6 Steps to Improving the Financial Close Process
11 January 2021
The financial close is an arduous process that finance and accounting staff dread. Tracking down information from other departments, ensuring all transactions have been recorded, and identifying and correcting errors are time-consuming, labor-intensive tasks requiring long hours and overtime. Pressure to close the books quickly so financial statements can be delivered on time, combined with the need for accuracy and intense focus on compliance only add to the stress.
Fortunately, there are a number of steps companies can take to save time, reduce errors and increase efficiency
The Keys to a Faster Close
1. Define and assign.
Document every step in the process and the tasks required to complete them. Your list should indicate when each task needs to be completed and, where there are dependencies, in what order. Next, assign responsibility for completing individual tasks to specific people within the department and hold them to a deadline. This is the easiest and most basic step a company can take to improve the close process and should be standard practice.
2. Reconcile accounts more frequently.
Account reconciliation is a fundamental part of the accounting process and helps to ensure the transactions are recorded accurately, to the correct accounts and in accordance with generally accepted accounting principles (GAAP).
3. Minimize data entry.
Accounting demands accuracy, yet most accounting departments continue to enter vendor invoices, customer payments and other data manually. And the risk of errors increases with every keystroke. Since computer keyboards aren't going away anytime soon, it's impossible to eliminate data entry errors. They can be reduced, however.
Start by avoiding paper wherever possible and stop using spreadsheets to manage allocations, depreciation and other calculations. Sure, they're convenient and relatively easy to use, but spreadsheet data still has to be entered into your accounting system manually, which not only increases the risk of errors, but also takes time.
4. Simplify the chart of accounts.
A bloated chart of accounts invites errors. While a bookkeeper who's spent decades with the same company might be able to remember hundreds of different account codes and all their permutations, most people can't.
Coding errors may not happen everyday, but they happen, and probably more often than anyone realizes. And, as the number of monthly transactions increases, the more significant those occasional errors become. A 0.5% error rate isn't a big deal when there are only 1,000 transactions. At 10,000, however, it means 50 transactions recorded incorrectly. Correcting that many mistakes takes hours, if someone even spots the errors.
5. Improve access to information.
Waiting for information from other departments is a common source of frustration and delay. In order to close the books, for instance, accounting needs to know how much revenue was generated. This requires gathering data from sales, project management, shipping and anyone else who influences revenue. They may also need information on fixed assets, inventory or other data for reporting.
6. Automate intercompany consolidation.
Managing the close process is even more challenging for companies with subsidiaries, especially if there are multiple ERP or accounting systems to contend with. The close process can't be completed at the corporate level until each subsidiary has closed its own books. Then, data from each of those businesses must be pulled together, put into a common format and mapped to the correct fields to allow accurate reporting. Intercompany transactions must also be identified and eliminated. Only then can the parent company finish closing its own books and produce consolidated financial results.
NetSuite financial management helps accelerates the close process by automating manual tasks, reducing reliance on spreadsheets and improving the flow of information across the organization.Smart automation supports more frequent account reconciliation using real-time bank data. Applying a combination of rules-based analysis with machine learning, NetSuite compares banking transactions with internal records, automatically creating journal entries for missing transactions and flagging potential errors for investigation.
Finally, NetSuite's unified business management platform integrates accounting, sales, shipping and other departments, providing a single source of data that eliminates the hurdles, frustrations and delays caused by storing information in department silos. In combination, these capabilities give companies the tools to accelerate the close process by helping ensure tasks are completed accurately and on time.
Source: Oracle Netsuite
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