Despite recent technological advances, we have not been able to move the needle towards real-time reporting in Finance. The pressure of the month end close increases with business growth, complexity in the regulatory environment, and every new additional system that is added to the Finance tech stack.
In fact, a recent study commissioned by Trintech found that nine out of 10 organizations said they experience challenges with the financial close process, citing time-consuming processes, the risk of manual errors, and feeling under-supported to achieve their goals as the main challenges. It’s no wonder then that 60% of accounting professionals report increased stress levels around the month-end.
Despite investments in Finance transformation, robotic process automation, and complementary technologies, the cycle time from initial trial balance to management reports ranges between 7 and 16 days—with the median being 12. At peak periods like year-end, cycle times range from 15 days to 45 days—with an average of 25 days!
Just think about these statistics for a moment in the context of the incredible disruption and volatility facing businesses around the world. It can take almost two weeks before an executive team has reliable information to hand to inform decision-making!
The time has come for Finance to rethink how work gets done, with a laser focus on processes and capabilities that enable real-time accounting. Laying the groundwork for this transformation is key to long-term success.
We’ve put together some actionable insights that will ensure your business is future-ready to cope with growth, volatility, and complexity.
How to Shorten the Month-End Close
1. Create a month-end close checklist.
One of the first and most important things your accounting team should do is to plan for the month end close by assigning responsibilities in advance and knowing who will be accountable for what, and by when.
Planning should include a checklist with all of the pre-closing, closing, and post-closing activities that need to be completed. The checklist should be available to all members of the accounting team and anyone else who might be involved in the close process—whether from Finance, Sales, Purchasing, or other departments.
You can use this month-end close checklist to get started, and you could also add stakeholders as collaborators to drive collaborative accountability, add alerts that are triggered as tasks fall due, and add a calendar view that syncs with your work calendar.
A month end close checklist not only helps ensure that tasks are completed and deadlines are met, but it can also help identify areas where there are peaks and troughs in the workload, help stakeholders understand the lengthy close process, and ensure teammates are accountable to each other for deliverables.
Visualizing the workload on a Gantt chart can also offer insights on key dependencies, or even a simple line graph can help identify peaks and troughs in the workload (see below). The aim is to flatten the curve.
Some tasks could be consolidated, or even eliminated altogether. Others could be automated and performed more frequently.
Bring the team together once the checklist is created to answer the following questions:
- What tasks or processes can only be done at month-end, and what tasks could be performed earlier? For example, many judgemental accruals will need to be updated at period-end. However, fixed asset accounting could take place mid-month if the depreciation policy allows for mid-month depreciation accounting.
- What tasks could be eliminated through leveraging existing capabilities within the current tech stack? For example, can the existing ERP system auto-reconcile sub-ledgers to the general ledger? Or perhaps spreadsheet templates can be improved to auto-calculate provisions and allocations?
- What tasks can be automated or eliminated using new technology? Many no-code self-service tools can automate repeatable tasks such as sending reminders or running reports at scheduled intervals. A tool like Kloudio can automate a wide variety of tasks when combined with your spreadsheets of choice—data reconciliation, journal preparation, account reconciliations, and reporting.
2. Standardize and rationalize.
As with any repeatable process, consistency is the key to success. Standardization of processes, templates, and reports is one of the easiest ways to scale your business and make a great foundation for workflow automation. Establishing a uniform way to prepare journals, review reports, and perform reconciliations minimizes preparation and review time and prevents error and omission when the team is already under pressure.
It’s also necessary to periodically question the status quo to determine if the current set of processes and tasks continue to be relevant and add value. In cases of strong growth, the introduction of a materiality threshold helps focus on the high risk and high-value areas and prevents wasting resources on areas where the risk is lower.
Similarly, thresholds can be put in place to avoid immaterial inter-department adjustments or immaterial corrections.
3. Invest in technology.
The right technology solutions bring consistency to the Finance technology ecosystem. Seek out a solution that acts as the glue in unifying data and processes across the entire tech stack, and avoid adding platforms that serve only a narrow use case. While traditional accounting systems carry some responsibility for the inertia in companies shifting towards a continuous close, finance teams have access to tons of valuable data—nowhere else in the business is there so much rich information available. If Finance can harness the data within their ecosystem, they are uniquely positioned to create value and deliver timely insights into business performance
Unifying data sources to create a single source of truth is the single most impactful action that finance can take to drive efficiency, and promote trust across the business. When data from multiple sources is made available in real-time, much of the data reconciliation and wrangling can be replaced with exception reporting and anomaly detection well in advance of the period-end.
Empowering finance teams with access to multiple sources of data shifts the focus from being reactive to a more proactive approach to risk identification. Finance professionals spend more time driving insight from the data, leaving the reconciliation of data sources to technology and the calculation of numbers to spreadsheets.
Continuous exception management coupled with continuous process insight also enables common bottlenecks such as reconciliations and accounting anomalies to be resolved as they happen rather than waiting for month-end. Eventually, the prospect of a zero-day close starts to come within the grasp of most finance functions.
4. Communicate early and often.
Finance teams have a broad range of stakeholders. Many of them are not only invested in the performance of the business but are also required to provide input and information to the accounting team throughout the month end close process.
In my experience, non-Finance stakeholders are always keen to understand what happens to their input once they pass it to Finance. Share your knowledge of finance and accounting generously—this will ensure that your stakeholders understand the context of inquiries and the value of their own contributions.
Then, let the IKEA effect work its magic and watch interest levels grow the more your stakeholders feel involved!
Seek input from your team. Give permission to question why certain tasks are performed. Invite teammates to bring forward ideas for process improvements and be open to trying them out. Empowering the team to design workflows from their own perspective also helps them feel like they are contributing to the bigger picture.
Working towards a continuous close is a journey, not a destination. There is no silver bullet today that will undo 500 years of legacy double-entry bookkeeping.
However, armed with real-time data, Finance is able to proactively address issues and exceptions and prevent a deluge of urgent tasks each month-end.
When meaningful accounting activities occur every day, accountants and decision-makers always have access to real-time data, enabling them to run the business more effectively.
Kloudio puts the CFO in charge of their data—download our e-book The CFO’s Guide to the Continuous Month End Close to learn how.