Three signs that your financial closing may be broken

However, despite multiple systems implemented to help the process, plenty of financial closes are invariably broken. For many CFOs and other finance leaders, this is not news. They have been stumbling around the closing process for years, careful not to break anything and simply aiming to finish the process month after month – by any means possible.

Closing for many companies is either endless – meaning that the process could take up to more than 10 days after the month has ended – or wrong – the information is inaccurate and the CFO and stakeholders do not trust the information – or not transparent. Leading companies must demonstrate greater transparency for effective decision-making. 

What are the signs showing that your process is broken?

It can be difficult to know when the closing is broken and in need of fixing. However, from Deloitte’s experience working with various companies, there are three key signs that there are problems with your closing.

 

Many manual steps and no defined procedures

Many companies still rely on manual recurring journal entries, account reconciliation and consolidation, offline Excel spreadsheets and disparate systems. 

This could mean different |people involved in the process |“just know how things get done”. But as the business grows and evolves to meet new opportunities, the same old ways of doing business are not enough, and CFOs know that. 

When the closing is often run |on institutional memory rather |than clear specific procedures, things easily fall apart. Even |with a big ERP system, some companies are still having difficulties dealing with a humongous number of manual journal entries because of the lack of integration of the systems. 

It’s impossible to automate processes without a clear understanding of the dependencies and visibility into the bottlenecks constraining the closing. 

Big chunk of transactions waiting processing at month-end

Traditional accountants expect to summarise all transactions during the month, then check and record at month-end. This leads to a huge workload at month-end and the beginning of the following month. When checking at month-end finds incomplete or incorrect documentation, the corrections might not be able to be completed on time.

 

No access to real-time data

Does your finance organisation encounter frequent surprises at month-end mainly because that is when you have access to accurate data? If so, you are not alone. If that is the only time business leaders have access to data, their decision-making is like bowling with a blindfold on. 

Most people may think new technological capabilities are the answer for this. In fact, technology is not the place to start if your processes are still in a mess. 

It’s time to ask yourself a simple question, “Is it possible to push many of the processes that tend to happen only once a month earlier in the closing cycle?” 

Once you can push the data earlier to drive smarter decisions, it’s just a matter of determining which technology can bring them to life. 

 

Where do you start?

We recommend you to start with defining your target state, how fast you expect and answer yourself why that matters, then understanding all the underlying issues and where they reside in the value chain, such as bottlenecked processes and non-value-added steps.

This is followed by identifying enablers for improvement considering people, process and information technology, prioritising the improvement opportunities – balancing cost and benefit, not over investing– and starting your improvement journey.

 

Our perspectives

We all know there is tangible value to be gained by investing in improving the last mile of finance. Of course, the tangible value to be gained is efficiency. However, the intangible benefit of preserving shareholder value by reducing the negative financial impacts of misstatements and restatements may yield even higher value, as CFOs sign financial statements with more confidence and business leaders have access to useful information for better decision-making.

Unfortunately, there is no “silver bullet” that can transform the closing cycle overnight. It is through a holistic approach that considers factors across all business dimensions including strategy, structure, people, process and technology and continuous improvements that can create a closing and reporting cycle that is highly sustainable and scalable. 

 

MARISA AUNHAVICHAI is the director of the consulting services group of Deloitte (Thailand).