Our recent benchmark research shows that many companies take longer to close their books today than they did five years ago. Although more than three out of four companies view closing their books quickly as important or very important, our research shows that slow closers are regressing. A major reason is that companies that take more than a week to close have too many manual or only partially automated processes.
Many companies use ERP systems from multiple vendors, which is the condition that consolidation software initially was designed to address. However, our research shows that just 37 percent of very large companies with 1,000 or more employees use dedicated consolidation software to close their books. About as many use the consolidation capabilities of their ERP system, and 20 percent still use Excel or some other spreadsheet software to manage the process. Companies that take longer than six business days to close their books should consider adopting consolidation software to speed the process.
Spreadsheets especially are the wrong choice for managing the consolidation process in larger companies. They are notoriously prone to errors, and finding and resolving them is time-consuming. Companies that are heavy users of spreadsheets in the closing process could save, we find, an average of 1.6 days in their monthly or quarterly close if they could eliminate all errors. On average, companies that use consolidation software rather than spreadsheets save at least one day in their monthly and quarterly close.
The use of financial consolidation software is a prerequisite for larger and more complex companies seeking to minimize the time and resources needed to close their books. The right software could be a newer version of a company’s existing dedicated consolidation application or one from another vendor. Consolidation software is replaced infrequently, but here as in general, older software may no longer perform well, or it may lack capabilities that can help speed the financial close or improve its efficiency.
Some companies make heavy use of spreadsheets because their existing software requires a considerable number of work-arounds; we recommend that they consider how much time they could save with more up-to-date software. Ideally, a newer application should enable a company to automate much of its reconciliation process and provide easy-to-configure workflows to promote consistency in process execution. Besides ensuring faster handoffs and providing reminders to complete tasks, workflow also enables those managing the process to keep track of progress and get alerts of deadlines have been missed.
Using the right software is a key component in achieving a faster close, along with good execution of a well-designed process and management of the data component. How quickly a company closes its books is a good indicator of its overall strength and competence. Well-organized and well-managed finance departments can finish the process within about one business week. Those that cannot do it in this time are likely to have problems with the design of the process, how well the process is performed, the training of those who perform the process, the software they use to support the process, and the timeliness and accessibility of the data that’s needed. In some cases, it may be that only one of these is the main issue, but usually it’s a combination of people, process, information and technology. We recommend that finance departments that take more than week to close their monthly, quarterly or semiannual books begin a process of identifying why it takes that long and then implement a program to shorten their close.