During Monthly Close Time IS Money!

How often have you heard the phrase "Time is Money"? 

This expression takes on a special meaning for accounting and finance personnel, especially during the first week or two of each month, as there’s an ever-increasing need to get the latest information about their organization to management as soon as possible. Management is looking for timely and accurate information—both financial and non-financial—to make decisions before opportunities vanish. 

Because of this “need for speed,” many companies have compressed their monthly financial statement closing process, moving away from the traditional hard month-end close. These companies have implemented new methods to accumulate and distribute financial information more quickly and efficiently without compromising the quality of the information. 

The month-end close has traditionally been a time-consuming process: first, gathering data from a number of different systems; second, performing detailed analysis; third, making corrections; and finally, reformatting the data into any number of management reports. 

In some cases, the resulting management reports have been prepared month after month or year after year without a current evaluation of their relevance. 

A number of medium-to-large companies have redesigned their closing cycles as part of a total finance function re-engineering process. They’ve transitioned first by improving the traditional hard close, moving to a soft close, and then to a “virtual” close. The hard close focuses on total and complete accuracy, resulting in GAAP/SEC financial statements. The focus of a soft close is the material accuracy of information. Organizations who have implemented the “virtual” close have developed systems and processes that allow them to produce vital management reporting on demand. 

Suppose, however, that you’re a smaller organization looking for ways to speed up your closing process. Instead of embarking on a complete process redesign, consider taking these steps to accelerate your company’s closing process. 

Eliminate
First, identify the true users of the reports generated from the month-end close. Users can be internal or external and include owners, shareholders, government agencies, taxing authorities, financing/funding sources, and grantors and/or managers. Remember that certain reports might be valuable to one user but not to others. 

Ask internal users about their business unit goals and how those goals can be objectively measured. What information is useful for measurement? How often and when is it needed? Based on the answers to these questions, non-essential reporting can be eliminated. 

Simplify
Analyze existing processes. What’s cumbersome? Are there bottle-necks? Are there outdated policies that can be reevaluated? 

For example, perhaps you have a policy requiring more than one approval for vendor payments. Consider setting dollar thresholds in order to eliminate an additional approval for smaller payments. 

If sales cut-off typically causes a delay, consider using a morning deadline on the last day of the month to encourage earlier sales-order entry. 

Leverage Technology
There are a growing number of technology solutions available to businesses of all sizes and industries. Look at the processes that are currently performed manually. What can be automated? 

For example, consider the bank reconciliation process. There are software programs that download both the bank and the general ledger data into an electronic spreadsheet and then match them automatically, eliminating the time-consuming and error-prone process of manually matching cleared checks to the general ledger detail. 

Pull Closing Activities Forward
The ultimate goal is to speed up the closing process without compromising the quality of information reported to management. Therefore, having the ability to perform some closing activities prior to month end is important. Consider all of the reconciliations that are performed at month end. Which accounts could be monitored during the month in order to reduce last-minute reconciliation efforts? The bank reconciliation provides a good example of a process that can be moved to an earlier date on the closing calendar. 

The Internet can be used to access bank account information at any time during the month. Consider advancing the closing date for the bank reconciliation; include estimates of bank fees and other automatic charges in recur-ring monthly journal entries. Another option is to reconcile the bank statement on a weekly basis. 

Combine Related Activities
Instead of thinking about closing activities as a list of individual tasks to be executed sequentially, consider whether there are efficiencies that could be gained by logically grouping related tasks together. For example, entry of hours worked during the last period of the month; accrue wages, salaries, and payroll taxes; and close the payroll module. 

Establish Accountability
Another consideration in an accelerated close effort is ensuring that each member of the accounting and finance team is clear on the specifics and timing of their role in the process. The following best practices are recommended: 

• Assign closing responsibilities.
• Document the closing schedule.
• Document the process.
• Provide a tickler calendar for each staff member.
• Provide cross-training for critical activities .
• Create a policy and procedure manual.
• Engage staff in making the process faster, better, cheaper, and celebrate improvement.

The End Result
A thoughtful and well-executed effort to streamline the reporting process requires balancing the need for speed with accurate reporting of financial data and lowering the cost of the closing process. Time, as they say, is money. In the end, the benefits of streamlining the reporting cycle are well worth the effort.