When a month-end, quarter-end, or year-end rolls around, the accounting and finance department hurries to close the books. The goal is to do it quickly because time is money — but this is easier said than done. Long days and nights ensue with CFOs and accountants getting tangled up in stress knots, fueled by sticking to the same old ways even after the business has changed or grown. It just takes running into one unexpected challenge for the current financial process’ fragility to reveal itself, culminating in a chain of further delays.
In 2017, businesses took more than eight days to close their books each quarter-end, and the number of days has steadily increased since. This is worrisome since a long financial close process is a good indicator of a gamut of underpinning problems, which we will discuss in this article. A shorter close process brings significant advantages — leaders have more time for analysis and auditing before publishing financial statements, time and money spent on closing the books is reduced, organizational leaders have an improved ability to make prompt strategic decisions, and accountants have more time to spend on high-level activities like predictive data analytics. Fixing even one area of what’s broken in this department will create a cluster of improvements in the process and across the company.
You are over-relying on spreadsheets
Too many manual processes add hours and days to closing. Desktop spreadsheets are a massive culprit for delays, yet many accountants still use them as their dominant tool.
In a time where agility in business holds more value than ever, spreadsheets just aren’t nimble enough. They are extremely susceptible to human error. Just one “fat-finger” error is all it takes for the entire document’s credibility to be compromised. Spreadsheets, even with the most careful development, contain errors in 1% or more formula cells. A lack of tracked changes makes it impossible to determine when and where the error occurred in order to quickly revert to that state. It isn’t necessarily the spreadsheet’s fault when a mistake occurs because it’s only as fair and accurate as the person using it. However, mistakes are bound to happen in manual processes where accountants have to browse numerous spreadsheets created by multiple people, across various departments, and in multiple formats. The disparity in spreadsheet structure also happens when a company has high-turnover — people like doing things the way they want; new hires end up altering the templates and adding rows and columns that affect the result.
One way to salvage speed and accuracy is through automating manual account reconciliation and other mundane but critical, repetitive tasks, such as calculating depreciation, creating manual journal entries, gathering and standardizing data from multiple departments, etc. Additionally, with the availability of cloud-storage, sharing of documents is an improved option so the staff doesn’t have to manually share each file with individual team members.
Disorganized workflow and distracted employees
Sometimes financial processes hit a wall when the financial and accounting department employees are juggling multiple competing internal projects, or the workflow is hugely cumbersome. This doesn’t always mean you need to add additional people to your accounting department just to handle a close, but you need to have the right talent in the right positions.
Keeping the skill set and position aligned and being transparent about each staff’s timelines and responsibilities will keep the department running like a well-oiled machine. Having a command center, often led by a Controller, with leaders and staff who have the expertise to organize and oversee the different facets of closing the books, including the resources involved, will ensure that the process keeps moving in the right direction. When there are functional problems, the command center will rectify them swiftly before it creates an avalanche of bottlenecks downstream. The command center should also have a reliable IT professional to promptly help with VPN, access privileges, and other technical problems. This eliminates any possibility of long downtimes due to technical difficulties.
Also, closing the books happens during pre-arranged points throughout the year. These are predictable, but what’s unpredictable is the loss of skilled employees to resignation, vacation, illness, or other factors. When a Controller, who is the only person with expertise in how the financial software operates or who has authority to sign checks is hospitalized, their absence will put brakes on your entire close process. To avoid cases like this, it’s essential to cross-train multiple employees in order to handle critical but necessary tasks expertly and hedge against sudden skill loss. Cross-training also increases solidarity by giving all employees a better idea of how each skill fits into a common goal.
Access to real-time data isn’t democratized
Organizations work hard to launch new products, enter foreign markets, and run marketing campaigns at record-speed throughout the days and weeks. However, the finance department tends to only get the opportunity to dig through the mountain of accurate data at month-end. The staff gets crushed under the high demands of quickly reconciling accounts, and with pressure mounting, the team becomes more susceptible to making mistakes.
But, why wait until month-end to make all that data accessible? Besides, leaders need accurate financial statements in order to make crucial decisions, so making this available only at the end of the month means they’d have to create and execute strategies without solid financial data guiding their plans — aka, on assumptions.
Technologies like NetSuite ERP can help break silos and promote data flow through various departments, facilitating complete access to those who need it the most. However, before applying technology, determine which processes occur only during close, determine if they can be pushed earlier in the month and scheduled to occur more frequently. Once such processes are identified, you can marry the right technology with the process in order to ensure that data is continuously updated and accessible.
You don’t conduct a post-close review
You can’t fix what you don’t know. When one close ends, most are done and have moved on to non-recurring projects, until the same nagging issues make their life miserable again during the next closing period. Perfecting your financial close is a journey that requires conducting a post-mortem on the one that just passed. It’s also imperative to have it done right after the closing ends. Why? Because what just happened — everything that went wrong and right — is still fresh in the minds of everyone involved. This is the perfect window of opportunity to have everyone contribute their input on various ways to iron out the wrinkles and to make the process faster, more accurate, and more efficient.
The leader that heads the closing team should also lead the post-close review. Because they have a bigger picture of what and how things transpired, they can accurately map out the close process and ensure that all staff take this review seriously. Some points to discuss include finding redundant tasks, identifying new problems and repeat offenders, figuring out the root cause of each problem, and proposing possible solutions to rectify mistakes such as updating old technology or aligning talents correctly. Getting everyone’s input brings forward a full spectrum of issues and solutions from multiple perspectives.
Closing the books doesn’t have to be a dreaded and dragged out chore
Closing doesn’t have to give you the blues every month, neither does it have to be a soul-crushing experience for your finance department’s frontline workers — the accountants. A faster close indicates a healthy company and sparks happier, less-stressed employees.
Scrutinizing the current close process and making it your goal to optimize it after every session will elevate your entire organization’s efficiency and effectiveness. Plus, business leaders will appreciate having the data and agility needed to make the right decisions.
Technology has made a lot of the manual legwork obsolete, including chasing down receipts, emailing back and forth for a spreadsheet, and manually creating financial statements. Introducing automation to eliminate error-prone manual processes, integrating various data producing systems with an ERP, prioritizing closing the books, and conducting a comprehensive post-close review to find improvement opportunities are all ways to optimize your ability to close the books.
Success comes with the right technology, the right people, and the right processes. Contact us to learn about ways we can help improve your month end close process. We have a suite of technology solutions and years of experience developing proven processes to get you where you need to be.
About the Author
Ben Morgan, Senior Manager
Ben Morgan has more than 30 years of experience with a strong blend of public accounting and industry. He has led all aspects of the core financial operations of early stage through Fortune 500 companies, in industries such as healthcare, professional services and non-profit. Ben’s expertise is to enhance financial operations effectiveness, recommending process improvements aligned with organizational objectives to support scalability for future growth.