Why is a Timely Month End Close Important For Your Project Based Business?
Finance and accounting professionals are always looking for the pot of gold at the end of the rainbow and they can’t find it until the books are closed. They are not the only folks in the organization looking for the pot of gold—the CEO, CFO, and COO are too!
You may be thinking to yourself, “Why is it so dang important to close the books quickly?” Let’s explore a couple of reasons below:
- Vital decision-making information is derived from accurate financial information. Being able to concentrate on certain KPIs that drive business strategies is a huge advantage for the company. So, if the data is slow, there is no chance to get those metrics quickly, course correct, and avert a crisis.
- A slow close also is an indicator that your process is cumbersome (chaos: manual and lots of spreadsheets) and therefore it is likely you are using more labor than necessary. Bottom line, a slow close will increase G&A expenditures.
- “We have always done it this way, why change?” This stance will hold the finance and accounting teams back and ultimately hold back the overall business.
- If the close is slow, your underlying functions may also be very slow, like billing, cashflow, accounts payable. Cash is the life blood of every business and you want to make sure all or your accounting functions are performing as well as possible.
It is all about People, Processes, and Tools!
Steps to a Faster Month End Close:
- The organization must all agree that there is a problem. Once you admit you have one, it is time to make a case for change.
- Now that you have admitted there is an issue and you have made a case to fix it, it is time for the executives to make the decision to accelerate the accounting close. With this much needed executive support, change can happen quicker and it’s time to get started.
- Form a tiger team with the vital stakeholders and explore ideas for continuous improvement. If you are not familiar with a tiger team, it is a diversified group of experts brought together for a need. They are usually assigned to investigate, solve, build, or recommend possible solutions to unique situations or problems.
- Just like with any project, there needs to be an established plan. The project will need a detailed plan to help coordinate the moving parts and cross functional tasks. What are we going to do? Who is assigned to do it? and When will it be completed? Having a meeting cadence with the team as well as the sponsors or execs is key. The scope of the overall project will dictate the meeting and coordination needs.
- Create policies and procedures that fit your business. If you are not sure of the difference of a policy and a procedure, here are the definitions. A procedure is the series of steps to be followed as a consistent and repetitive approach to accomplish a particular end-result. A policy is a guiding principle used to set direction in an organization or department. The documentation of the procedure is the policy.
- Selecting the right tool for your organization is critical. Selecting the wrong tool can be very costly to implement and—even worse—costly to maintain. A tool won’t necessarily solve your problems, but it is an enabler to maintain process adherence. You will have more success if you pick a tool that is truly integrated.
- Benchmark other “like” companies to see how long their accounting close is taking. Are you in line with them? Is there an opportunity to gain a competitive edge if your firm was more efficient?
- Just because you have policies and procedures does not mean they are applicable to your organization today or that people are using them.
- Now that you have new shiny policies/procedures and a tool that fits your needs, it is time to enable your people. A training plan must be a part of the ongoing activities to make your finance and accounting team a gold standard for your organization. Since this comes at the end, it is easy to want to skimp on this and save money but trust us, it will cost you down the road.
- Make sure you have the right people in the right jobs. If there are changes that need to be made, make them. You may have a very talented engineer doing accounting. Maybe he is not so great at debits and credits, but he is a wonderful engineer. MOVE HIM! Assess where there are talent gaps and look to make those strategic hires.
- Establish standard KPIs for the accounting close and other financial functions. This will help everyone understand the contribution that the finance and accounting team is making to the overall business goals. It will also help keep your team on track.
- Continuous improvement. Knowledge is the what to and why to. Skills are the how to and Desire is the want to. The intersection of these three is the formulation of habits…in this case, the habit will be to follow the business rules to make the finance and accounting team valued by the entire business.
The finance and accounting team are considered back office but the work they do and the information they provide is the BACKBONE for the entire organization. If you want to learn more about how Unanet can help you with your month end close, read Phase One Consulting Group's success story to learn how they reduced their invoicing process from 20 to 7 days!