The CEO’s Guide to Managing Finances in a Multinational Company. With an example of McDonald’s Multinational Corporation.
Managing and allocating finances in a multinational company requires keen and detailed planning, strategizing, coordination, and adherence to smart financial principles. Here are the methods to help one effectively manage and allocate finances in a multinational company:
- Establish a central finance team: To create an established finance team, one must first assess the company structure, define company objectives, determine each member’s responsibility, design an organisational structure, establish proper communication with each team member after individual skills are noted. It is important to note that this team should have the necessary expertise in international finance, taxation, and compliance.
- A global financial strategy is important when it comes to navigating finances in multinational companies: This strategy must align with the company’s overall objectives, considering factors such as currency exchange rates, taxation laws, and financial regulations in each region of operation.
- A budgeting and forecasting process must be created. The CEO must work with the finance team to a standardise a budget and create a forecasting process that involves all subsidiaries and business units. This process is required to be transparent, accurate, and incorporate input from key stakeholders in each region of operation.
- Implement technological solutions: Strategically implement appropriate finance technology solutions to support the central finance team’s operations. This may include cloud enterprise resource planning (ERP) systems such as Oracle, financial planning, and analysis (FP&A) tools, reporting and analytics platforms, statistical tools, and document management systems.
- Establish definite and well-designed financial policies and procedures: It is important for management to create financial policies and procedures that outline guidelines, rules, and steps for financial transactions, expense management, and reporting across the company. These policies should comply with local regulations and international accounting standards.
- Monitor cash flow and working capital: Implement regular cash flow monitoring mechanisms to ensure liquidity across all subsidiaries. Optimize working capital management by streamlining payment processes, inventory control, and credit management.
- Conduct regular financial audits: Perform periodic audits of financial records in each location to ensure compliance, identify potential risks, and maintain accurate financial reporting. These audits should be conducted by internal or external auditors with expertise in international accounting practices.
- Manage foreign exchange risks: Develop strategies to mitigate the impact of foreign exchange rate fluctuations on the company’s financial position. This may involve hedging strategies, currency risk management tools, or conducting business transactions in local currencies whenever possible.
- Maintain strong relationships with local financial institutions: Establish and nurture relationships with local banks and financial institutions in each country of operation. This will facilitate smoother financial transactions, access to credit facilities, and assistance with local financial regulations.
- Stay updated on international tax regulations: It is important to contact tax professionals, consult reputable firms that are skilled in the sectors of finance, business, and harbor the technical skills needed to carry out thorough market research, whilst providing effective solutions.
- Continuously evaluate and optimize financial performance: After setting clear financial goals, one must regulate KPIs that include metrics like revenue growth, profit margins, and customer acquisition costs. Regular financial analysis is required for managers to gain insights into the company’s financial position.
- Foster a culture of financial responsibility: Promote financial literacy and accountability throughout the organization. Educate employees about financial practices, cost control measures, and the importance of adhering to financial policies and procedures. One way that Friends Consult Ltd implements this is by organizing weekly training to keep staff up to speed with financial analysis, responsibility, and smart financial decisions.
McDonald’s Financial Structure.
McDonald’s is the perfect example of a company with a well strategized multinational financial structure. With franchises set up across continents, the company’s financial practices, influenced by changes in international tax regulations, accounting standards, and strategic goals, are structured to evolve according to the economic situation surrounding each operation base.
- Risk management: With keen risk management practices to identify and manage financial risks across its global operations, McDonald’s assesses the risks related to currency fluctuations, interest rates, regulatory changes, geopolitical factors, and other variables that could impact financial stability and performance.
- Cash flow management: Efficient cash flow management is crucial for a multinational corporation like McDonald’s. They would employ strategies to monitor and manage cash flow across their branches, ensuring sufficient liquidity to meet operational needs, fund investments, and fulfill financial obligations in various countries.
- Tax planning and optimization: McDonald’s, like many multinational companies, engages in tax planning to optimize tax liabilities across jurisdictions/ operation bases. This involves utilizing tax incentives, structuring intercompany transactions, and taking advantage of tax treaties to minimize tax burdens within legal frameworks.
Allocating finances in an International Business is a strict process that needs keen ongoing attention and adaptation to changing market conditions. Working with consulting firms and financial experts to adapt one’s strategies helps optimize financial performance and ensure long-term success.
Keren Obara Project Officer FCL
BA (Marketing); MSc (Management).