Month-end close is necessary in providing leadership with critical information that impacts financial decision-making, but it can be a laborious and time-consuming process. Closing the books faster and more efficiently can save money and increase productivity.
There are many challenges that finance professionals face when closing the books, including:
- Increasingly complex accounting standards
- Poor information flow outside accounting departments
- The use of outdated software platform
- Lack of time to develop new processes
- A desire to do things the way they have always been done
Here are 13 ways to face those obstacles and improve month-end close:
1. Increase mid-month activities
Just because something is due at the end of the month, doesn’t mean you have to wait until then to complete it. Based on your reviews, determine what preemptive actions can be taken to complete close activities early.
For example, you can often calculate accrual rates well ahead of the close and make final adjustments later on. In some cases, filing more frequent reconciliations throughout the period will actually decrease review time at the end.
2. Standardize your documentation
By standardizing repeat reconciliations, allocations, and other transactions, you can clearly outline expectations and deliverables to employees. This adds a degree of predictability that most professionals appreciate when creating their to-do lists. In addition, standardized procedures provide a guide for reporting more accurate figures.
However, this must also be communicated, both inside and outside the accounting department. Many non-finance employees might not fully grasp the impact of their contributions to the close, so it is helpful to relay exactly what you need.
3. Understand the activities
Typically, financial activities are either transactional and rules-based or contextual, requiring intimate knowledge of the given market or industry. Understanding the kinds of transactions you are dealing with can help you understand whether to automate them or leave them with the finance team that deals in the corresponding market.
Delineating the types of activities also allows you to identify the factors that connect each of them during the close. Together, this guides your decision-making when developing your processes and operating models.
4. Prioritize journal entries
Preparation and completion times for journal entries can vary wildly. One strategy is to identify the larger entries that require more time first. You will not only complete them sooner in the process, but also may identify ways to make them less cumbersome.
There are various tools you can use to target and organize your journal entries. Project management timelines and network diagrams are a good start for general-purpose use. Larger departments with more robust needs might favor a Gantt chart, while smaller agile teams could find value in Kanban boards.
5. Improve incrementally
Process improvement takes time and is a continuous practice. Making changes piece by piece may not produce dramatic improvements overnight, but it will allow you to evaluate each step and course-correct when needed, which will likely yield greater benefits in the long run.
Tracking process changes in smaller increments also isolates mistakes that can be learned from and fixed. For example, start out by updating close-related tasks such as journal entries and then move onto more complex procedures. Track how long each task requires and record any shifts as you go.
6. Make reviews part of the process
Regular reviews are a crucial part of the change management process. Decide the close timeline and indicators of success up front, and then conduct reviews pre- and post-close (though if this is not possible, a post-close review alone will suffice).
Measure the time it takes to complete each individual task throughout the close. For example, you might segment your invoices by review time versus monetary value to see if your team is spending too much time on lower-dollar invoices. This way, you can set benchmarks, continually measure ongoing processes, and review individual wins and losses.
7. Set realistic expectations
Management will often expect faster close times and immediate benefits following process changes. Don’t allow yourself or your team to become overwhelmed by these expectations.
Instead, provide management a more realistic timeline. Inform them of what you’re doing, why you’re doing it, and what they can reasonably expect. This will prevent undue stress and inaccurate reports.
8. Empower your employees to take ownership
Once formal procedures have been established, employees can take what’s expected and make small adjustments to their own processes. Empowering your employees to optimize their workflows in a way that works best for them motivates your workforce to contribute and promotes compliance.
Not every employee on your team has the exact same responsibilities and professional situation. Push team members to take a personal stake in improving close procedures that is reflective of their role in the organization.
9. Make it a team effort
Having a team dedicated to process improvement—comprising members of the finance department, as well as representatives from other parts of the organization—can ensure that diverse perspectives are shared and the project stays on track.
When establishing a permanent team isn’t feasible, opt for rotating responsibilities. Employees might take turns identifying individual shortcomings with the close process and piloting solutions. This not only invites collaborative approaches to solving problems, but it also encourages each team member to play an active role in the process.
10. Incorporate new talent
If possible, consider adding employees to your close team. It can be helpful to gain insight and perspective from fresh faces who haven’t always been bogged down in the accounting weeds. With many of these processes moving toward technology-focused practices and new software solutions, tech-savvy team members in particular might prove highly valuable.
11. Cross-train key tasks
Cross-training important tasks and responsibilities has become a common practice across industries. Developing skills across the finance team—and the organization at large—will allow close activities to continue even if a team member is out of the office because you won’t be relying on a single individual to get the job done.
Cross-training also fosters a more collaborative and flexible working environment. If you have implemented standardized documentation procedures, cross-training should be a relatively smooth process.
12. Build bridges outside the accounting department
The month-close process extends well beyond the accounting department. Everyone in the organization should understand how they contribute, and this starts with building relationships with those outside of your immediate domain.
One of the biggest challenges to efficient month-end close is the lack of necessary information and documentation, like receipts and purchase reason. Explaining what you need, why you need it, and having a dedicated point of contact can facilitate more open communication and expedite month-end close.
13. Embrace automation
Automation satisfies several of the items on this list. Speed and accuracy are both staples of automated solutions, as is the customization of business processes. These benefits allow employees to focus on tasks that require greater analysis and strategic thinking.
By automating certain processes, such as individual fund distributions, recurring payments, and account reconciliations, you and your employees can ease the close while gaining valuable time to focus on the most critical business tasks. Shameless plug, but Teampay can help here :)