SAP Business Areas – Providing Another Dimension To Business Analysis

Concept Of An SAP Business Area

Basic financial statements are created in SAP on the basis of the company code. For traditional statements, all the transactions are grouped according to the company code and financial statements like balance sheet and Profit & Loss statements are drawn separately for every company code. But at times there is a need to carry out analysis across company codes according to some criteria other than the company code.

As an example, if there is a need to generate a financial report on the basis of a product line, geographical location or divisional sales, then this can be done using Business Areas. The purpose of business areas is to report on similar activities that occur across company multiple codes resulting is cross company reporting.

However the financial statements generated on the basis of business areas cannot be used for legal reporting purposes. For this reason, it is not possible to create the legally required financial statements and tax reports at business area level. Financial statements at business area level are therefore only suitable for internal reporting.

Consider a situation where there are four companies in all, ABC Apparel, ABC Sports, ABC Shoes and ABC Services. The first three companies are involved in producing different product lines, whereas ABC Services provides sales and logistic services to the other three companies internally as well as its external customers. If the high level management team wants to know the performance of ABC services, then they can produce the financial statements for the company according to the company code for ABC Services.

But these financial statements will not be able to provide a picture about how much of the business of ABC Services was due to its own sister companies. In such a case a “services” business area can be created. Any transactions for the company codes ABC Apparel, ABC Sports or ABC Shoes dealing with services can be entered with the newly created services business area.

At the year end the management can draw financial statements for the services business area which will give them a clear picture of the performance of the services division.

It is to be noted that business areas are not directly assigned to company codes but are assigned only to the accounting transactions that are entered. Good SAP business practice allows the use of business areas ss optional and this is usually decided at a very early stage in the project. Business areas can be used standalone by entering them manually at the time of preparing accounting documents or they may be automatically determined by any one the methods described in the next section. 

Determination Of Business Area

Business areas are to be entered while entering accounting transactions or they can be determined automatically. Substitutions can also be used to automatically provide the business areas while entering accounting documents according to some well defined criteria. Most commonly the business area to be determined is linked to various organizational elements and determined in the following ways:

• PLANT: Business areas can be assigned at plant level. This is because a plant usually produces a single line of products which are related to the same business. For example, if a plant produces shirts, then it makes sense to assign it to the Apparel business area. This is because any transaction related to a plant producing shirts will be assigned to the Apparel business area.
• DIVISION: Business areas can be used to implement divisional financial statements or SEC segment level reporting. A business area can be used to categorize transactions on any criteria and divisional financial statements are one of the most common reasons of using business areas.
• SALES AREA: In many cases a sales area is involved in the sale of only one product, then all the transactions related to that sales area will be for the same business. In such a situation business areas may be linked to sales areas.
• DISTRIBUTION CHANNEL: Business areas allow preparation of financial statements according to the different distribution channels like direct sales, online sales, etc. This allows the top management to gauge the effectiveness of the various distribution channels and accordingly adjust the sales strategy.
• COST CENTER: Business areas cannot be directly linked to General ledger accounts. But in order to associate a general ledger account with a certain business area, cost centers can be used. A cost center can be linked to a general ledger account and whenever a transaction is recorded related to that cost center, the business area is automatically substituted in the accounting document.
• SUBSTITUTION RULES: Substitution rules can be set up to automatically determine and assign business areas to transactions on the basis of more complex rules. Substitutions work behind the scenes to determine the business areas.Whenever an accounting document is being generated, the substitution rule checks for some pre-requisite condition and if the condition is satisfied it substitutes the required business area while posting the accounting document.

Procedure To Define Business Areas

The step by step procedure to define business areas is as follows:

STEP 1: Navigate to the path as shown below in the implementation guide or execute the transaction OX03 from the SAP Easy Access menu. Use the transaction code SPRO to get to the Implementation guide from the SAP Easy Access menu.

STEP 2: The screen shown below is displayed. All the existing business areas in the client are listed here. Click the ‘new entries’ button on the screen shown below to create new business areas.

STEP 3: A blank table is displayed to enter the data. Enter the new business area and the description for the same. The business area can be up to four characters in length. Enter the data as shown below and click the save button on the screen as shown below.

STEP 4: The message ‘Data was saved’ is displayed at the bottom of the screen as shown below. This confirms that the new business areas have been created.