need a unified accounting system to manage things like cash flow, taxes, or STP reporting for consolidated payroll.

Multi-entity accounting helps your business

If it’s right for your business, a strong multi-entity accounting setup helps keep your finances transparent and compliant. Multi-entity accounting helps you:

• Simplify your Australian compliance for group structures
• Track intercompany loans (and eliminate double-counts)
• Prepare group-wide reports for investors and lenders
• Consolidate the management of your group’s cash flow

How to set up multiple legal entities

This takes some legal and financial planning – but it doesn’t have to be overwhelming.

Here are the six basic steps.

Determine your structure

Decide whether a company, trust, or partnership works best for your goals. Each choice has particular tax obligations and reporting requirements, and differs in the way they handle managing multiple businesses in one system.

For Australian compliance, check out ASIC’s financial reporting guide. Talk to your advisor to decide whether a company, trust or partnership best supports your goals. Each structure has different tax obligations, ownership rules and reporting requirements - all of which affect how you’ll manage multi-entity accounting in one system. Once your structure is confirmed, make sure you understand your financial reporting obligations.

For Australian businesses, ASIC outlines which entities must prepare and lodge financial reports.

Register your entities

Get an ABN, register your company name, and open separate business bank accounts for each entity. Make sure each one is identifiable in your accounting platform to make centralised bookkeeping easier.

Create a shared chart of accounts

A consistent chart of accounts for multiple businesses ensures transactions are categorised the same way across all entities. It also makes multi-business dashboard reporting and consolidated reporting for multiple companies easier, including managing cash flow between multiple businesses.

Centralise your bookkeeping with cloud accounting software

Cloud-based accounting tools like Xero are the modern, time-saving way to manage all your entities in one place. You can switch seamlessly between businesses while keeping data separate for compliance, making multi-entity accounting faster and less prone to manual entry errors.

Set up intercompany processes

Document how you’ll record shared expenses, loans or other intra-group transactions. By using intercompany transactions accounting software, you’ll streamline your reconciliations and manage automating intercompany eliminations – reducing mistakes and saving you time.

Make compliance a priority

If you prioritise compliance from the start, you’ll make consolidation, audits, and tax time much simpler. For example, make sure each entity meets its obligations for BAS and GST for group companies, as well as STP reporting for consolidated payroll. If you prioritise compliance from the start, you’ll make consolidation, audits, and tax time much simpler. For example, ensure each entity lodges BAS and GST on time, keeps accurate records, and reconciles accounts regularly. For payroll, make sure STP reporting is set up correctly for each company so consolidated payroll is accurate and compliant..

For more information, check out Xero’s Small Business Accounting 101 Guide.

How to manage intercompany transactions

An intercompany transaction is when entities within the same company trade and share costs, or lend to each other. For example:

• One entity invoicing another for management fees
• Shared marketing or rent expenses
• Loans or cash transfers between group companies

To stay compliant, record and reconcile every transaction in both sets of books. While small errors might seem insignificant, they can easily snowball into reporting or tax headaches later.

If you’re new to intercompany transactions accounting software – here are some best-practice tips to get it right:

• Automate matching: use automated intercompany reconciliation to prevent duplicate entries
• Record at fair value: keep pricing consistent with ASIC and ATO guidelines
• Eliminate at consolidation: remove transactions between entities in group-level reporting

With group company accounting software in Australia (like Xero) you can easily track and tidy up intercompany transactions as you go. The right setup helps eliminate duplicates and keeps your books accurate across every entity, so your finance team and advisors can work together in real time.Take a look at Xero’s guide to financial statements.

How to consolidate and report across entities

Consolidation brings all your multi-entity accounting together into one small business group financial statement. It gives you a complete picture of how your group is performing, and helps keep you aligned with reporting standards like AASB 10.

When preparing financial reporting for subsidiaries:

• Combine income statements and balance sheets across entities
• Eliminate intercompany transactions
• Adjust for ownership percentages
• Present consolidated cash flow and equity positions

Modern multi-entity accounting software tools can handle these steps automatically. In Xero, for example, you can:

• Connect multiple organisations under one subscription
• Sync data for consistent reporting
• Use tracking categories for segment analysis
• Export financial reports, balances and transaction data, or integrate with group reporting tools for deeper insights" for extra clarity

To brush up on the basics, check out Xero’s guide to double-entry bookkeeping.

Make multi-entity accounting easier with Xero

Xero makes it simple to manage all your entities’ finances in one place. Whether you’re running a property company, a group of consultancies, or family trusts.

Xero is ideal accounting software for multiple entities in Australia when you need visibility, control, and peace of mind across every company you own.

Try Xero for free and see how effortless it can be to manage every entity in one place.

FAQs on multi-entity accounting

Here are common questions business owners might have about multi-entity accounting.

What are intercompany transactions?

Transactions between entities in the same group, like shared expenses, loans, or management fees, which need careful recording to stay compliant.

What is consolidated reporting?

A way to combine financial statements from multiple entities into a single view, eliminating intercompany transactions and showing overall group performance.

How do I ensure compliance across multiple entities?

Set up structured processes for BAS, GST, payroll, and reconciliations, and use technology to track each entity accurately without manual errors.