Here at FloQast we help accounting departments simplify their close process. But why is this a problem that has to be solved in the first place? Every member of an accounting team has their own answer to this question, so immediately you have conflict among priorities and workload; not to mention getting the work done right and in a timely fashion.
In short, closing the books is a multi-faceted problem with a lot of hands in the pot. Things get complicated quick. But before we get to the solutions, maybe we should cover some basics first.
What is the close process? Why do businesses have to close their books?
Business transactions, when you consider their most basic nature, are routine. It comes down to money flowing in and out. If you think about in slightly more sophisticated terms, a business tries to sell products or services. In the course of this selling, it does all kinds of business-y things like pay salaries and settle bills with its vendors. Businesses also lease equipment, depreciate office furniture, make loan payments, etc. etc. etc. Doing all this stuff day after day and week after week can create quite a mess so savvy business owners and managers track all of the transactions and compile them into useful financial information. To keep things simple, most follow the calendar, reporting an enterprise’s performance by each month, quarter and year. These are called accounting periods.
When the end of the accounting period comes, it’s time to close temporary accounts like revenue and expenses into the equity of a business’s balance sheet. If you made more money than you spent, you have more equity in your business. If you spent more money than you made, then you have less equity in your business.
And then it’s time to start over and do it all over again in the next accounting period. It’s pretty genius, actually. But we’re accountants, so we’re a little biased.
Anyway, accounting departments make journal entries for every accounting period in order to close the books. Depending on the organization, there could be a lot of closing entries or not very many. As the entity gets more complicated, the close gets more complicated, but regardless, accounting departments follow a similar routine every month. The problem with routine, of course, is that bad habits can form. And as well all know, bad habits are tough to break and can fester for years.
Why the close process is challenging
Oh boy, how much time you got?
Seriously, every close is different so the challenges vary, but here’s a not-so-short list:
- Collaboration — Who’s doing what? Is someone doing too much? Is someone else behind for some reason?
- Progress and timing — Are we closing the books fast enough? Where are the bottlenecks? Do some aspects of the close take longer than others? Do we have to wait on third parties for information?
- Did we get everything? — There are lots of transactions, ergo, lots of accounts. Which need adjustments? Did we do something different this accounting period? If so, what? Do we have an effective review process? Are there compliance issues that we have to consider?
- Documentation — The larger your team, the bigger problem this is, but knowing where all the current, correct reconciliations are to ensure that the ending balances are right is crucial and tedious if everyone has their own filing methods.
- Auditors — Guess who comes around every so often asking for documentation. Yep, the good ol’ opiners. They ask you for stuff, you give it to them. But then they ask you for it again and you say, “I gave you that,” and then they say, “Actually, no you didn’t.” If that sounds like a giant waste of time, that’s because it is.
And that’s just the easy stuff! It really gets complicated when you have complex calculations or illiquid assets to markup or some other fancy-schmancy things.
How FloQast makes your close easier
One of the best things about FloQast is that it becomes the central hub for all your close-related activities. There’s no wild goose chases for missing reconciliations or other documentation. Team members with specific responsibilities upload their work and the balances from those files are compared to your team’s ERP system. When everything is cleared up, the account is locked and done.
And if there are slower parts of the close, managers can track the progress right on the platform. When inefficiencies are discovered, teams can take action to speed things up or keep them on track.
Finally — and this is our favorite — FloQast compliments your accounting team’s favorite tool: Excel. FloQast takes lists, schedules and other files built in Excel and brings them into the cloud so that you don’t have to reinvent the wheel.
If closing the books at your company is a pain, all this information should really make you feel better. But don’t take our word for it; our customers talk us up just fine.