My company has a small
Financial Close: What is the most useful part of the close to automate?
Answers
Typically, it'd be the piece that's most labor-intensive. In many models that would be the consolidation stuff; the bang-for-the-buck would be proportional to how deconsolidated your
Of course, when taking the 'one piece at a time' approach, keep in mind the desire to eventually stitching neatly together all the pieces. Don't build individual pieces of automated processes which turn out to not play well together.
Go line by line through the financial statements with your team and ask what they are doing. There are alot of expenses that you may know how much they are without needing to wait for an invoice. If you need the invoice, tell the vendor to speed it up. Same for revenue line items.
We were in the same situation as you. The first thing we did was to get our close organized. We started with creating a month end closing checklist broken down into 3 sections: verifing all postings have been made to the gl (cash disbursements, cash receipts, and payroll), entering all month end accrual entries, and finally all account reconcilations. Then we went through each section as to who was responsible for what items and what work we were doing in these areas to streamline our processes. We do use automated reversals once we went through our journal entry list. After we go through this process, we determined what information we had available to us to begin close that didn't have to come from other departments and what information did come from other departments. We created a calendar schedule that we all share with the tasks that need to be completed on which date.
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In my prior companies, we did what Natalie suggested (month end closing check list, accrual entries needed, accounts reconciliation, etc.). However, we also identified what tasks could be done prior to month end closing and make sure they were indeed done. All these efforts made it possible for us to shorten closing time by 50%.
HI Alan, we help companies like yours get their close to 2 days or less while still working normal hours. Natalie has a very good point. Checklists are important along with scheduling the work. That said, with
Hi Alan, "typically the complexity of the close process is a function of how well your operations map to the GL". Here is an example from my previous employer, the accounting team did not go home until the balance sheet primary accounts balanced. At about 4PM each day, they would balance AP, AR, Inventory, accrued purchases, etc... If there was a balance issue, it was easy to fix. Only that days transactions could be the culprit. As a result, this was a moot topic at month end.
I think your question was how do you gain such inefficiencies? The general answer is: you hire a resource with the specific ability to automate processes. Gerry or I would probably be likely candidates.
To solve the above challenge, we wrote a script that did the following:
1) calculate the balance of specific accounts as of that moment in time (example: AP).
2) calculate the balance of the control documents as of that moment in time (AP Aging).
3) Present the balances and deltas to the user. If all balanced, great!!
4) Provide a diagnostics view that helped isolate known issues.
Most days there were no issues. Most issues would be resolved within 15 minutes. We spent almost zero time on GL accuracy at month close. Owners and auditors loved it!!
Your ability to automate the other topics is somewhat dependent on your accounting and reporting systems. I am happy to donate some time to your cause if you are interested. Just let me know.
I hope this helps!!
Chuck Boecking
[email protected]
www.chuckboecking.com
I have found that setting deadlines and sticking to them significantly helps improve the month-end close process. I would also look into using your current accounting system to its fullest potential, such as customizing reports to get information directly out of the system rather than downloading into
Vivian B. Frazier
Alan I think what is most important is that yo first look at your processes without thinking there is a system that can solve it for you. We are expecting a new ERP system by 2014 however in the meantime we are stuck with our more than a decade old accounting system. This has forced us to look at how we can optimize our processes without improving the system.
We have now reduced our close cycle from 4 to 2 days by:
1) creating work plans for all our processes and scrutinizing them to eliminate all redundant or non-important tasks.
2) creating a checklist for month end.
3) using Excel more efficiently (I know all the software guys will tell you to get rid of it, but sometimes you don't have that option due to budget constraints or as in our case a new system on the way).
4) creating transparency in the reporting process. Always make sure there is a clear and direct link between your GL in the accounting system and GL in your reporting/consolidation system.
5) stop trying to reconcile everything 100% every month as it causes too much frustration and you rarely get it right anyway.
6) if you have inter-company transactions make sure the settlement process is clear and transparent.
7) last but definitely not least make sure that your individual team members have ownership of their tasks and are able to complete them without being too dependent on you or there colleagues. Where they are dependent make sure that handover points are clear cut.
Look for places the same information is being entered twice, such as into both subledger (AR/AP) and GL. Hopefully you have an IT person in your company who can write a script to upload information from one system to the other. This might involve an interim step of a download into Excel into a report with specifically define fields, and subsequent upload into GL.
From an automation standpoint, I would say:
-Make your system "feed" into your account reconciliations
-Automate all of the reports/analytics you need for close (make it so only links need to be refreshed or files refreshed (essbase/hyperion users)
I have seen companies with the most sophisticated tools still fail to close quickly. The real hurdle is the mindset to get as much done before the last day of the month. Close starts during the month you expect to close. This allows everyone to focus on analysis of accounts and being more thoughtful about the bigger close issues. I would start by telling everyone they need to shave one day off of close. After a number of months of passed, push for another day and so on. People learn to adapt. When you get to a point where bad short cuts are being taken, it's time to reassess cost/benefit.
Alan:
I agree with your approach of not trying to take on too many things at once, however, you should consider what are the next steps for optimization your company may have following tranforming the Close process. This is key because there are integrated solutions such as the one's offered by my company, Trintech, that will help the investment pay-off mulitple times with a more strategic approach to the Record-to-Report process.
Specific to Financial Close, your company should ask the following questions to help determine where the greatest benefit can be accomplished:
1) Does your company have multiple close calendars?
2) Do you want linkage of close activities to compliance efforts?
3) Do you want linkage of tasks and workflow to financial results?
4) Do you want to use a solution that incorporates current tools such as Excel to ease user adoption?
5) Does your company want real-time status updates via dashboards?
6) Does your company want to reduce paper and use an electronic binder to capture all close activities for each period?
7) Does your company want to use a tool to automate Journal Entries or consolidation of financial reports/reconciliations?
I can also provide access to industry white-papers and presentations that demonstrate where the greatest gains can be achieved. Feel free to contact me at [email protected].
Best Regards,
Michael Sipos
Alan,
Without knowing any details of your close process and actually being in your shoes in previous roles the first thing to consider might be to review of all the process bottlenecks and dependencies in your close process. The next step would be to determine how to debottleneck and to make changes to drive a better close process for the organization. This could involve (and most often does) require cross-functional cooperation in terms of getting dependent processes completed earlier. It also requires a strong consolidation process that is automated to the extent possible. The last piece is reporting which should be automated so any changes can flow through all documents without having to recheck all pages. (vs. cut and paste and rechecking all numbers again..)
We generally find that a lot of time spent in the close is waiting. Many other departments contribute to the close, but their priority is not accounting.
Being proactive and working with them can help a lot!
We also suggest performing activities prior to the month end. For example, you can review payables posting or reconcile cash to the third week of the month. This way you are only waiting for one week to complete the monthly close.
Good luck with the program. You should also sign up for the Silicon Valley Accountants monthly
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