Overcoming Impediments to a Faster Close
Finance should focus on improving processes and execution   June 11, 2012

Summary

Closing the books faster saves time and money, yet our benchmark research shows that more companies are taking longer to close than they used to: While some companies can close their books within one business week, half or more are taking longer. Most of the latter can close faster if they revamp their process design and improve execution. That means documenting the close process and clearly spelling out roles and responsibilities. It also means planning ahead, retaining a list of alternates who can shoulder responsibility, using templates to standardize journal entries and using checklists for every step of the process. We urge organizations that spend more than one week in closing to take these and other necessary steps.

View

Our research confirms that the vast majority of companies (83%) view closing their books quickly as important or very important. Although external factors such as economic and regulatory events can increase the workload in the close process, which in turn extends some companies’ close period, that is no reason to let it continue to take too long.

The keys to closing faster are process design and execution. One of the most effective ways to achieve results is to establish a formal process to manage the close. Three-fourths (77%) of companies that had a program in place to shorten their close succeeded, compared to just 15 percent that lacked a formal commitment. Such a process includes frequent reviews that look for and address issues that can extend the close. Two-thirds of companies that do this monthly and half that do it quarterly got good results; only 10 percent of those that do it semiannually or annually have had success.

Some of the most effective process management improvements are also the simplest. Documentation is a good example. Documenting the close process step by step and providing instructions for the roles and responsibilities electronically can help. It is also important to enumerate standard operating procedures and the escalation procedures that follow to resolve finance-related issues. Designing the process so that is can be cross-referenced by specific role is even more helpful.

Standardizing journal entries by using templates is another useful step and should incorporate as many previously filled attributes as possible (such as legal entity number, cost or profit center number or entry type). This prevents errors from occurring and facilitates reviews and audits of post-close journal entries. Also, don’t overlook the importance of checklists to ensure that responsible parties complete every necessary step and provide the subsidiary details related to each step. For example, each journal entry should include the owner of the entry and information about its type (revenue, expense, asset, liability or equity), a brief description of the entry (ideally using wording consistent across the company), the date executed, the effective date, the amount, the account number, the legal entity number, cost or profit center number(s), account name, journal number identifier, currency and other local system ledger information. Finally, every finance department should have a contingency plan that deals with disruptions. Natural disasters, communications disruptions or IT outages can be anticipated, along with the steps, roles, responsibilities and escalation procedures necessary to address issues.

Assessment

Poor process management is a major culprit behind long accounting closes. It is also likely to be the main reason why corporations that take more than one business week to complete their process have not been able to much progress. Establishing a finance department culture of continuous process improvement can address issues that delay the close (and improve the department’s efficiency in other ways as well). Organizations hindered by unnecessary complexity or poor process management should be able to address these problems systemically and achieve results without major disruptions or cost. Better management of the entire financial close-to-report effort is likely to boost productivity and enable a finance department to deliver timelier, more accurate information to senior executives and managers.


 

 Copyright © 2013 Ventana Research All Rights Reserved :: Privacy Statement :: Contact Us ::