How long does it take your finance department to close the monthly books? Is the financial information produced timely enough for the management team to react?
Closing the books drives much of the monthly activity in many accounting departments. There are accruals to make, bills to send, reconciliations to perform, adjustments to post and the list goes on.
Think of it this way, the close process is the tail end of every other business process in your organization. Where the sales process ends, the close process picks up. Where the purchasing process ends, the close process begins.
What doesn’t fit in all these other processes, gets shoved into the close process. This can include fixing errors made at the time of initial data entry. It can include adjusting the general ledger for items that our operating processes and systems can't capture. All of this extra activity can slow down the close.
In a recent survey by APQC, the average time to close the books was 6 days. Top quartile companies can do it in 4 days or less, while bottom quartile companies do it in 10 days or more.
Let’s use these benchmarks to look at a few myths about the close process.
Myth #1: It costs more to close the books faster
So what is the cost of having to wait another six days to get good solid information on the previous month? Does this delay mean put you at a competitive disadvantage? Is it another symptom of weak management? Regardless of how you answer these questions, you intuitively you are already weighing the cost benefit trade-off between spending more resources to speed up the close versus the status quo. Am I right?
Here is the profound thing about this myth. The top quartile companies mentioned earlier actually spend less to close their books than their counterparts in the weaker performing companies based on the same APQC study. Not only less, but 6 times less between the bottom and top quartiles!
Myth #2: Accuracy will be lost
Accountants love to balance. I’ll be the first to admit it because I am an accountant. But this personal need to balance all accounts to the penny or the shilling doesn’t help us speed up reporting. Sometimes, getting our accounts close enough is sufficient in the first pass to release results and then after the close, we can go back and reconcile until everything balances perfectly.
This idea of "close enough" has broader application as well. Why do accountants feel the need to adjust accounts for immaterial amounts? For example, prepaid are commonly adjusted each month. Depreciation is recalculated to the penny and adjusted each month. Many of these sorts of entries can either be estimated and automated or eliminated all together. The financials will still be sufficiently accurate for management purposes and no one will notice.
Myth #3: It’s a people problem
Most accountants are very diligent in their work. They work long hours during the close process under tight deadlines. Before you go blaming your people – look at the processes, systems, and tools you’ve given them to perform their job.
Many processes and systems are informal and antiquated. If you’ve got a file full of spreadsheets, this is one indication that you are making it harder, not easier to close the books. Modern systems streamline the chart of accounts, automate transaction cycles from initiation to the general ledger, and enable drill down analytical review to change how the accountants are used. They spend more time reviewing and interpreting the data in the system and less time aggregating and posting it.
The fast close hinges on the right balance of people, process, and technology. What to learn some more ideas about how to achieve the fast close in your organization? Check out our course.
Very good course. I particularly appreciate the weight given to emphasizing change management practices and preparing the company for the change - too often this is missed and, as his metrics show, the outcomes are weak. - Richard Schultz (CFO at SoMedia Networks )
This course was a mouthful. It was very informative and is definitely a course I should review. Blair was amazing in his presentation - his upbeat approach kept me engaged and yearning for more. That course would do many in an organization a lot of good. The level of involvement of all the departments within an organization in the closing process may certainly make for the success of that organization both in the short-term and long-term run. - Judith Moscova