How to Fix Your Month-End Close Process
A practical guide to reduce cycle time and improve accuracy
Do you struggle with month-end close? You are not alone. Many close processes are like traffic jams. A small delay or a surprise event can cause a bottleneck. Then, you have to hurry to fix errors, update reports, and close again. Meanwhile, your executives are waiting, and your staff are exhausted.
Here are the top ten reasons why close processes can go sideways:
1. The close calendar is outdated and does not match the actual steps, timing, and dependencies of standard entries.
2. The close cycle suffers from unmanaged handoffs with upstream functions, sub-systems locking off, unprocessed invoices, and overly complex accruals.
3. There is limited insight into how close process is progressing in real-time.
4. The close process suffers from a lack of rigor in understanding and actioning the root cause of accounting errors.
5. There is a proliferation of adjusting and correcting entries.
6. There is limited or no guidance on thresholds required to reopen the books and too many immaterial entries are being made.
7. There is no single close process owner with clear responsibility for managing and continuously improving the close cycle.
8. Key performance indicators are not being used to consistently measure and manage the close process.
9. Governance processes for master data management and report standardization are not documented or supported by an appropriately architected Center of Excellence.
10. A&F has struggled to integrate target acquisitions.
Leading practice Finance functions have a well-managed and well-run closing machine. They understand that the value they bring to their stakeholder group (company executives, decision makers, and often the investment community) depends on timeliness, consistency, completeness, and accuracy.
To dramatically improve month-end, an iterative analyze, design, build, and implement methodology is used where a set of leading practices is deployed and the solution is refined month-end over month-end until the objective (often expressed in close workdays) is reached. For reference, top performers can close, consolidate and report in fewer than five workdays.
The key phases to a methodical approach to sorting out the close cycle are:
ANALYZE: Use a structured spreadsheet to collect data on the close work products (all standard entries, reconciliations and reports), including their timing, dependencies, and level of effort. Identify the critical path and the opportunities for improvement.
DESIGN/BUILD: Redesign workflows, processes, and implement new tools to accelerate the close cycle. Apply leading practices such as:
o Moving work outside close critical path
o Publishing a standard journal entry list and related day/time entries and reconciliations are to be completed
o Developing formal close schedules and milestones
o Utilizing KPIs to measure and manage the process
o Conducting pre and post-close meetings
o Formalizing a pre-close trial balance review
o Establishing materiality thresholds to avoid re-opening the books for immaterial items
IMPLEMENT: Deploy the solutions in a pilot or phased-in approach ensuring executive top-down support and visibility. Monitor the results and refine the solutions for the next close.
LESSONS LEARNED
Wherever a company lands on the continuum of close cycle leading practices, a methodical approach can help decrease cycle time and process variability, and increase control.
· CFO sponsorship and the formal nomination of a Close Process Owner are critical enablers of change management.
· The larger and more complex the company, the greater the need for formal leadership, project, and change management.
· Do not overlook the impact that upstream departments have on the close cycle. Errors coming into the process require manual effort and cycle time to address. Be ready to identify and partner with these stakeholders to effect positive change.
· Intercompany and transfer pricing may be a bottleneck. Attack it as a discrete, but related project with its own leadership and team.
· While Blackline and other close process management tools are helpful, get the process sorted out first. This makes the implementation of the related tool go much faster and more cost effectively.
· The culture of the A&F team is either a barrier or an enabler. This program can be used to foster it accordingly.
· Vet your project team. Make sure they have the accounting credentials, project experience, and leadership capabilities to make your project successful.
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