Discussion On Centralized Financial Management Mode Of Enterprise Groups

S Group is a leading Chinese interactive entertainment company. The Group successfully went IPO in early 2005 to raise capital from the market. Public investors reply on the company's financial statements and disclosed information to make investment decisions, and therefore the company must comply with laws and regulations to ensure the integrity of its public statements and information disclosure. This sets a higher standard for the Group's financial management model. Requests such as management simplification, information and network systems, and accounting standardization become very important and urgent. In support to the Group's overall development strategy, it's necessary to integrate the Group's financial resources and centralize financial management at the Group level, in order to standardize and regularize the Group's financial management.To address above questions, this article first analyzes S Group's original Separated Financial Management Model from the Group's perspective. In the old model, each group member managed their own financials, and therefore resources were wasted and information could not be integrated. Moreover, actual expenditures were often significantly different from budget. Issues in capital management and financial risks became very obvious, which made the financial management at the Group level very difficult. Consequently, the Group's overall financial strength was weakened, and the group's development target could not be achieved. After its successful IPO, S group started to implement the Centralized Financial Management model. It's been using unified financial regulations, centralized capital management, accounting and tax, budgeting and reporting, documentation, and centralized finance staff management ever since. The Group can now easily and timely get each group member's accurate financial information, to better support the Group's financial analysis and strategic decisions. As a conclusion, the centralized model is a relatively more ideal financial management model for S Group.This article is divided into 7 sections:Section One introduces the concept of Enterprise Group; The target of Enterprise Group's financial management, which is to obtain economies of scale, management synergies and transaction cost savings; The common grounds and differences between Enterprise Group and Single Legal Person Enterprise in terms of financialmanagement; The concept of Centralized Management in Enterprise Group; and abrief introduction of financial management models in overseas Enterprise Groups.Section Two gives a general introduction of S Group, such as its background,operations, financial structure and financial management information system whichincludes the IT environment, financial processes and ERP system, especially theOracle system S Group is currently using.Section Three compares the disadvantages of the separated financial managementmodel and the advantages of the centralized financial management model, in order toprove that the latter can provide better support to Enterprise Groups such as S, andthat the centralized model will draw more attention in the future and become a trendin the constantly changing economic and social environment.Section Four presents how S Group implements the centralized financial managementmodel, including the unified financial regulations, centralized capital management,accounting and tax, budgeting and reporting, documentation, and centralized financestaff management. The Group can easily and timely get each group member's accuratefinancial information, to better support the Group's financial analysis and strategicdecisions.Section Five shows the benefits S Group has obtained through implementing thecentralized financial management model from the perspective of capital, accounting,tax, budgeting, reporting and documentation, and how the Group's overall economicstrength has been enhanced.Section Six presents how the centralized financial management model has helped toregulate accounting practices, improved the quality of accounting information, andenhanced capital utilization efficiency. On the other hand, this section also addressesthe issues exposed during the implementation of the centralized model, and proposessolutions to those issues.The conclusion is that the centralized model is a relatively more ideal financialmanagement model for S Group.The financial management model in an Enterprise Group is a complex system, andthere're many more topics worth investigation and discussion. Due to the limitation oftime and length, they cannot be fully covered in this article. In order to protectbusiness secrets, the real name of S Group is not used here, and only limited amountof data is used while introducing the group's background and operations. The article only focuses on the centralized financial management model in S Group's core companies, wholly-owned subsidiaries and consolidated subsidiaries, but not the non-consolidated subsidiaries, which is a deficiency of this article. Going forwards, how to better implement centralized financial management model in real life, and how to solve issues exposed during the implementation will be the focus of my future investigation.