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When you talk to financial leaders today, many say shortening the month end close is important to them. Recent CEB/Gartner surveys report that “90% of finance departments have listed ‘shortening the accounting close’ as one of their top priorities for the last three years”.
But if you measure the progress that is being made, many companies are not meeting that goal. Robert Kugel of Ventana Research says that only 19% of companies are closing in less than 4 days, with a large majority of companies, 39%, closing in longer than 10 days. Let’s begin by focusing on the primary benefits of a faster month end close before we work on solving how to do it.
The biggest benefit to a faster month end close is that it accelerates the company’s ability to change behavior. Let’s look at two different scenarios to explain this benefit.
Scenario One: The company receives financial statements for May at the very end of June, on the 30th. There are issues identified which need to be addressed. Maybe sales are down, maybe margin is lower than expected, and maybe one department is severely over budget. Because the financial statements were not delivered until the end of June, there is no opportunity to change behavior in the month of June. Even though necessary changes have been identified, the company cannot change what as happened in the last 30 days, and the undesirable behavior will continue, with more bad results being reported the next month. The first possible time to correct the behavior is in July.
Scenario Two: The company receives financial statements for May on June 3rd. Upon review, the company identifies that sales are down, margin is lower than expected, and one department is severely over budget. Because the financial statements were delivered so quickly, the company managers can immediately address the issues early in the month of June, greatly increasing their chances to correct the undesirable behaviors quickly and being able to produce improved results in the June financial reports.
Delivering financial statements on day three creates a sense of urgency because your company managers are able to make immediate and actionable change as a result of receiving the financial results faster. Many companies express surprise that shortening the close causes other departments to become more engaged in understanding financial statements. The reason why? They can actually DO something about the next month’s results!
Another benefit of the faster month end close is there is no opportunity to worry over the results. We all know those people in the company who check in frequently to see “how we’re doing” when the numbers aren’t finalized. When the numbers get delivered consistently on day three, month after month, the people who need them stop worrying because they know they can rely on getting them at a precise time and don’t need to check in.
Accomplishing the faster close positions the accounting and finance teams as trusted business partners who drive change in the company. Their act of fulfilling the promise of delivering financial results quickly adds value to their function in the company and is certainly better than being viewed as simply a cost center.
We also gain the opportunity to challenge our accounting team members. It is not unusual to have employees in these departments who are very well educated, and if they are spending all their time working on the very repetitive tasks of closing the month, they don’t get the opportunity to work on more challenging projects like analyzing trends, implementing improved tools, and creating efficiency in other areas. Opening the door for them to be more challenged means we will have more satisfied high achievers on our teams.
We can’t forget when we have ERP software as a tool and we are still taking a long time to accomplish the month end close, it is often that our technique to close the month involves processes outside of the ERP system. Using these other tools slows us down, so changing our processes to utilize our ERP systems more fully is an easy win.
To make a true leap in speed and accuracy with your closing process, you need to drive a paradigm shift in your team’s approach. Faster closings won’t happen by simply doing everything at month end faster; you need to re-organize the entire process and re-design the tasks with a holistic perspective.
The APQC (American Productivity & Quality Center) is the world’s foremost authority in benchmarking, best practices, process and performance improvement, and knowledge management (KM). Data from their most recent Open Standards Benchmarking survey showed that “top performers produce period-end management reports in seven days or fewer. This is more than twice as fast as bottom performers, which take 16 days (or more) to produce the same reporting.”
This five-part blog series will focus on three concepts: Planning, Reduction and Changing the Mindset, and will get you closer to closing the books in three days at your company.
The team at New View Strategies is made up of senior-level consultants with deep expertise in Dynamics 365 Business Central and NAV who have used the software themselves for an average of over 15 years. We understand the frustrations businesses have with understanding how to fit their business processes to how software works. We've worked with many companies to fix their business processes and we can share with you what the winning solutions are easily.
Using our simple current state assessment, we can compare your processes against more successful practices we see used by other companies, make suggestions for training to help your team improve their skills, and tell you exactly how you can more fully utilize your software, increase process efficiency, reduce errors, and introduce automation using tools that already come with the base software.
Learn more about our current state assessment here, read our FAQ, or contact us today to talk about booking an assessment and learn how to be happier with the software you already own!