I’m writing this blog six days after the close of the month and for most companies, the quarter. Our benchmark research on the closing processfinds that only half of midsize- (100-999 employees) and large companies (1,000+ employees) have closed their books at this point, even though best practice is to have completed the accounting cycle by this date. A majority of companies that take longer than six business days to close their books think that they should shorten the process, so why haven’t they? Earlier this year we recommended that shortening the close should be a priority for 2009. (See “Don’t Forget to Close Faster”) With the year coming to a close (so to speak) shortly, better late than never should be your cry.
There are at least two sets of reasons to shorten the close process. Ventana Research stresses (and a large majority of our research panelists agree) that the main reason to shorten the closing cycle is to improve a company’s effectiveness. Having the accounting data available sooner makes this information available for review sooner which means that a company can take corrective action or take advantage of favorable market trends sooner. For public companies, having the final numbers available in a shorter time period means that they can complete their third party filing requirements at an earlier date or have that much more time to review the documents. A second set of reasons relate to efficiencies. If it’s taking longer than it should to close your books it’s an indication that people are wasting time. And companies that take a long time to get their final numbers out tend to rely on “flash” reports, which requires additional IT and finance department cycles to perform. It is also continues to be a top priority for finance organizations as I pointed out earlier this year. (See “Effective Financial Performance Management“).
Using our people-process-information-technology framework we can evaluate the most important factors that affect how long it takes a company to complete its accounting cycle, and that are key to shortening the process. For most companies, focusing on the process design ought to be the starting point. Simply having a periodic review (at least quarterly if not monthly) in place to identify ways to shorten the close is one way companies have successfully shortened their close. The reason is that there is likely no single factor in your company’s process that will make a dramatic difference. (If it were that easy, you probably would have already done it.) A continuous improvement process works best under these circumstances. Simplification, standardization and greater automation in the process hand-offs between people are three areas where companies typically can achieve results.
From a “people” perspective, expectations and training are important. Not surprisingly, our research shows that companies that collectively decide that it’s taking too long to close and that they should do something about it are more likely to succeed in doing so. Usually, this resolve starts at the top so it’s important that the CFO make it clear that reducing the interval is a priority. Training also can be an important factor and for some companies it’s good to ensure that people know what they are doing.
Technology can also be a barrier to closing faster. Companies that use desktop spreadsheets to manage their accounting close take about 25% longer to get it done. Even companies that have dedicated consolidation software are also intensive users of spreadsheets, especially those that use spreadsheets for calculating allocations, performing reconciliations or using them to store ancillary data. Companies that are heavy users of spreadsheets in the closing process typically take longer to complete it and they also report significantly more data quality issues in preparing their financial statements.
If your company is still busy closing its books, it can and should do better. A faster close needn’t cost anything and the time invested in making improvements will pay off handsomely.
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Robert D. Kugel - SVP Research