If there’s a single issue that finance professionals around the world agree on, it’s that the financial close is tough. Over 80% of accountants describe it as a “negative experience” that is both time-consuming and distracting from strategic work.
There is also added pressure to close the books quickly, so that financial statements can be used to inform organisational planning and budgeting – a particularly important action in a disrupted business environment. The need for pinpoint accuracy and airtight compliance adds to the stress, as do challenges with collaborating remotely and accessing systems virtually.
But it doesn’t have to be this tough. Simple steps can mitigate the barriers to a smooth financial close while also reducing errors, increasing efficiency and freeing up time. Here’s how.
Document and assign tasks
The finance team must document every step in the financial close process, along with the sub-tasks required to complete them. Capture a comprehensive list which indicates a deadline for when each task must be completed, in addition to where there are dependencies.
Once this information is captured, assign responsibility for completing actions to specific individuals and uphold the deadline. While this is one of the easiest and most basic steps, many organizations are not implementing this as standard practice, costing valuable time.
Perform account reconciliations more often
Account reconciliation is critical. It ensures transactions are recorded accurately, to the correct accounts and in accordance with GAAP. But while reconciliation is one of the easiest ways to identify errors, many organizations only review their accounts monthly because it is a time consuming, largely manual task.
Automation can help perform instant reconciliations so that any errors are addressed before the close process begins. This means using software that employs intelligent matching capabilities to connect bank statements with everything from invoices and credits, to prepayments and expense reports. By automating repetitive tasks, the role of the team instead becomes that of an internal auditor, which reviews the automation setup for material errors and transaction testing, so processes are kept in check.
Reduce the risk of data entry errors
It is no secret that accounting demands accuracy, yet many accounting departments are stuck entering vendor invoices, customer payments and other data manually, with the risk of errors increasing with every push of a button. As computer keyboards aren’t going away it’s impossible to eliminate data entry errors, but they can be reduced.
A good place to start is by avoiding paper wherever possible. Request that vendors send invoices electronically, so they can be imported directly into the accounting system. A dedicated scanner with optical character recognition (OCR) software will provide these capabilities. Similarly, stop using spreadsheets to manage allocations, depreciation and other calculations because, like paper-based systems, spreadsheet data will eventually need to be entered into accounting systems manually.
Manage the chart of accounts effectively
Accountants who use bloated ledgers are also at risk. Coding errors may not happen every day, but they do happen more often than anyone realises. As the number of monthly transactions increases, the more significant errors can become.
While a bookkeeper who has spent decades at the same company might be able to remember hundreds of different account codes and all their permutations, this isn’t the case for everyone and can have major consequences. For example, a half percent error rate isn’t a huge deal when there are only 1,000 transactions. At 10,000, however, it means 50 transactions are recorded incorrectly. Correcting that many mistakes can take hours even if someone spots the errors in the first place.
Make information easily accessible
One of the most common sources of delay is waiting for information from other departments. To close the books, the accounting team needs to know how much revenue was generated. This requires gathering data from sales, project management, and wider operations and should include information on fixed assets and inventory.
Unless accounting teams have access to the systems where this information is stored – such as a cloud accounting system that multiple departments interact with – there’s a heavy reliance on their peers for updates. A unified business management platform integrates accounting, sales, and other departments, providing a single source of data that eliminates the hurdles, frustrations and delays caused by storing information in department silos.
Simplify intercompany consolidation
For organisations with multiple accounting systems across subsidiaries, managing the corporate-level close is even more challenging. Finance teams are forced to manipulate multi-subsidiary data into a common format just to lay the groundwork for reporting to begin, meaning that when mistakes are made, data cannot be easily audited to see what went wrong.
By standardising the systems used organisation-wide, finance teams can better overcome intercompany consolidation barriers. Perhaps most importantly, a single system with multi-entity capabilities will remove the manual data interaction that comes with dealing with disconnected data sets. A unified system will also allow finance professionals to create multiple sets of books with different rules to seamlessly address a variety of financial, tax and managerial needs.
Now is the time to overcome financial close challenges
Tackling the challenges associated with an inefficient close is key to elevating finance to the strategic role it should have. Automation, consolidation and data consistency are key to overcoming these persistent challenges, and will give time, resource and better insights back to the finance team in return. With many traditional accounting practices already ripe for change, and remote working set to continue in 2021, these steps will go a long way towards bringing much-needed sophistication to recurring financial processes.