Why a Faster Month End Close Matters
When you talk to financial leaders today, many will say shortening the month-end close is important to them. Recent CEB/Gartner surveys report that “90% of finance departments have listed ‘shortening the accounting close’ as one of their top priorities for the last three years”.
But if you measure the progress that is being made, many companies are not meeting that goal. Robert Kugel of Ventana Research says that only 19% of companies are closing in less than 4 days, with a large majority of companies, 39%, closing in longer than 10 days.
Let’s begin by focusing on the primary benefits of a faster month-end close before we work on solving how to do it.
The biggest benefit to a faster month-end close is that it accelerates the company’s ability to change behavior. Let’s look at two different scenarios to explain this benefit.
Scenario One: The company receives financial statements for May at the very end of June, on the 30th. There are issues identified that need to be addressed. Maybe sales are down, maybe the margin is lower than expected, and maybe one department is severely over budget. Because the financial statements were not delivered until the end of June, there is no opportunity to change behavior in the month of June. Even though necessary changes have been identified, the company cannot change what as happened in the last 30 days, and the undesirable behavior will continue, with more bad results being reported the next month. The first possible time to correct the behavior is in July.
Scenario Two: The company receives financial statements for May on June 3rd. Upon review, the company identifies that sales are down, the margin is lower than expected, and one department is severely over budget. Because the financial statements were delivered so quickly, the company managers can immediately address the issues early in the month of June, greatly increasing their chances to correct the undesirable behaviors quickly and being able to produce improved results in the June financial reports.
Delivering financial statements on Day Three will create a sense of urgency because your company managers are able to make the actionable changes as a result of receiving the financial results faster. Many companies express surprise that shortening the close causes other departments to become more engaged in understanding financial statements. The reason why? They can actually DO something about the next month’s results!
Another benefit of the faster month-end close is there is no opportunity to worry over the results. We all know those people in the company who check in frequently to see “how we’re doing” when the numbers aren’t finalized. When the numbers get delivered consistently on day three, month after month, the people who need them stop worrying because they know they can rely on getting them at a precise time and don’t need to check-in.
Ability to Improve
Accomplishing the faster close positions the accounting and finance teams as trusted business partners who drive change in the company. Their act of fulfilling the promise of delivering financial results quickly adds value to their function in the company and is certainly better than being viewed as simply a cost center.
We also gain the opportunity to challenge our accounting team members. It is not unusual to have employees in these departments who are very well educated, and if they are spending all their time working on the very repetitive tasks of closing the month, they don’t get the opportunity to work on more challenging projects like analyzing trends, implementing improved tools, and creating efficiency in other areas. Opening the door for them to be more challenged means we will have more satisfied high achievers on our teams.
Technique to Match the Tool
We can’t forget when we have ERP software as a tool and we do an extended month-end close, it is often that our technique to close the month involves processes outside of the ERP system. Using these other tools slows us down, so changing our processes to utilize our ERP systems more fully is an easy win.
To make a true leap in speed and accuracy with your closing process, you need to drive a paradigm shift in your team’s approach. Faster closings won’t happen by simply doing everything at month-end faster; you need to re-organize the entire process and re-design the tasks with a holistic perspective.
This 5-Part blog series will focus on how concentrating on three concepts: Planning, Reduction and Changing the Mindset, and will get you closer to closing the books in three days at your company.
As you prepare for your own Faster Month End Close and are looking to improve your use of Business Central / NAV, streamline your processes, or reduce your cost of doing business, please give us a call and let us know how we can help. You can find more information on our website about our services and see our training schedule with over 40 classes offered in 2020.