The short answer
A buy-and-build strategy produces a group of several entities within a few years. From that point on, adding up individual accounts is no longer enough: intercompany revenue, loans between entities and margins on internal deliveries would all distort the picture.
Consolidation means eliminating exactly those internal relationships, so that the group is presented as if it were a single company. Under German commercial law the obligation follows from control under section 290 HGB; size-based exemptions under section 293 HGB are possible, their thresholds were raised most recently in 2024, and they belong checked case by case.
In practice the trigger usually matters more than the obligation: shareholders, banks and later buyers want to see the group, not seven separate balance sheets.
A note for readers outside Germany
Three points regularly surprise foreign sponsors. German groups consolidate under HGB unless they opt into IFRS – and HGB treats goodwill differently: it is amortised over its useful life rather than tested for impairment, so a buy-and-build programme depresses reported group earnings year after year in a way an IFRS reader will not expect.
Second, a German sub-group can be exempt from preparing its own consolidated accounts where it is included in a higher-level consolidation – under section 291 HGB for a parent in the EU or EEA, and under section 292 HGB for a third-country parent applying equivalent standards. That exemption is worth checking before building anything, because it can remove the statutory obligation entirely. It does not remove the lenders' and shareholders' demand for a consolidated view.
Third, the size thresholds were raised in 2024. A group that was obliged to consolidate under the old figures may no longer be – and vice versa after two or three acquisitions.
The four consolidation steps
- Capital consolidation. The carrying amount of the parent's investment is offset against the subsidiary's equity. The excess is allocated to hidden reserves; what remains is goodwill. The basis is a purchase price allocation for each acquisition – and it has to be prepared promptly, not two years later.
- Debt consolidation. Receivables and payables between entities are offset against each other. That presupposes both sides book identically – the most common stumbling block in the monthly cycle.
- Consolidation of income and expenses. Intercompany revenue and the corresponding costs drop out. Without this step the group reports revenue that never existed towards the outside world.
- Elimination of unrealised profits. Margins on deliveries still sitting in another entity's inventory are stripped out. Relevant wherever internal deliveries carry a mark-up.
The order that works
The technical part is rarely the problem. The effort sits in the standardisation beforehand:
- A single chart of accounts. Not necessarily the same accounting system in every entity, but a binding mapping of every local account to a group account.
- Uniform accounting policies. Capitalisation thresholds, useful lives, provisioning logic, revenue recognition. If two entities cut off differently, every group comparison is worthless.
- Flag intercompany relationships. Internal counterparties need their own marker in the master data. Repairing that afterwards with a search routine costs days every month.
- A shared closing calendar. One fixed date on which all entities deliver – otherwise the group always waits for the slowest unit.
- One tool. Up to three entities a disciplined spreadsheet will do. From four or five, and at the latest with foreign currencies, consolidation software is the cheaper route – not for the computing power but for the audit trail.
The critical phase: the first months after an acquisition
A newly acquired company rarely delivers in the required structure in the first month after closing. A staged expectation works: a manual mapping to group accounts in month one, full reporting in the group format from month three, integration into the regular calendar from month six.
Process integration runs in parallel – exactly what is described under post-merger integration. Trying to do both perfectly at the same time costs you the monthly close.
The five mistakes
- Deferring the purchase price allocation. It gets harder later, not easier – and it blocks the first clean set of consolidated accounts.
- Not reconciling intercompany balances. Differences between two entities grow month by month. A fixed reconciliation date before the close solves it permanently.
- Switching to a tool too late. Migrating in the middle of a transaction is the most expensive possible moment.
- Consolidating only annually. Adding it up once at year end means steering blind for eleven months. Shareholder and covenant reporting need monthly, or at least quarterly, consolidation.
- No named owner. Consolidation is a role of its own. Without one it lands on whoever is already doing the close.
Frequently asked questions
At how many entities does consolidation software pay off?
In practice from four or five entities to be included, or as soon as foreign currencies and multi-tier shareholdings come in. What decides it is less the number than whether every entry has to remain traceable – and it does, as soon as an auditor or a buyer looks at it.
Does a group have to prepare consolidated accounts?
Under German commercial law only where control exists and the size thresholds are exceeded, and exemptions are available – including the sub-group exemption where a foreign parent already consolidates. In practice lenders and shareholders ask for a consolidated view much earlier, then as a management consolidation without an audit opinion.
How long does it take to build?
With reporting already in place and three to five entities, typically three to six months to the first reliable run. Most of the time goes on mapping accounts and reconciling intercompany balances, not on the software.
Who should run the project?
Someone who knows group accounting and day-to-day bookkeeping equally well. In growing groups the role is often filled on an interim basis first and permanently later, because the project demands something different from the steady state.
Read on
- Buy-and-build and post-merger integration – the terms in brief.
- The first 100 days after closing.
- Covenant reporting to banks and debt funds – why monthly consolidation matters.
- Interim CFO for private equity portfolios.
Sources and status
Legal references are to the German Commercial Code (sections 290 et seq. HGB) as amended after the 2024 increase in the size thresholds, including the sub-group exemptions in sections 291 and 292 HGB. The remaining statements draw on nugrow's mandate practice. As of September 2026. This article is an overview and does not replace tax or legal advice.
