Guide to Avoiding a Year-End Financial Close Meltdown

Year-end financial close

As the year draws to an end, accounting and finance executives are preparing for the financial year-end closing. For many, this is a stressful time. But having a fast and accurate year-end close can bring many benefits to organizations. 

In the final weeks and days of the year, while there is a keen focus on finishing up the year strong and closing the books, it is also important to plan for the new year. This includes finalizing the 2017 budget as well as considerations for upcoming regulatory changes. Pre-planning and preparation make it possible to close out 2016 strong and head into the new year with confidence.

To discuss the topic of financial reporting tips that will help create a smoother year-end close, Host Analytics, in cooperation with CFO.com, invited thought leaders from The Hackett Group to participate in a webinar titled, The CFO Playbook on Financial Reporting: Tips for a Smoother Year-End Close.

The speakers, Kars Stal and Brett Williams, have decades of experience in the finance and technology industry. Kars Stal is a Director with the Enterprise Performance Management (EPM) practice of The Hackett Group. Brett Williams is a Senior Director with Consolidation, Reporting, and Tax Integration for the Hackett Group.  Here are some of the highlights of the discussion.

How to Keep Current with Upcoming Changes
The panelists explained how Hackett defines the financial close process as an integrated process that includes the finalization of ledgers, the collection of data, calculations and adjustments, and then reporting. They described the following as some of the biggest challenges corporations have to face when approaching year-end close:

  • Managing increasing volumes and complexity of data
  • Responding to regulatory changes
  • Accomodating shifts in business strategy - e.g., M&As or leadership changes that impact data models and KPIs
  • Changing competitive environment
  • Technology updates that offer new functionality
  • Cost containment
  • Staffing - motivating workers to be more efficient

Corporate performance management

Pain Points Associated with the Year-End Close

Many of the pain points associated with year-end closing are directly related to manual oversight. These pain points plague CFOs every year. Close examination will show that most of these issues start earlier in the fiscal year and get magnified at year-end.  

  • Financial surprises during year-end review
  • Late-arriving or incorrect data
  • Breakdowns in the process which could have appeared during the monthly or quarterly close, but had not been found until year-end
  • Communication gaps
  • Staff burn-out
  • Technology overload - although not a common issue, it is one that should have a prepared backup plan

Warning Signs that a Year-End Close Needs Improvement
Many of the warning signs have already been mentioned, but many of these have root causes to consider. The warning signs include:

  • Delayed release of financials
  • Internal or external auditor findings
  • Finance staff working long hours
  • Significant manual activities - such as journal adjustments

The root causes of these warnings are outlined below:

  • Lack of adherence to the financial close calendar
  • Lack of a standard Chart of Accounts across divisions
  • No Center of Excellence (COE) or continued improvement program

How Efficient is the Close Process?
The financial close is a process, not an event. An efficient close process begins by knowing where you are and where you want to go. The foundation of an efficient close process is built with the right people, the right processes, and the right technology. An excellent close process is efficient, and accurate - the path requires working together and improving continuously.

The Hackett Group benchmark research shows that world-class companies will consolidate and close the month-end books within 3 days, and report within 2 days. Bottom performers close the books in 10 days or more.  An efficient monthly and quarterly close processes can result in an improved year-end close.

Many companies can be found still closing the books much in the same way as they did 10 years ago. Organizations are often challenged in today's world to reassess and rationalize their close process.

Corporate performance management

Tools and Technologies Designed to Streamline Year-End Close

There have been a number of improvements in financial software technology over the last 10 years that can help streamline the financial close and reporting process.  

  • Enterprise performance management (EPM) platforms that integrate directly with transactional systems and support complex consolidations
  • Financial close process workflow, account reconciliations, and disclosure management software
  • Master Data Management (MDM) solutions
  • Robotic Process Automation (RPA)  tools that automate and reduce manual activities
  • Cloud-based applications that can be deployed quickly and offer robust features and functions to support small, medium and large enterprises

All of these software technologies provide the ability to automate and accelerate the financial close and reporting process.  Thousands of companies are already benefiting from these tools. 

Can a Fast Close be Done Without Automation?
New technologies can help streamline the financial close, but good technology layered over a poor process will hamper the results.  If an organization does not have a good set of rules or a well thought out financial close process, then those same problems will appear in the automated processes.

Key steps to take towards process improvement include eliminating manual steps that are not essential.  Look for opportunities to simplify and streamline the process, while ensuring integrity of the data.  This includes looking at industry benchmarks and implementing best practices. Technology should be leveraged as an enabler of an improved process, not the answer in itself. 

Adapting to New Regulatory Requirements and Standards
An efficient close and reporting process also depends on the organization's ability to accomodate and adapt quickly to new regulatory requirements and reporting guidelines.  Some of the recent changes that must be considered are:

Flexibility in processes and technology are key to adapting quickly to new requirements.

Business Benefits of a Fast Close Process 
Organizations demonstrating a world-class close process realize numerous benefits over the bottom performers.  One of the biggest benefits of a fast close is that the finance team spends less time data gathering, and can focus more time on data analysis. Specific benefits include the following:

  • Financial information is available earlier. This helps management make prompt, informed, and effective decisions.
  • Weaknesses are found and corrected earlier.
  • Early and effective external publication of financial results is viewed as a key indicator of strong financial management.

A faster year-end, and quarterly close demonstrates how seriously the company adheres to its responsibility to report its financial position. It also shows evidence that the organization has sound financial systems and procedures in place and is a good indication of company health. 

To learn more, watch the replay of the webinar, The CFO Playbook on Financial Reporting: Tips for a Smoother Year-End Close.

Watch the Webinar Replay

Posted by on December 28, 2016
Topics: year-end
John O'Rourke

John O’Rourke is Vice President of Strategic Marketing at Host Analytics. With a background in accounting and finance, John has over 30 years of experience in the software industry and 20 years of experience in EPM product marketing at Hyperion Solutions, Oracle and Host Analytics. He has worked with many customers and partners on financial reporting and planning initiatives and has spoken and written on many topics in EPM. John has also held positions in strategic marketing and product marketing at Dun & Bradstreet Software, Kenan Systems, and Decisyon. John has a BS degree in accounting from Bentley University and an MBA from Boston College.

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