Finance teams, on average, spend 6.4 days closing the books every month. Considering that this is more than the entire work week’s worth of time, it can be said that the month-end close process is one of the most important tasks for any finance team.
And it’s no walk in the park either: It involves the complex work of reconciling accounts, verifying transactions, and preparing financial statements to ensure that the company’s finances are accurate and compliant with accounting standards.
Due to its time-consuming nature, the financial close can often lead to delays and errors. Many organizations struggle to close their books on time, which can impact their ability to make informed decisions and plan for the future.
To overcome these challenges, finance teams should streamline their workflow by implementing effective strategies to identify and address delays, reduce errors, and improve the accuracy of financial reports.
There are several steps they can take, including automating key tasks, standardizing procedures, and leveraging technology to improve collaboration.
In this blog post, we will explore some of the most effective strategies for streamlining your financial close process.
What Causes Delays In Month-End Close?
Delays can be caused by a variety of factors, often stemming from both organizational and technical challenges. Understanding these causes is essential for implementing effective solutions. Let’s take a look at the most common reasons for delays:
Manual processes, particularly in data entry, are inherently slow and error-prone. In many companies, financial data is still entered, reconciled, and consolidated by hand. This not only increases the risk of human error but also requires extensive cross-checking and validation, which adds to the time taken for closing the books. Additionally, manual data handling can lead to inconsistencies in data interpretation and reporting, further complicating the financial close process.
Inadequate integration of financial systems
Companies use a variety of financial systems or ERPs for different purposes – accounting, customer relationship management (CRM), payroll, etc. When these systems are not properly integrated, it creates data silos where information remains isolated within each system. This lack of integration requires manual data transfer and reconciliation. Efficient integration ensures that all financial information is accurately and seamlessly consolidated, which is crucial for a timely financial close.
Complex financial data
As businesses grow and diversify, their financial transactions become more complex. This complexity can involve multiple currencies, varied revenue streams, intricate tax calculations, and cross-border transactions. Handling this level of complexity requires more time for data gathering, validation, and analysis. Complex transactions often necessitate a detailed review and may require input from various departments, adding layers to the closing process.
Lack of standardized processes
Without standardized procedures, each member of the finance team might follow different methods for similar tasks. Lack of standardization can lead to inconsistencies in data recording and reporting, making the consolidation process more burdensome. Standardized processes are essential to ensure that everyone follows the same steps, uses the same formats, and adheres to the same deadlines, streamlining the entire close process.
Unresolved errors from previous periods
When errors or discrepancies from previous financial periods are not resolved, they can create additional complications in subsequent closes. These unresolved issues often require time to investigate and correct, which can delay the current close process. Furthermore, pilled up errors can have a cascading effect, leading to inaccuracies in financial reports and making it more difficult to obtain a clear and accurate picture of the company’s financial performance.
Outdated or inefficient technology
Utilizing outdated technology or systems that are not optimized for the organization’s current needs can severely hinder the efficiency of the financial close process. Older systems might not support the automation of routine tasks, lack the ability to integrate with other systems, or may not be capable of handling the volume or complexity of current financial data. Often it can result in a slower close process, as more time is needed to work around the limitations of the technology.
Lack of staff or expertise
A common bottleneck in the financial close process is the lack of adequate staffing or necessary expertise within the finance team. During peak closing periods, such as at the end of the fiscal year, the volume of work can overwhelm a small or under-skilled team. Additionally, if the team lacks expertise in certain areas, such as tax compliance or advanced financial analysis, this can further delay the process as they may need to seek external advice or spend extra time on these areas.
9 Key Strategies To Overcome Delays in Month-End Close Process
Now, let’s turn our focus to actionable strategies that can effectively overcome the aforementioned hurdles. With a blend of technology, process optimization, and human resource management, implementing new strategies often comes with its own set of challenges, particularly resistance to change. It is important to manage this transition carefully by clearly communicating the benefits of the new processes and involving the team in the change process.
Here are key strategies to address today to avoid headaches in your next month-end close process:
1) Automate Repetitive Tasks
Automation is a critical solution for speeding up the month-end close process. Fortunately, it’s 2024 and there are now tools that can handle tasks such as data entry, account reconciliations, report generation. By automating these repetitive and time-consuming tasks, the finance team can focus on more complex aspects of the financial close, such as analysis and strategic decision-making. This also enhances the accuracy of financial reports by minimizing human errors in the process. If you’re interested in exploring how DOKKA can eliminate manual work in your closing process, please book a 30-min tour of our platform.
2) Improve System Integration
Fragmented financial systems often lead to data silos and inconsistencies. Integrating systems such as ERP, Payroll, bank and accounting software enables data to flow seamlessly between systems, reducing the need for manual intervention. The integrations ensure that all financial data is consistent, up-to-date, and easily accessible, thereby streamlining the entire close process.
3) Standardize Financial Processes
Establishing standardized closing procedures ensures a consistent approach across the organization. This includes standardizing account reconciliation methods, data entry formats, and reporting templates. Standardization not only simplifies the process for current team members but also makes it easier to onboard new staff and maintain consistency despite personnel changes.
4) Enhance Team Training
A well-trained finance team is more efficient and effective. Regular training sessions on the latest financial tools, technologies, and best practices are essential. Support through mentoring, workshops, and access to external training resources helps the team stay abreast of new developments and improve their skill sets.
5) Utilize Advanced Technology and Tools
Leveraging the latest in financial software can bring significant efficiency gains. Tools that offer features like real-time analytics, cloud accessibility, and scalability are particularly valuable. They can efficiently handle large volumes of data and provide insights that facilitate quicker and more informed decision-making. Financial close management software provides a structured and automated approach to closing the books. These tools often include features like close calendars, task management, and automated controls, which streamline the entire process. They also provide visibility into the close process, enabling better tracking and management of tasks and deadlines.
6) Streamline Collaboration
Effective communication and collaboration within the finance team and with other departments are key to a timely financial close. Implementing regular meetings, clear communication protocols, and using collaborative platforms can help resolve issues quickly. This also ensures that everyone is on the same page regarding deadlines and expectations, reducing delays caused by miscommunication.
7) Allocate Adequate Resources
Investing in the right resources for faster processing is crucial, particularly during peak financial periods. This involves not just staffing, but also ensuring access to the necessary technological tools and software. Assessing the needs for automation resources and providing the finance team with advanced automation tools can prevent bottlenecks.
8) Proactively Address Compliance and Changes
Staying ahead of regulatory changes and ensuring that compliance is integrated into the financial close process is crucial. This proactive approach prevents the need for last-minute adjustments that can delay the close. Keeping abreast of changes in tax laws, financial reporting standards, and other regulations is essential for a smooth and timely month-end close.
9) Conduct Regular Audits and Process Reviews
Regular audits and process reviews are best practices that ensure accuracy and compliance. They also help uncover hidden inefficiencies and areas where the process can be optimized. Regular audits provide insights into how effectively the financial close process is running and highlight opportunities for improvements.
How Technology Can Help in the Optimizing Financial Close Process
Incorporating software into the financial close process goes beyond mere convenience or efficiency; it marks a profound evolution in the management, analysis, and utilization of financial data.
Advanced software solutions not only automate routine tasks but also provide in-depth analytics and real-time data, enhancing decision-making capabilities.
Cloud-based platforms offer increased flexibility and accessibility, ensuring effective management of the financial close process, even in remote working scenarios. With appropriate technology, organizations can significantly reduce the time and effort required for month-end closes, allowing their finance teams to concentrate on value-added activities.