6 Steps to Improving the Financial Close Process
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. Unfortunately, it typically isn't.
Accounting leaders often assume 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 won't scale as a company grows and the number of transactions being processed each month increases.
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). But while reconciliation is one of the easiest ways to identify errors, many organizations only review their accounts monthly. That’s partly because more frequent reconciliation isn't mandated, and partly because it's usually a time consuming, largely manual task.
Reconciling accounts at the end of the month, however, only delays 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.
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. Request that vendors send invoices electronically, in XML format for instance, so 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, 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.
The monthly close process can be time-consuming and labor intensive. Learn how to reduce time, minimize errors, and improve reporting accuracy in this on-demand recording from NetSuite:
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.
Of course, a company's chart of accounts becomes complex for a reason – usually because the business needs to track operational performance and the accounting system is the only way to do it. So, before the chart of accounts can be cleaned up, you need to find another way of tracking performance.
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.
Unless accounting staff have access to the systems where this information is stored, which is seldom the case, they have to rely on their peers for updates. Managers in other parts of the organization don't always share the accounting team's sense of urgency or attention to detail however. Information frequently comes in at the last minute, requires clarification or is incomplete.
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.
The intercompany consolidation process is by far the most difficult 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.
NetSuite Accelerates the Close Process
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. Rather than spending hours combing through thousands of transactions, staff members can now focus on the exceptions. And over time, as the system learns identify errors with greater accuracy, the reconciliation process becomes even more efficient.
With NetSuite, the accounting organization can stop relying on spreadsheets to perform complex calculations like accruals and revenue recognition. And for multi-entity organizations, NetSuite automates intercompany accounting and consolidation. Managing these processes within the accounting system, instead of using different tools, saves time and reduces the risk of errors.
NetSuite also helps reduce errors by eliminating complex account codes. Instead of using the chart of accounts for operational reporting, individual transactions are tagged with operationally-relevant details like department or location. These tags, known as dimensions, can then be used to group and filter data for reporting. Dimensions not only simplify the chart of accounts, they also expand the type and quantity of data that can be tracked.
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: By D. Scott Beaver , Sr. Product Marketing Manager at NetSuite, Wednesday, December 2, 2020
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