Definition:
Is the routine accounting process in which all transactions and journal entries are recorded into the record keeping system for a particular period by a particular date (and after which the period is closed) in order to produce financial statements both internally and externally.
Why is it important?
The need for a more efficient financial reporting process can be driven by the desire for more cost-efficient process as well as both external and internal stockholders’ demand for faster information. But it is also key to note that the role of the finance department is under transformation. Not only must information be communicated at a higher speed – it must also increasingly support the business and the decision made by management. This requires a change in the role of the finance department from merely provider of information to the role of analyst. An efficient and fast reporting process is key to the transformation. -Ernst &Young – Closing Excellence Report
Month-end can be a very stressful time for finance departments. Management is often eager to get their hands on financial information that will inform their decisions. Developing an efficient, ‘streamlined,’ process for month-end will create a more relaxed environment, free up man hours and ensure that management receives accurate and timely information. When month-end is completed quickly, you can adapt sooner, capitalize on more opportunities and make better strategic decisions. – SBNOnline.com
Common Pit Falls?
The “soft close” – The close process occurs but not a regular schedule. It may occur on different business days every month.
The “continuous close” – more than 15 days after the end of the month you start getting into the following month. Good article on LinkedIn about 5 day close. https://www.linkedin.com/pulse/benchmark-your-accounting-close-doug-ryan.
Bloated Chart of Accounts – the extra details make it more difficult to close the month with error correction and most of the details are not needed. A good resource on this. http://davidparmenter.com/files/The-top-20-mistakes-corporate-accountants-make-article-Sept2010.pdf
Mental and Manual Processes – http://www2.deloitte.com/content/dam/Deloitte/global/Documents/Technology/gx-cons-tech-sap-five-signs-financial-close-process-broken.pdf
How to Improve your team’s close process
Jump Start your improvement by reviewing these month end close check lists:
Institute of Finance and Management
Checklist from RobertScomm.com
Checklist from the Sage Pro Source 7 Procedure Manual
Identify the month end close processes
This is a good time to pull out your month end close check list or your list of team duties. If you don’t have a formal list, that’s ok many teams do not, get a sample month end close check list. Get your team involved and ask everyone on the team to write down all the tasks each member does to close the month. Have each team member write each task on a separate Post-it Note.
If you do not already have a formal list and sense the exercise above might be overwhelming for your team, ask the following three questions instead:
What do you do daily? (Checking bank balances, ACH reports, etc.)
What do you do weekly? (AP check runs, management reports, etc.)
What do you do monthly? (Account reconciliations, borrowing base reports, etc.)
Remember as Steven Covey says, “without involvement, there is not commitment.” This is a great time to start getting your team involved, because you will need their commitment later. Don’t worry if a task is missed it will be discovered and identified throughout the month and can easily be added later.
Organize Your Tasks
Again if you already have an organized month end close schedule of activities just to Add Your Tasks to the Board. Don’t worry many teams don’t have a formal hard schedule. Using butcher paper, a large empty wall, or a white board organize all of the tasks identified in the order in which they have to be completed to close the month on time. Some teams already have a hard deadline of a particular business day or calendar day in which they need the month closed (i.e. Monthly P&L to CEO on business day 9). If you have a hard date, start with that day/date and work backwards placing Post-it Notes on the wall or white board until all of the tasks have been added.
Many tasks will be dependent on other tasks or other departments that’s ok. The goal of this step is to organize the tasks relative to one another. Determine as a team the order of all of your team’s monthly tasks and then match the tasks to the appropriate business days.
Questions you could ask:
1. Is the task actually related to month end close? Can it be delayed?
2. Which tasks are delaying the close process?
a. Can these task be completed earlier?
b. Is the delayed task being blocked by another task?
3. What is the soonest a task can be completed?