Creating an Efficient Close Process: Inspire Data Driven Insights

Would you agree that outside investors love accounting? More than likely, you are shaking your head. No, investors, and for that matter, managers may not consider accounting a priority as much as a necessary cost center.  Rephrase the question with a timeliness factor and the answer changes. Timely and actionable financial statements are worth their weight in gold. And yet, I realized during a recent meeting with the head of private equity investments for a prominent Midwest firm that too many private companies allow their monthly close process to drag on. The status quo works because it’s an accepted practice.

In recent Chief Financial Partner case studies, I highlighted the importance of incorporating operational insights and equipment maintenance cycles into your company’s financial planning.  In this article, I consider how accounting itself contributes to efficient operations. 

·       Read: Mining data for profits… Literally

·       Read: Driving Profitability through Enhanced Efficiency: A Guide to Overall Equipment Effectiveness

This subject is one of the most common problems my clients face. To understand the ABCs of accelerating your close process to generate “data-driven” insights, head over to the home page of my website, Chief Financial Partner, and download my presentation. The content is my gift to you in your search for a better and faster close process.

Now, let’s cover the basics:

Boiled down to its essence, the primary purpose of accounting is information. Financial results confirm the success or failure of a company’s strategy, its management team’s ability to execute and the market’s appetite for the company’s product or service. When considering your company’s accounting function, are you comfortable that it is providing the information you need when you need it?  When left as an entirely independent function, the bias in accounting is to deliver accuracy of the highest quality.  But sometimes counting every last bean takes too long.  Reasonably accurate results delivered on the sixth workday of the month are much more actionable whereas highly accurate results delivered in the final week of the month are nearly worthless. Why? Armed with information, managers can take action. They can identify risks and pursue opportunities or abandon ineffective strategies.

Let's delve into how you can create a more efficient close process with actions ranging from strategic updates to process optimization and efficient use of your technology. None of these changes require you to be a CPA, but they definitely merit an understanding of accounting.

Utilize Accruals Effectively:  Use accruals to estimate complex calculations and ensure that financial statements reflect the economic reality of transactions, even if they haven't been fully processed. [review regularly]

Identify Bottlenecks: Delays in your close process could stem from data collection, reconciliation issues, manual entry errors, or inefficient approval workflows.  Create a detailed workplan and compare daily activities to ensure your team’s time is well-spent and they are resolving issues effectively.

Streamline Data Collection: Implement automated systems for data collection from various departments. This could involve integrating ERP systems, utilizing data extraction tools, or developing standardized templates for data submission.  Activities in the close process are repetitive by nature. Reviewing an automated report is much more efficient than creating the working paper from scratch.

Standardize Procedures: Develop and document standardized procedures for each step of the closing process. This includes clear guidelines for journal entries, reconciliations, and financial reporting.

Automate Routine Tasks: Leverage accounting software to automate routine tasks such as journal entry posting, intercompany reconciliations, and variance analysis. This reduces manual errors and speeds up the overall process.

Improve Communication: Enhance communication between departments involved in the close process. Ensure line managers understand why requests from accounting should be prioritized and ensure timely resolution of issues or discrepancies.

Implement Continuous Improvement: Establish a culture of continuous improvement by regularly reviewing and optimizing the close process. Train your finance and accounting team on best practices ranging from consolidations and reconciliation to efficient close techniques. In doing so, empower them to resolve issues and recognize small victories.

Here is the bottom line: an efficient close process will allow you to deliver accurate, reliable, and timely financial statements that support decision-making, enhance stakeholder confidence, and drive operational excellence. If you are serious about upgrading your process, download my presentation, available on Chief Financial Partner’s home page.  You will find no sign-up required. No pesky follow-up emails.  Just some ideas you can start implementing immediately.