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Finance: your path to a quicker closing period

Nicky Tozer, VP of EMEA, Oracle NetSuite

Financial close involves many essential tasks: accounts reconciliation, journal entries, and financial reporting are all functions that the business relies on to accurately track performance, and to ensure compliance. However for many finance teams, financial close is also synonymous with long days, time-consuming tasks and cumbersome processes.

The APQC’s General Accounting Open Standards Benchmark Survey recently sought to find out how much time financial teams were spending carrying out financial close. The 2,300 respondents were asked how long it took them between running a trial balance and completing consolidated financial statements. A large discrepancy was found: the top 25 percent, took 4.8 days or less, while the bottom 25 percent needed more than 10 days.

The benefits of a fast financial close are clear. Executives have timelier access to the latest financial data, which in turn helps them make more informed business decisions. Meanwhile, CFOs and finance teams free up more of their time to focus on higher value-add tasks, such as analysis and insight, such as providing input into scaling operations up or down in response to cash flow demands or changing market conditions, or how to reallocate resources in order to capitalise on an emerging opportunity.

Continuous accounting provides an attractive alternative to cramming financial close tasks into a stressful sprint at the end of the financial close period. The method consists in distributing financial close activities evenly over the accounting period. Tasks such as reconciliations are embedded in day-to-day activities throughout the month or quarter. The advantages of this approach are numerous. For one thing there is no last minute demand peak. It also means quicker access to up-to-date financial intelligence, leaving the broader business better informed to go about their daily activities.

You would be forgiven for thinking that continuous accounting is somewhat of a no-brainer. However there are still barriers preventing financial teams from fully embracing the method. To begin with, continuous accounting won’t work if different systems aren’t synced up. If a company’s financial records aren’t speaking to their IT records, or if a team is working off disconnected spreadsheets, then they will struggle to carry out as-you-go accounting.

Many companies who are successfully carrying out continuous accounting rely on a modern cloud-based financial and ERP (enterprise resource planning) system. Such systems ensure an integrated and standardised overview across different functions. Users have access to a common general ledger, a common chart of accounts, as well as a single version of data for inventory, payroll, sales orders and customers. This offers companies the data integrity and standardisation of processes that are essential to continuous accounting.

ERP systems also offer the attractive possibility of automating certain functions. Tasks such as journal entries, account reconciliations and variance analysis can be completed by the system throughout the reporting period. This translates into further time-savings and even shorter financial close timeframes.

Another advantage is the ability to more efficiently delegate tasks using the resource planning functionality of the system. Because everyone is connected to the system, it is possible to assign tasks across the team throughout the reporting period. This is easily managed thanks to a transparent overview of task attribution and progress. For example, a typical financial close could last five days and consist of 25 processes. In this case, five tasks could be assigned per day. Managers can continue to check back in with the system to follow up on which tasks have already been completed, and which remain outstanding. Gone are the days when managers and staff are giving CFOs the answers they think he or she wants to hear. Moreover, the CFO knows who’s on target and where and how. The CFO also has the ability to run KPIs on the close process identifying which individuals or locations are not completing their tasks on time and reallocating resources appropriately.

Savvy finance teams are realising the benefits of continuous accounting when it comes to reducing time spent on financial close. What’s more, companies are finding they are able to access more up-to-date financial intelligence, which in turn helps the entire business make more informed business decisions. And for those who have already made the switch to connected ERP systems, the path to continuous accounting will be a simple and straightforward one.