Last Updated: Feb 20, 2024

Although accounting systems and related applications have improved dramatically in recent years, the financial close process often remains inefficient, unreliable and a pain point for many companies. In many cases, the role of Finance has expanded from focusing solely on reporting results to partnering across the organization to support decision making, placing a higher emphasis on both the timeliness and quality of financial information. 

As companies transition toward automation, the keys to an efficient month-end close may be found across the entire function. Streamlining the close provides not only quicker access to financial results and improved decision support but can also generate significant recurring cost savings and more predictable results.

Here are five steps companies should consider to optimize their month-end close process.

Step 1: Document the Process

Surprisingly, many companies don’t formally document the routine steps and processes being performed within each close, relying on habits and repetition to ‘get the job done’. The first step in improving the financial close process is to identify and document all the current steps and activities performed. The documentation should include each system, process and person/role involved and will serve to either establish or validate a formal close calendar and checklist.

The objective of documentation extends beyond identifying, defining and memorializing the end-to-end process—it also encourages the team members involved to critically consider their role in driving the process and challenges them to find improvement opportunities.

Once the overall process, underlying systems, sub-ledgers and manual spreadsheets are identified, teams can search for bottlenecks and pinpoint other opportunities to implement best practices.

Step 2: Identify Dependencies and Persistent Delays

Following the initial documentation, companies should break each element down into sub-processes and discrete tasks to help identify existing and potential dependencies that contribute to delays. These dependencies should then be scrutinized and teams should prioritize removing or mitigating the roadblocks and barriers. Making reasonable estimates might be materially appropriate if actual data is persistently delayed.

This step should also identify significant workload inequities across the team where there may be opportunities to automate data-transfer and rebalance individual tasks from ‘create’ to ‘review and assess’.

Step 3: Review the Chart of Accounts and Account Reconciliations

With the close process evaluated for inefficiencies, management can then analyze the chart of accounts and balance sheet account reconciliations to identify opportunities to implement best practices. As organizations grow, it can be easy for the chart of accounts to become bloated or irrelevant to current business operations.

Organizations should periodically review their chart of accounts and associated cost- and profit-center designations to ensure the structure remains appropriate for the current business priorities. Part of this review should include an evaluation of the account reconciliations. Any account reconciliation that is overly complicated or time-consuming should be carefully reviewed for simplification or automation. At the very least, complicated or material account reconciliations should be completed at the earliest possible point to avoid delays.

Step 4: Analyze Journal Entries and Post Close Adjustments

A high volume of manual journal entries and post-close adjustments typically indicate a flawed estimation process or the presence of a process and control weakness that should be evaluated for improvement.

Post-close adjustments should be further investigated to identify the root cause of the entry. Persistent failures should then be systematically eliminated or remediated.

Step 5: Communicate, Communicate, Communicate

Highly effective finance teams communicate early and often to avoid surprises and delays later in the process. Tools such as close calendars, checklists and process-flow software can effectively avoid confusion and ensure that everyone understands what they should be doing and when. Layering on top of these tools, pre- and post-close meetings can help galvanize and focus the entire group on a common objective and ensure that everyone is operating in unison. Finally, for those sub-processes requiring involvement from parties outside the finance group, routine education, engagement and communication should be instilled to ensure optimal interaction.

The capabilities of most accounting systems and their potential for integration with other applications continues to rapidly advance. When evaluating the existing financial close process, management should identify and challenge any historical precedent with a focus on leveraging recent developments in technology and automation. Logical analysis, solid process flow and project management coupled with a focus on the desired end-state can align everyone on contributing and embracing the implementation of best practices.

This whitepaper contains general information only. By virtue of this whitepaper, WilliamsMarston LLC is not rendering business, accounting, financial, investment, legal, tax or other professional advice or services. The statements contained in this whitepaper are not intended to be a substitute for any accounting literature or SEC regulations. Companies applying U.S. GAAP or filing financial information with the SEC should apply the relevant laws and regulations and consult a qualified accounting advisor.