The financial period close can be one of the most time-consuming, cumbersome and stressful processes for the CFO and the finance team of any organisation. But this record-to-report process of accounts reconciliation, journal entries and financial reporting remains an essential way of providing accurate information on business performance and ensuring compliance.
Yet every CFO dreams of a faster way to close financial accounting periods. And the figures show why. In APQC’s General Accounting Open Standards Benchmarking survey, the bottom 25% of the 2,300 organisations questioned said they need 10 or more calendar days to complete the monthly period close – that’s the cycle time in calendar days between running the trial balance to completing the consolidated financial statements. Compare that with the top 25% of performers who complete the monthly close in 4.8 days or less.
A faster period close process gives executives in the business timelier access to the very latest data available, enabling them to make quicker and better-informed decisions.
And when the CFO and finance team spend less time on closing the books, they are able to dedicate more time to providing the analysis and insight that the business needs to make key decisions. That includes strategic decisions such as understanding why it might make sense to scale operations up or down in response to cash flow demands or changing market conditions; or knowing how rapidly resources might need to be reallocated in order to jump on an emerging opportunity before a competitor does.
At the same time, however, there is no room for accuracy to be sacrificed on the altar of speed. For this reason, smart finance teams now consider ”continuous accounting” to be best practice.
Continuous accounting aims to distribute the finance team’s workload evenly over an accounting period. The thinking is that, if tasks normally associated with period close – such as reconciliations – are embedded in day-to-day activities throughout the month or quarter, there shouldn’t be a spike in jobs left to do as period end approaches and closing the books shouldn’t take so long.
Implemented well, continuous accounting can also result in real-time reporting and a finance function that marches in step with the wider business, in tune with the ups and downs it experiences. In a high-growth business, that’s an attractive proposition, because the link between opportunities and challenges and their financial impacts are more immediately visible to all. And appropriate, considered responses can be made faster.
Yet many organisations face a barrier to making this switch: it arrives in the form of a hairball of incompatible finance and IT systems and unconnected spreadsheets.
The foundation for smarter period closes and embracing continuous accounting is a modern cloud-based finance and ERP system, such as NetSuite, that can provide data integrity and consistency, standard processes and automation. With a fully integrated ERP system, all teams, functions and geographies within the business access the same general ledger, a common chart of accounts and a single version of data on inventory, payroll, sales orders and customers.
This enables the automation of many manual tasks, such as journal entries, account reconciliations, variance analysis and intercompany transactions. Instead, these can be executed automatically throughout the month, in the cloud.
When a company’s core finance system is based in the cloud, it’s easier to achieve an ”all-hands-on-deck” approach to period close, because finance team members – and the wider organisation – can participate in the process regardless of time of day, time zone or their individual location, simply by using any device with a web browser and internet connection.
Finally, where human intervention is required, a cloud-based finance system can be configured not only to serve up period-end-related assignments to the most appropriate team members on a regular basis throughout the month, but also to provide managers with dashboard-based views of how work is progressing and what might be left to do as period-end approaches.
In these ways, continuous accounting means less stress for the finance team, while at the same time providing the greater efficiency, higher accuracy and cleaner financial statements that boards expect today.
A faster – and smarter – period close can deliver considerable value to the organisation, giving more relevant management information earlier and freeing up a lot of valuable time for the finance team and CFO to contribute more strategically to the business.
Are you at the forefront of digital transformation? Find out how you can elevate your finance team’s value and drive better performance management and business outcomes by listening to this on-demand webinar on reinventing the finance function.