6 Steps to Streamlining Your Financial Close Process

A smooth and efficient financial close process is crucial for businesses to maintain accurate financial records and make informed decisions. However, many organisations still struggle with lengthy and error-prone manual processes that can hinder productivity and impede timely reporting. This article will explore six steps to improve your financial close process based on insights from NetSuite, a leading cloud-based business management software provider.
1. Define Clear Objectives
Before embarking on any improvement initiative, defining clear objectives for your financial close process is essential. Assess your pain points and identify areas where efficiency gains can be made. This could include reducing the close cycle time, minimising errors, enhancing data accuracy, or improving department collaboration.
Next, assign responsibility for completing tasks to specific people within the department and hold them to a deadline. Accounting leaders often assume that people on their team know what they need to do, so tasks are managed informally. This approach can work in a small company with only one or two bookkeepers, but it will only scale once a company grows and the number of transactions being processed each month increases.
2. Streamline and Automate Routine Tasks
One of the critical factors that can delay the financial close process is the reliance on manual tasks. Identify repetitive and time-consuming activities that can be automated, such as data entry, reconciliations, and report generation. Leveraging technology solutions, like enterprise resource planning (ERP) systems, can streamline these processes.
Start by avoiding paper wherever possible. Request that vendor send invoices electronically, in XML format, for instance so that they can be imported directly into your accounting system. For suppliers that lack these capabilities, consider purchasing a dedicated scanner with optical character recognition (OCR) software.
Next, stop using spreadsheets to manage allocations, depreciation, and other calculations. Sure, they’re convenient and relatively easy to use. However, spreadsheet data must be manually entered into your accounting system, which increases the risk of errors and takes time.
3. Implement a Standardized Chart of Accounts
A standardised chart of accounts is crucial for maintaining consistency and ensuring accurate financial reporting across your organisation. As the number of monthly transactions increases, the more significant 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 are recorded incorrectly. Correcting that many mistakes take hours if someone even spots the errors.
Therefore, take the time to review your current chart of accounts and streamline it by eliminating duplicate or unnecessary accounts. Ensure that the structure aligns with your reporting requirements and facilitates a more straightforward analysis of financial data.
4. Enhance Communication and Collaboration
Waiting for information from other departments is a common source of frustration and delay. Hence, effective communication and collaboration between finance, accounting, and other departments are essential for a smooth financial close process.
Establish clear communication channels and ensure that all relevant stakeholders are involved. Encourage regular meetings to discuss progress, address challenges, and share updates. Collaboration tools and shared document repositories can also facilitate real-time collaboration, eliminating delays and reducing the risk of errors caused by miscommunication.
5. Conduct Regular Reconciliations
Reconciliations play a vital role in identifying discrepancies and ensuring the accuracy of financial data in accordance with generally accepted accounting principles (GAAP). Implement a systematic approach to regularly reconcile accounts, including bank statements, balance sheets, and intercompany transactions.
Many organisations only review their accounts monthly, delaying the inevitable, as any errors that are found must be corrected. This increases the effort required to close the books and ultimately delays the process. Performing reconciliations more frequently means errors are spotted sooner and can be addressed before the close process begins, saving time. The challenge is finding a way to do so. Automating the process is the key.
6. Automate intercompany consolidation.
Managing the close process is even more challenging for companies with subsidiaries, mainly if multiple ERP or accounting systems exist. The close process can only be completed at the corporate level once each subsidiary has closed its own books. Then, data from each business must be pulled together, put into a standard 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.
The intercompany consolidation process is by far the most challenging and time-consuming aspect of the accounting cycle. It is often done manually, using spreadsheets. Once again, spreadsheets aren’t the ideal way to manage complex calculations. They’re also a poor choice for handling large volumes of data, and, more importantly, they don’t provide a record of data or formula changes. If mistakes are made, spreadsheet can’t be audited to see what went wrong.
Streamlining the financial close process is essential for organisations seeking to improve accuracy, save time, and enhance decision-making capabilities. By following these six steps—defining clear objectives, streamlining, automating tasks, implementing a standardised chart of accounts, enhancing communication and collaboration, conducting regular reconciliations, and continuously monitoring and improving—you can transform your financial close process into a more efficient and effective operation.
Source: Netsuite.com

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