Page 118 - Confluence - Souvenir 2023 - Flip Book

In 2024, UAE businesses must prioritize keeping head office expenses in check

Businesses that have a diverse footprint across sectors are typically structured as group companies
constituting a holding company with various subsidiaries affiliated to it. Group company head offices
are epicentres of economic power & centralised control and are integral in running the show
seamlessly for diverse entities within the group. Intrinsically, group companies have an added
advantage to access finance however sometimes there is a price to pay - especially in the realm of
evaluating collective head office expenses.

Unravelling the ‘elephant in the room’
Group companies typically apportion head office expenses like C-suite incentives, travel costs,
learning & development programs, marketing expenses and strategy/ ERP programs to their
subsidiary companies. With CEOs/ CFOs/ COOs & CMOs of subsidiary companies functioning from
the group company head office it leads to head office incurred expenses being recovered through
subsidiary companies. This broad apportioning of head office expenses results in operational costs of
subsidiary companies increasing which reduces margins.
Effective Head Office (HO) expenses allocation helps assess the true performance and profitability of
individual branches within an organization. C-suite salaries, business travel costs, training programs,
strategy & Enterprise Resource Planning (ERP) are common examples that necessitate careful
allocation to reflect the true cost of operations.
Potential roadblocks in effective management of head office expense allocation:

Excessive or Unnecessary Spending: The C-Suite focuses on ensuring that the company's budget
aligns with its overall objectives. However, the fact that expenses are within budgets, could distract
attention away from matters dealing with overspending on certain areas that could be reduced.

Lack of cost benefit analysis: When Group companies undertake exorbitant marketing initiatives, it is
recommended to conduct cost benefit analysis to measure the benefits of a decision against the
costs incurred.

The final word on the ‘elephant in the room’ & other factors impacting finances

It is necessary the Board of Directors also analyse the expenses incurred in the current financial year
before allocating higher budgets for 2024. With board meetings lined up, as the year ends, now is
the best time to get a grip on the financial outflow of the current year and take informed decisions
while allocating spends for the next year.

Article authored by James Mathew – CEO & Managing Partner, UHY James

This article was initially published on Gulf News

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