Planning multi-entity business finance: Who earns the cash and owes the debt?
Updated: 5 hours ago
Planning multi-entity business finance starts with a clear map of who borrows, who receives customer cash and which entity must meet each payment.
Several businesses can share owners, staff or premises without sharing one unrestricted pool of money. An attractive group turnover figure can therefore conceal a cash gap in the entity expected to repay a facility.
This Australian guide focuses on organising the information for a working capital application. Your accountant and solicitor should advise on the legal structure, inter-entity arrangements and tax consequences.
The short answer
Identify each legal entity and its role in the trading group.
Match customer receipts, staff costs, supplier bills and debts to the correct entity.
Reconcile transfers so internal movements are not counted as new external revenue.
Show the proposed borrower’s access to the cash needed for repayments.
Confirm guarantees, security, consents and permitted transfers with professional advisers.
Start multi-entity business finance with an entity map
List the legal name, ABN or other relevant identifier, structure and owners for each entity. Add the trading name separately. A brand seen by customers does not necessarily identify the party contracting with them.
Describe the operational role of each entity in plain language. One may employ staff, another hold equipment, and another invoice customers. Use the actual arrangement rather than an assumed standard structure.
The government’s business structure guidance explains that different structures have different responsibilities and obligations. It is a starting point for discussion, not a substitute for advice about a particular group.
Where a trust is involved, confirm the relevant trustee and contracting capacity with your advisers. Do not treat the trust’s trading name as a complete answer to who is borrowing or providing security.
Follow a customer dollar through the group
Choose a typical sale and trace it from the contract to the receiving bank account. Identify the entity issuing the invoice, the entity doing the work and any other entity being paid for staff, equipment or administration.
Then identify who meets payroll, suppliers, tax and finance payments. This exercise can expose an entity with substantial costs but little direct customer income.
Prepare individual cash records before producing a combined view. The government’s business bank account guidance supports separating business banking appropriately. Clear records make it easier to explain the cash movements without relying on a single group balance.
An internal transfer may be a loan, reimbursement, service payment, distribution or another transaction. Have your accountant identify the correct treatment. The description in a bank transaction alone may not establish its legal or tax character.
Avoid counting the same receipt twice
If one group entity receives a customer payment and transfers part to another, the transfer does not create a second external customer sale for the group. Adding both bank deposit totals can overstate trading receipts.
Similarly, removing every transfer without investigation can hide an entity’s actual obligations or dependence on another entity. Reconcile the movements rather than simply excluding them from the analysis.
The guide to estimating working capital needs begins with the trading cash cycle. In a group, that cycle needs to be shown both for the operating entities and in the reconciled combined picture.
Provide explanations for unusual transfers, one-off owner contributions and loans between related parties. A reviewer should be able to distinguish recurring customer cash from money temporarily moved within the structure.
A worked example: Group turnover does not answer the repayment question
Consider an original hypothetical group. Trading Company receives $100,000 from external customers in a month and transfers $35,000 to Services Company for agreed staffing services. Services Company uses that money to meet its own costs.
The two bank accounts show $135,000 of deposits in total, but the group received $100,000 from external customers. The $35,000 is an internal movement that needs reconciliation in the combined view.
Now suppose Services Company proposes to borrow. Its repayment capacity cannot be established simply by pointing to the group’s $100,000 external receipts. Its costs, the basis and reliability of its receipts, and the proposed obligations require assessment.
The example does not determine whether the service arrangement is appropriate or whether finance is available. It shows why a clear cash map is more useful than an unreconciled combined deposit figure.
Ask your accountant to prepare both entity-level and combined information with consistent periods. This reduces confusion when a finance proposal refers to a group whose entities have different financial year positions or banking histories.
Confirm the proposed borrower’s repayment source
State why the selected entity needs the money and what it will pay for. Explain how the resulting cash benefit reaches that entity and supports its repayments.
The government’s business loan application guidance discusses financial records and repayment assessment. In a group structure, the explanation should connect the purpose, borrower and payment source rather than relying on ownership alone.
If repayment depends on another entity transferring money, identify the proposed arrangement and obtain professional advice on whether it can operate as intended. Common control does not establish that every transfer is lawful, permitted or tax-neutral.
Also distinguish ordinary trading cash from a one-off asset sale or an owner contribution. An exceptional inflow may help a particular date without supporting recurring repayments over the full facility term.
Model commitments at both levels
Build a 13-week forecast for each relevant entity and a reconciled group view. The government’s cash flow statement guidance provides a reference for recording timed receipts and payments.
Show external payments and internal transfers distinctly. An outgoing transfer in one forecast should match the incoming movement in the other, with any timing difference explained.
Test what happens if a major customer pays the trading entity late. Determine whether the employing entity can still meet payroll and whether finance payments remain funded. A positive combined balance can coexist with a negative balance in a specific account.
The cash flow improvement guide offers operational measures to consider. In a group, changes should be reviewed for their entity-level consequences before moving cash to solve the most visible shortage.
Review guarantees and security across the structure
Ask which entities and people are expected to provide guarantees or security. A proposal that starts with one borrower can create obligations elsewhere in the group, subject to its documents.
Have your solicitor explain those obligations and any interaction with existing agreements. Your accountant should address related-party balances, tax treatment and the reliability of financial information supplied.
Do not assume moving an obligation to another entity removes the economic burden. All continuing commitments belong in the appropriate forecasts. The guide to finance structures helps frame the cash comparison once the legal parties and obligations are understood.
Frequently asked questions
Can group turnover replace the borrower’s own records?
No single group figure answers every assessment question. Provide the required entity records and a reconciled combined view so the actual cash and obligations can be understood.
Is a transfer between related entities automatically revenue?
No. Its treatment depends on the arrangement. Have your accountant identify and reconcile it rather than assuming every deposit is an external sale.
Can an owner move money freely between companies?
Do not assume so. Obtain advice on the entities’ obligations, agreements, solvency and tax consequences before transferring funds.
Why can a group have cash while one entity struggles?
Cash may sit in a different entity or be needed for its commitments. The entity owing a payment needs a lawful and reliable source of funds on the due date.
Make the group understandable before seeking funds
A useful finance explanation follows the legal parties and the cash. Reconciled records and realistic entity-level forecasts help reveal the actual shortfall and prevent the same money being counted more than once.
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General information only. This article does not constitute financial, credit, legal, tax, accounting, compliance or valuation advice. Finance is subject to lender approval, eligibility criteria, terms, fees and conditions. Consider obtaining independent professional advice for your circumstances before acting.
