What CFOs Need to Know about Entity Management Software
You’ve just been approached by your GC with a proposal: invest in software that automates entity compliance. She says it will prevent non-compliance fines and free up the legal department’s time, so they can focus on higher-value work.
But included in your budget are the legal department’s salaries – which cover the cost of managing entity compliance. It’s natural to wonder why you’re being asked to spend additional money on software that handles a function the legal department already oversees.
Take a moment to consider whether your legal department – and, by extension, your company – has:
- A time problem
- A capacity problem
- A compliance problem
- A fine problem
If some (or all) apply, it’s an indication that your organization’s entities could be managed more effectively – and that your current process is costing you in ways both obvious (fines, fees, etc.) and more subtle (reputation damage, halted deals, time loss, etc.).
As you consider the proposal, it’s important to look beyond the obvious potential savings an effective entity management process could deliver. Think about what you stand to lose when entity management is substandard – and imagine what you could accomplish if your organization’s entities were properly maintained. You may be surprised by how much additional revenue is potentially on the line.
What You Can Save: When Entities Are in Good Standing
Individual fines for non-compliant entities can cost thousands of dollars. If non-compliance is the norm, those fines can add up – especially when late fees and interest start to accumulate. Down the road, additional money must be spent to reinstate revoked licenses and revive dissolved entities.
Unfortunately, many organizations struggle with non-compliance and find themselves trapped in this costly cycle. EY research found that 89% of surveyed organizations “report challenges regarding legal entity management.” Of the clients onboarded to Filejet’s platform, 66% had at least one non-compliant entity.
Perhaps you, like many, assume non-compliance is inevitable to some extent. And perhaps, because of this, you’ve baked fines and fees into the budget. If you have, know that you’ll likely never have to pay fines and related expenses again if legal entities are properly managed.
Entity management software helps organizations eliminate those expenses – and also delivers significant staffing-related savings. Because entity compliance demands an outsized amount of attorneys’ time, it pulls them away from executing value-driven work. Automating the process not only allows your legal team to reclaim that time, but also saves you from having to add additional staff to the payroll to keep up with compliance-related grunt work. If your legal department can estimate how much time they spend dealing with entity compliance, you can calculate your entity management software ROI.
What You Stand to Lose: When Entity Management Is Substandard
FTI Consulting’s 2024 Global CFO Survey found the top two priorities for North American CFOs this year are “customer acquisition and retention” and “new markets and geographies.” To fulfill those goals, proper entity management must also be a priority.
If an organization’s approach to entity management is disorganized, it can diminish potential partners’ or buyers’ confidence. That diminished confidence can damage your organization’s reputation – and also potentially derail deals. Half of the M&A attorneys interviewed in a Deloitte entity management study said “poor legal entity management (LEM) can cause a change in deal structure.” Those “changes” include:
- Delayed or aborted deals
- Lowball or diminished offers
- Increased risk
- Inflated professional fees
With so much at stake, a “good enough” approach to entity management is insufficient – and, potentially, a liability.
What You Can Accomplish: When Entity Management Is Handled
While entity management is vital to organizational health, the process is largely clerical. Most mid-sized organizations manage entity compliance manually – which means they spend an inordinate amount of time in spreadsheets. 20% of those who participated in a Deloitte Dbriefs webcast said their legal teams spend a third of their time at work managing spreadsheets.
Your GC and her associates didn’t earn their JDs to push paper. If they’re mired in clerical work, their time is being squandered – it should, instead, be dedicated to contracts, lawsuits, M&A and other high-level, revenue-generating work.
If the legal department regained that third of its time with entity management software, it could:
- Repurpose individuals to more valuable functions
- Produce better quality work, that drives increased sales and raises the profile of your organization
- Commit more time to scaling
- Finally get around to that project that’s been on the backburner for months
Reclaim Wasted Time with Filejet
With a unique combination of service and software that automates U.S. and international annual report, business registration and DBA filings, Filejet is the entity management solution your organization won’t need to think about – unless it wants to.
Filejet helps organizations maintain compliance with ease – and eradicates time, capacity, compliance, and fine problems in the process. Plug your organization’s numbers into our ROI calculator to get a sense of how much you could save with Filejet.