Most finance teams engage in a regular and elaborate dance known as the period close. This involves the synchronisation of many steps to consolidate, validate and report financial data across the enterprise. As with every well-rehearsed performance, a simple stumble, the introduction of a new dancer or a new step can ultimately ruin the show. Consequently its not unusual for the final numbers to be many days or even weeks old and executives hate making decisions with old information. So the smart CFO strives for a faster and smoother close.

It appears to me there are two schools of thought. One says: “Don’t bother, knock up a quick overs-and-unders analysis and just report what you’ve got. When things change, report again, and again.” That’s a confronting approach for some and I’m not going to elaborate on that today.

The more common close is a plate-spinning, chainsaw-juggling, circus act where people rely on spreadsheets, reams of papers, coloured pens and post-it notes to match and compare, tag and tie and sign off the accounts as true and accurate. Scale and complexity are the things that have blown out this exercise beyond acceptable bounds. In 2014 Ventana Research* discovered that the number of companies consistently closing their quarter or half year within 6 days had fallen from 47% to 38% since 2007.  And only 50% were closing their months within the 6 days, down from 70% in 2007. Ventana described that as “a considerable and worrying decline”, and I think it’s a pretty steep one too. Something has to change.

A typical period close tends to follow a very predictable path: account reconciliations are done on the balance sheet (think spreadsheets); maybe large sets of parallel transactions have to be matched to verify, validate, and discover errors (think print-outs, tag and tying, post-it notes); supporting narrative and documentation are captured (more spreadsheets, more paper, more post-its); reversing, correcting and balancing journals are drafted (spreadsheets again); inter-company allocations may be needed (spreadsheets yet again); review and approve processes are applied (paper forms, email, manual signatures); the draft transactions have to be punched back into the ERP/FMS; and around it goes until the Group Financial Controller calls a halt and the executive get their reports.

This is all concludes in huge amounts of accounting effort, lots of creaky spreadsheets, riddled with manual handoffs and approvals, no visibility of the overall progress at any point in time, with no easy way to spot the bottlenecks and avoid the delays. No wonder it takes too long. And then the auditor comes along and exposes it for what it is, a sticky tape and rubber band process, worse still gives an adverse opinion.

There is another way. It is possible to automatically certify much of the reconciliations. It is possible and much quicker and more effective for a machine to match up lists of transactions. It is possible for defined tasks and workflows to properly orchestrate and report on this elaborate period close. It is even possible to safely and easily introduce new dancers and steps without upsetting the scheduled performance. Read more here  or contact us to discuss how you could close faster.

 

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*Ventana Research (2014), Keys to a fast close.

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