Beyond the Close
The Silent Costs of a Traditional Financial Close (and Why It’s Time To Modernize)
About the Author: Katie Thomas, CPA, is a content creator, 2021 & 2022 40 under 40 CPA Practice Advisor recipient, Top 50 Women in Accounting recipient, and the owner of Leaders Online, where they help accounting professionals increase their impact, influence, and income through thought leadership and digital marketing. Feel free to visit Leaders Online or connect with her on LinkedIn to get in touch with Katie.
Accurate and timely financial reporting in business is a must. However, manual processes and traditional approaches to the Close process take time — and have “silent costs,” introducing:
- Compliance challenges
- Inefficiencies
- Risk of errors
- Opportunity costs
- And more
Modernizing the close process offers a solution to these challenges, providing organizations with the agility necessary to manage the changing financial landscape with faster decision-making. And solutions that are easy to implement help businesses mitigate the cost of traditional close processes and enhance performance.
But without understanding the cost and challenges of the month-end close, modernization may fall to the wayside because it “works,” or in other words, “if it ain’t broke, don’t fix it,”)
The Challenges and Costs of the Traditional Close Process
Month-end close processes can have been known to take up to 10 days (and, in many cases, a lot longer) to finalize, and as a result, business leaders may be left without the data they need to back key decisions. Automation can reduce the time to close by 26% or more.
If traditional close processes remain unchanged, a few things remain certain:
Inefficiencies and Manual Processes
At FloQast’s user 2023 user conference, TakeControl, a poll of 653 respondents found that:
- 19% use spreadsheets and manual processes throughout the close
- 18% have invested in technology that results in data management problems
- 44% indicated the close is where teams spend most of their time handling data from their ERP
Manual data entry and processes not only take people away from higher-level, more valuable tasks that can have a greater impact on finances and operations, but they also place the organization at higher risk as I’ll discuss in more detail later on in this article.
Financial and Operational Impact
It can’t go without saying that using an “old school” way of closing the books has a financial and operational impact. According to Zip Recruiter, as of February 2024, the average salary for a controller is $47.25 an hour, and the average salary for an internal accountant is $26 an hour. You can see how it becomes very costly to have individuals in these roles spending hours upon hours each month manually closing the books.
There’s also a large operational impact. When accountants were asked in the TakeControl 2023 poll about automated workflows and which capabilities were most important to their teams, 15% of respondents indicated accuracy mattered most to them. Why? Because automation reduces the likelihood of human errors and ensures that tasks are performed accurately according to predefined rules.
One error that results from not closing the books using automated workflows can be extremely costly, both financially and operationally. Penalties for failure to comply with the Sarbanes-Oxley (“SOX”) Act alone can lead to fines in the millions of dollars and years in prison, which leads me to my next point.
Compliance and Regulatory Burdens
Compliance and regulatory requirements are becoming more complex and extensive, affecting various aspects of the closing process. This increases the time it takes to close and adds more pressure to workloads during this process.
Take SOX as one example. All publicly-traded companies, wholly-owned subsidiaries, and foreign companies that are publicly traded and do business in the United States must comply with SOX, which requires them to:
- Identify compliance risks
- Follow internal control frameworks
- Routinely test controls
- And more
SOX mandates accurate and verifiable documentation that, if manual processes are used, introduces a higher risk of errors. Just 1-in-4 businesses rely on technology to help with compliance, which opens the doors to inefficiencies, corrective steps, an extended closing period, and possibly a greater risk of errors and penalties.
Leveraging automation will help overcome these challenges.
The Case for Modernization
The traditional close process is fraught with risks. Modernizing the close through the adoption of new technology allows teams to meet deadlines, save time, and remain compliant.
Some of the many advantages of modernization include:
Efficiency and Accuracy Gains
The traditional close process is laborious and time-consuming. It’s possible to achieve a 26% reduction in time-to-close through modernization. With less time spent on the close process, teams can focus on driving business value.
Along with a reduction in close cycle time, teams can also see a 39% increase in close data accuracy. Automation can identify errors more quickly and prevent them from happening in the first place. As previously discussed, the cost of an error can be expensive from a compliance standpoint, but it can also be costly in making poor business decisions and the potential risk of fraud. Approximately 33% of all businesses are affected by a fraud-related incident each year.
Time savings and a reduced risk of fraud and errors alone are reason enough to adopt a streamlined close process.
Ability to Make Data-Backed Decisions And Have Financial Agility
A modernized Close process allows teams to be agile and stakeholders to make more informed decisions – two things that can’t be achieved without closed books.
Through automation, teams can respond quickly to evolving compliance requirements, industry fluctuations, and changing business needs as they have an accurate picture of the organization’s finances.
The agility alone provided by a modernized close allows organizations to gain a competitive advantage.
Improved Compliance and Control
When modernizing the close process, compliance can be integrated into the workflow instead of being an afterthought or separate process. This approach helps improve the accuracy and compliance of financial reports and enhances audit readiness because now there is a clear and auditable trail of activities.
Technological Advancements are Available to Streamline the Close
The benefits of modernizing the close are too great to ignore, yet many teams are reluctant to take the dive because they don’t know where to start.
Advancements in cloud-based, AI-powered technology platforms like FloQast have reached a point where it’s possible to automate the Close and get real-time insights, such as:
- To-do lists to ensure that deadlines are met
- Collaborative checklists to ensure team members complete their assigned tasks
- At-a-glance views of reconciliations and variances in one centralized place
- Integrations with ERPs and Excel account reconciliations to automate tie-out processes
Features and functions like these streamline the close process from one centralized platform to ensure everyone is on the same page.
By making the close process more collaborative, standardized, and streamlined, there’s a much lower risk of miscommunication and errors caused by differing approaches or procedures.
Yes, You Can Adopt Modern Solutions With Minimal Disruption
Adopting new technology, while beneficial, often comes with its own set of challenges. However, today’s modern solutions can easily be implemented without disrupting your team.
Minimal disruption means that teams can easily leverage the advantages of a modernized close process.
In finance, automation allows organizations to improve efficiency, accuracy, and agility. Teams have more time to focus on strategic activities that drive innovation and help deliver exceptional value. However, to reach such heights, teams must be willing to modernize their close process and adopt new technology with open arms.
