You’re reviewing the financials for two businesses you own. You can see how each company performed on its own, but now you want to answer a different question: How did the businesses perform together?
Individual reporting shows you one business on its own. Combined reporting is for sibling companies you own side by side where neither owns the other, so their results get added together in one report. Consolidated reporting is for a parent company and its subsidiaries, where one of your companies owns or controls the others and the parent’s report folds them all in as if they were a single business.
Maybe one business is bringing in most of the revenue, while the other has taken on more debt. Separate reports show how each performed individually. A combined or consolidated report shows the revenue and expenses for a group of businesses, along with what they own and owe. That gives you a different look at the numbers than reviewing each business on its own.
What Is Standalone (Individual) Reporting?
Say you own a contracting company and a separate property management company. You want to see how the contracting business performed on its own this quarter.
That’s standalone reporting.
Standalone, or individual, financial statements cover one legal entity. They show its revenue, expenses, assets and liabilities, while the property management business stays separate.
If the contracting business brought in most of the revenue this quarter, its individual report shows what drove that number without the property management company’s debt mixed in.
This type of reporting is also useful when financial information is needed for a specific entity, such as for a tax filing, legal compliance, financing or a credit check.
The question is straightforward: What is happening inside this business?
What Is Combined Reporting?
Now imagine you own the contracting company and the property management company, and they provide services to one another.
The contracting company pays the property management company $100,000 for services, and the payment appears as an expense for one business and revenue for the other.
Both entries belong on the individual reports. But left in a report of both businesses together, that payment would inflate the group’s revenue and its expenses by $100,000 each, even though the money only moved between them.
In the combined report, transactions between your businesses are taken out of the totals.
The same $100,000 would also be taken out in a consolidated report. The difference is that combined reporting can apply when the businesses are under the same ownership or control but neither one is the parent of the other.
What Is Consolidated Reporting?
Now say your contracting business buys and controls the property management business. You still have two legal entities, but the relationship between them has changed.
Control is often associated with owning more than 50% of a company, but ownership percentage isn’t the only factor that can determine whether businesses should be consolidated. Your CPA or accounting professional can help determine which reporting treatment fits your business structure.
Consolidated financial statements show the parent company and the companies it controls together. You can see their assets, liabilities, revenue and expenses in one report, while activity between the companies is taken out of the totals.
What’s the difference between combined and consolidated reporting?
Consolidated reporting tells you how one company is doing, counting everything it owns. Combined reporting tells you how your group of businesses is doing as an owner. They answer different questions because the ownership chain changes who the money belongs to.
In the contracting example, if the business owns the property management business, the property management profit counts toward the contracting business’s value. Anyone who owns a piece of that business, like a partner or an investor, owns a piece of the property management business too.
If you own both side by side, the combined report is a view of your whole portfolio, but each business still stands on its own. The profit of each business doesn’t make the other worth more, and each business has no claim on the other.
So the takeaway for an owner is that consolidated shows what one company controls, while combined shows what you control across companies that stay separate. Both give investors and regulators one set of numbers to review for the businesses as a whole.
What Should New England Business Owners Know About Financial Reporting?
The type of reporting you need depends on how your businesses are set up and the requirements that apply to them. Here’s how the three reporting views compare:
| Reporting view | What it covers | What happens to activity between the businesses | What it helps you see |
| Standalone / individual | One legal entity | Other businesses stay outside the report | What is happening inside this business? |
| Combined | Related businesses under common ownership or control, with no parent company | Activity between them is taken out of the totals | How are my side-by-side businesses doing as a set? |
| Consolidated | A parent company and the businesses it controls | Activity between them is taken out of the totals | How is the group doing, counting the parent and everything it controls? |
If you own a business in New England, there are also state-specific reporting requirements to keep in mind. Certain corporations that are part of a unitary business are required to file on a combined basis for tax purposes. That combined tax return is separate from the combined financial reports above, even though they share a name, so it doesn’t change which financial reports you use. Your CPA can help you figure out which requirements apply to your businesses.
When you review your financials, start with which businesses are included. Combined or consolidated reports show what’s happening inside each one.
That gives you a clear place to start when reviewing your financial reports.
Frequently Asked Questions
Yes. You’ll usually want both. Massachusetts and Connecticut also have their own tax filing requirements for certain businesses, so your CPA can help you understand what applies to yours.
Not necessarily. Majority ownership is commonly associated with control, but percentage alone doesn’t determine which type of reporting fits your business structure. If you own multiple businesses in New England, your CPA or accounting professional can review the ownership and control structure and determine what applies.
Start With the View You Need
Your reports are most useful when they match the way your businesses are structured and what you need to understand from the numbers.
The right mix of reports give you what you need to make decisions, whether you’re reviewing one business or several.
Not sure which reports make sense for your businesses? Start with your CPA, since they’ll know whether your setup calls for combined or consolidated. Once you have that answer, give Harmoney a call, and we’ll make sure your reports show you what you actually want to know.
