For many organizations, the monthly financial close is still a convoluted, chaotic, and time-consuming process. It is often based on manually intensive, non-standardized processes that have to be completed under overwhelming time constraints and are extremely error prone. When keeping up with this, it is easy to get trapped in a ‘constant close’ cycle that affords no quarter when it comes identifying improvements that could improve their situation, but many need to. In a survey by APQC, which gathered responses from 145 senior finance executives from the US, Europe, and Asia, 75% of respondents said that the close-to-disclose process is one of the top two targets for financial improvement over the next 18 months. But what actually constitutes improvement?
When you ask finance leaders what it is specifically that they want to do better in their close, most will say speed. According to CEB, 90% of finance departments have listed ‘shortening the accounting close’ as one of their top priorities for the last threes years. Common wisdom seems to be that an ideal close should take around 10 days and certainly no more than 20 days. Mary Driscoll, APQC’s senior research director for financial management, notes that APQC data has shown companies who achieve fewer than 10 days spend 50% less than those who take more time. Many CFOs and controllers that I’ve spoken to at conferences seem to believe the accounting close should actually take 5 working days at the very most, while some, like Jennifer Gardyne, Senior Director of Corporate Accounting at Pacific Gas & Electric Company, think that it should take just two or three.
Organizations have, largely, been successful in their attempts. CEB data shows that the average number of days has fallen from nine to six in recent years. But are finance leaders focusing on the wrong thing? Do you really need a faster close? CEB analysis also found that a shorter close is not necessarily leading to improved finance performance, and those finance teams with better decision support and stronger controls in fact have longer close periods. What matters far more than speed is accuracy. In fact, the pressure that comes from having to reduce the length of time could be damaging. In a recent survey by software provider Adra Match, 90% said they are under pressure to close faster, a situation which leaves them more vulnerable to making errors, and only 28% of respondents said they actually trust the numbers reported in the month-end close. Should you reduce the time pressure, it is likely that the numbers will be better, trust will go up, and in turn so will leadership’s ability to use them.
This is not to say that speed is not an important factor, and it is obviously advantageous to get the right data into decision makers’ hands as quickly as possible. There are many wasteful delays associated with the close that are easily reduced through better planning and technology - low hanging fruit that if removed is unlikely to lead to any reduction in accuracy levels. Automating or eliminating any redundant task is important and easily done, while big data and cloud technologies also mean the accounting team rarely has to wait for any information necessary to completing certain account reconciliations anymore, whether it is from other departments or from a third party.
While technology is important, though, it is not necessarily enough to invest in the technology. You need investment in systems, people, and processes to use the technology effectively or you risk it actually causing more problems than it solves. It is also best to implement a culture of continuous improvement, making ongoing efforts to improve processes as they develops, and to maintain a constant line of dialogue with your customers about their priorities, successes, and needs. Again, the key is not to rush and to work towards making the processes better. Improving the financial or accounting close isn’t about doing everything faster, it is about spending time on the right things and focusing resources on tasks that add value. Do not sacrifice accuracy in the quest for speed, let speed take care of itself. Setting goals may make sense when it comes to motivating your team to get the time to close down, but an arbitrary deadline plucked out of thin air because someone thinks it looks good is only ever going to cause problems.