Closing the books at the end of the month can be a time consuming process. Many CEO’s (and even some CFO’s) view the close as something of a “necessary evil”, but it’s important to help maintain control over your finances and also to provide management with the type of actionable information that they need to continuing making the right strategic decisions in the future. Accurate and timely financial data for decision making is one of the major reasons why shortening the month-end process is something accounting should be focusing on at all times. The sooner management has the information that the month-end process provides, the faster they can respond to certain issues and make solid decisions moving forward.
Refining Your Close Checklist
Many people assume that the only way to properly shorten the month-end process is to completely overhaul their existing process. In reality, month-end is usually negatively affected by a wide range of different events that occur during the month. Depending on the challenges in your department’s recording process, month-end may be doomed before it ever begins.
To put things into a different perspective, think of the process of building a house. You start with the foundation, build up the structure and then finally put on finishing touches like the roof. If the house collapses at the end of the process, it isn’t necessarily because you put the roof on wrong – it’s probably due to certain catastrophic issues that were present in how you put up the foundation. In many ways, the home was doomed to collapse before you were even finished with it.
The same is true of month-end. If you’re looking for ways to shorten the process, look at the recording procedures that you’re using all month long that month-end actually depends on. You should be setting strong deadlines within your organizations for certain integral recording tasks. You should also be monitoring the way that people are adhering to those requirements. By taking a long, hard look at the entire month, you’ll see that the problems you’re facing during month-end are actually just the result of much larger issues that are going on all month long.
Focus on Pre-Close Items
“Before anything else, preparation is the key to success” – Alexander Graham Bell
Pre-close items are extremely important to the success of month-end. Looking at your close checklist today, how many of your deadlines are actually before the month even ends? We have reviewed the close process at many different companies and the departments with the shortest month-ends are the ones with the most pre-close procedures. There are several items you can prioritize in the close process which will lead to a shorter month-end. All cash transactions for the month should be up to date within your General Ledger and you should close AP a day before month-end. Update roll-forward schedules and populate them with additions/disposals for the period. Payroll should be processed before the end of the month, so everything related to your payroll process should be complete and documented.
The close is usually held up not because of the accounting department, but the accounting department’s dependencies on others. If you are requesting information from other departments, make sure you send out those requests prior to month-end. Also, letting other departments know why you need this information and who depends on it should help them realize the importance of timely information.
Add Reconciliation Automation
Advances in technology can help give your accounting team additional horsepower in the month-end close. Automating account reconciliations will help you with your average close time and also with the accuracy of financial information. Robert Kugel of Ventana Research states:
“Automation of reconciliations correlates with how quickly a company closes its books: 57 percent of companies that use software for this purpose close their quarters within six business days and 30 percent do it in four business days. By contrast, 73 percent of the companies that do not automate reconciliation take seven or more working days to close.”
By adding software that helps with account reconciliations you can shed days off the close and have the peace of mind that your information is accurate.