Modernize the Monthly Financial Close Process

Knowing where your client’s business stands financially has never been more critical for its financial health than now.

As the past year-plus has shown, you never know when a sweeping global event such as a pandemic will fundamentally change the way businesses operate. That said, real-time visibility into your client’s business finances isn’t possible without the appropriate resources in place. At times, what might feel like functioning at a high level is actually just getting by, not quite achieving the agility needed to truly succeed as a business and failing to quickly deliver insights needed to jump to the next level.

Business leaders may think their accounting and finance teams already work efficiently, but in most cases, they're wrong. Unless they’re using an integrated system that can pull data from multiple sources, accounting teams may be wasting hours or even days on activities such as the monthly close. “Time is money” may be a cliche, but it’s often true, and the hours and days squandered by inefficient processes could be spent redeploying funds, making essential investments, or focusing on other business-critical activities.

An APQC General Accounting Open Standards Benchmarking survey found the average monthly close takes organizations 6.4 days, with some spending as much as 10 days on a close. This means financial and accounting teams at some businesses are spending up to 120 days each year combing through financial reports, reconciling data, exchanging back-and-forth among team members, and other typically tedious tasks associated with the monthly close.

Old Close vs. Modern Close:

Anyone who has been in accounting for years and has successfully transitioned to a modern close knows just how big a difference it can make. Cutting even a day or two per close, per month can pay off over the course of a year.

Here’s a quick breakdown contrasting the monthly close using traditional systems and methods and its more modern counterpart:

Characteristics of the Old Close:

· Multiple systems and sources are used.

· Emails and messages with attachments are frequent and difficult to organize.

· It takes days and days and days (and often nights) of labor.

· It creates frustrated employees who dread diving back in the following month.

Characteristics of the Modern Close:

· Documentation is organized in a central location.

· Streamlined communication ensures nothing falls through the cracks.

· There’s more time to focus on other high-value tasks and activities.

· There’s less stress for staff and leadership over time.

Hallmarks of an Efficient Financial Close:

A month-end close template gets you to develop the best process for your organization. The basics include:

1. Confirm all transactions for the period. This includes making sure all timesheets and expense reports have been submitted and approved, accounts payable bills and accounts receivable invoices are in your system, and credit and debit card charges are accounted for.

2. Postclosing entries in your general journal. Review and post revenue recognition from schedules, and also post deferrals, accruals, reversals, depreciation, amortization and any other revenue or expenses. This step should also include verifying that all entries that should have been entered actually were entered.

3. Close sub-ledgers, if any. Look for any transactions that are in draft form, recurring transactions that have failed, or transactions still awaiting approval.

4. Perform all reconciliations. Reconcile all bank accounts to bank statements, as well as charge accounts, and AP aging and AR aging with the general ledger. Pre-paids, fixed assets, work in progress and any referred revenue accounts also need to be reconciled, as does actual inventory to the inventory in the general ledger.

5. Run review reports. Key reports typically include P&L variance or budget versus actual, with a close eye kept on any unusual changes. Once these tasks have been completed, you’ll be ready to close the books in your ERP. Employing a system that manages the data vital to the financial close function helps cut down the time it takes to complete each of these steps.

View From the Top:

Most people hate change. It's easy for executives to take a "we've always done it this way" attitude, but this also means they are missing out on the rewards that can be reaped by embracing transformation. They may not realize how many hours current processes consume, nor do they understand the high risk of errors due to multiple disparate data sources.

Business leaders want a view of what’s really happening within their business. This is possible when financial and accounting data is updated and visible in real-time. Nobody likes an audit.

But an integrated system that integrates the data necessary for the monthly close makes that process less painful because all key data (and history) is collected and stored in one place. When working with an auditor, this makes everyone’s job easier.

Now more than ever, businesses are looking to do more with less. Anything that allows them to maintain productivity while also saving time and money is a win.

(Source: AccountingToday – Accounting Technology - Voices – May 19, 2021