Despite how important monthly financial close is, many companies still struggle to close their books within one workweek, according to a survey by the American Productivity & Quality Center (APQC).
APQC data found that the median number of days an organization needs to complete monthly financial close is six. Some take as many as 10, which in today’s business climate can put a company at a disadvantage.
Organizations that take too long to complete their monthly consolidated financial statements risk missing key opportunities for analysis and identifying potential cash flow problems. Now more than ever, you need timely, accurate numbers – preferably without involving a bunch of legwork from Finance.
But before firing up your Finance team to reach for faster close cycle times, it’s important to talk to your people first to drill down into where bottlenecks are occurring in the monthly financial close process. Then it’s time to align your people and processes with your policies and technology.
Financial close management efficiency
Depending on the size of your organization, Finance may be spending more time than necessary trying to, for example, leverage multiple general ledgers or financial planning systems. If this is the case, standardizing and centralizing your reporting process as much as possible needs to be a mission-critical goal.
APQC pointed out that standardization and centralization of your monthly financial close is particularly beneficial for your chart of accounts because:
- Setting uniform standards for key data elements ensures consistency and continuity
- It can keep the volume of general ledger entries from getting out of control, and
- Finance can think holistically about how exceptions will be handled.
The experts at enterprise software company Oracle NetSuite offered these strategic tips for standardization and centralization, and recommended getting input from the folks who are regularly involved with your monthly financial close:
- Map out your practices: Determine your accounting and finance processes, including revenue recognition, purchasing and expensing events, closing activities, and relevant governance, risk management and compliance assumptions. Using visual tools like flowcharts can be helpful.
- Evaluate your IT needs: Should you be prioritizing features like document management, collaborative tools and/or cloud-based capabilities?
- Plan for the future: Consider your organization’s growth plans if you’re evaluating a centralized system, and
- Consider global requirements: Will you need multi-language and multi-currency support?
Switching from manual data collection using spreadsheets to cloud-based tools can also speed up monthly financial close. Did you know that automation software solutions on the market can:
- Identify transactions
- Enter transactions into a journal
- Post transactions to the general ledger, including foreign currency
- Reconcile bank accounts
- Create adjusting journal entries that eliminate artificial profit and loss
- Post and consolidate subsidiary-level accounts
- Manage revenue recognition standards, and
- Provide variance analysis that allows you to take action even while reconciliation and close activities are still in progress.
To decide where to start automating, you’ll need to identify what’s taking the most time, and where the most errors are occurring – A/R, A/P or the general ledger.
Also, to resolve issues from a lack of integration between systems, cloud-based enterprise resource planning (ERP) tools provide company-wide visibility so you can hold department managers accountable for any delays in preparing their financial statements. In addition, these tools automatically update and share data across multiple systems, which helps to prevent the errors and delays that happen when manually preparing financial statements.
Even though implementing these tools requires a commitment of time and resources, Gartner found that more than three out of four (78%) CFOs “will increase or maintain enterprise digital investments through 2023 even if inflation persists.”
Perhaps it’s because vendors are able to demonstrate that using fintech to shorten monthly financial close time can also help achieve other valuable business goals, such as supporting digital sales channels and improving vendor relations.
A good place to start exploring is the ERP system reviews page at BetterBuys.com.
Prepare your people
Before rolling out a new tech tool for completing monthly financial close, you’ll want to get a feel for how much time staffers will realistically need to adjust to the resulting changes in their workflows. If your teams don’t have enough time to complete accruals, deferrals, adjustments or other key accounting activities, you’ll have missing or incomplete information.
Consider providing training (the software vendor you choose should be prepared to help) and resources like a close playbook that describes each step in the new streamlined process. This guide should delineate a detailed schedule and state who’s responsible for completing what. This should help resolve accounting resource conflicts and troubleshoot any constraints.
If it’s your reconciliations in particular that could use some streamlining, set aside an hour of your day on March 16 for the ResourcefulFinancePro webinar “Un-wreck Your Recs: How Not to Wreck Your Reconciliations” with SkyStem Head of Sales and Support Nancy Wu, the author of “From Weeks to Days: Boarding the Mid-Market Financial Close Bullet Train.”