The Close Process

14 February 2018

For many organisations, the monthly financial close can be a daunting effort. In the run up to, and beyond, every month-end, finance teams frantically pull numbers together, check them for accuracy and completeness, and assemble them into a final set of management accounts and a set of board and regulatory reports. In many organisations the process is as clunky as it was 20 years ago or more.

So much reliance on manual work and spreadsheets and very little automation or workflow control.

Spreadsheets are brilliant; they’re cheap, flexible, and very easy to use. They are also fraught with danger. Operated by fallible and tired humans, formulae disappear, are overwritten or numbers are mistyped deliberately or accidentally. The linkages between the spreadsheets designed to minimise re-keying and errors are another vulnerability that can cause downstream processing errors too.

The resultant cottage industry of double-checking formulae, fixing mistakes, consolidating multiple spreadsheets and re-keying the outcomes and circulating various iterations can be soul destroying.

And one might think that the error rates with all this checking and cross-checking would eliminate embarrassing gaffes. Not so. See this paper on the costliest spreadsheet mistakes in history.

There are other worry-beads too coming from this palaver. The greatest is disaffected and disillusioned teams. In smaller teams especially they are compiling, reconciling and interpreting the numbers as well as dealing with colleagues’ queries. A manual close every month entails a lot of long hours, at a time when employees are seeking a better work-life balance. This is leading to a critical shortage of finance talent and fierce competition among businesses for great staff.

So what can be done?

According to Ventana Research, companies that use spreadsheets extensively throughout the close process take an average of 8.2 days to close their books.

In contrast, those that automate the majority of close tasks, using spreadsheets only for complex work, can close their books in 6.2 days – that is the equivalent of a full time employee for over a tenth of a working year who could be evaluating growth strategies, chasing cash from debtors or negotiating better terms from suppliers and much more!

Research shows too that share valuations of like companies are higher in those who can report faster.

In general, a strong end-to-end financial close could include:

  • Perpetual auto-reconciling bank statements to general ledger
  • Collaborative intercompany reconciliation in real-time
  • Automated supplier statement reconciliations shared with suppliers
  • Workflow control including escalations and alerts on overdue work items for better resource management
  • Instant management reports “flashed” to commentators for preparation of final and more meaningful narratives.

Our team are experts in assisting clients with ERP solutions in the cloud, corporate performance management tools to automate board and management reporting, automated reconciliations and controls systems and many other leading edge finance function efficiency tools. For more information, contact Jim Muir (consulting@aab.uk) of the AAB Consulting Associate Network, or your usual AAB contact.

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