When fewer days are devoted to the month-end close, more days can be spent providing finance expertise to organizational initiatives and decisions. By getting a grip on data quality, troubleshooting process glitches, and working ahead, finance teams can save time and put it to good use on higher value projects.
This month’s metric of “cycle time to monthly close” comes from APQC’s General Accounting Open Standards Benchmarking survey. For this open-ended question, the metric is defined as the cycle time in calendar days between running the trial balance to completing the consolidated financial statements. Cycle time is the total time from the beginning of the process to the end, including time spent actually performing the process as well as time spent waiting to move forward.
Of the 2,300 organizations that answered this survey question, the bottom 25% said they need 10 or more calendar days to perform the monthly close process. The top performers, or the top 25%, can wrap up a monthly close in just 4.8 days or less — about half the time of the bottom 25%. At the median are the organizations that need 6.4 calendar days to close out a month’s books.
When I talk to other CFOs about process improvement, they often tell me that their top priority is closing the books faster. Speeding up the process of closing the books each month frees CFOs and finance teams to focus on more strategic priorities. If I can get my books closed in just five days instead of 10, that’s five extra days each month that I can spend on forecasting and decision support with the CEO, planning future projects with department heads, and improving finance reporting and communications. When a CFO can act faster, the entire organization moves faster.
For a lot of organizations, most barriers on the road to a faster monthly close come down to data quality. Poor-quality data can’t be trusted, and it takes a lot of labor to scrub bad data. If you want to shave days off your monthly close time, you need to be sure that data come into your systems clean, and to do that, you need high data standards and good data governance.
If your data are clean, but you’re still hitting time-consuming glitches every month, you probably have process problems. Establish and document monthly procedures for your close cycle and continuously troubleshoot and resolve the sticking points.
It’s also helpful to move as many closing tasks as possible to ahead of the actual month-end, wherever you can. Doing as many tasks as possible before month-end can reduce the work spike that typically characterizes monthly closing. Finance can tackle this by establishing pre-close checklists and activities that can free up time during the close cycle. Pull as much work as possible into pre-closing activities. Identify all reconciliations and journal entries that can be made prior to the end of the month.
Also, use an actual month-end closing checklist. Establish and communicate cut-off periods to the organization’s department leaders and employees ahead of close, so that all departments are aware of when accounting will stop booking actuals and accruals will start being recorded. This goes for everything from contracts from the sales team to invoices entered by the accounts payable team. Maximize use of sub-ledgers to record detailed activity, while posting only the summarized changes to the general ledger.
If your company’s month-end cycle time is on the high end of the range — 10 or more days — ask yourself what you could do with five free days each month. Then, commit to getting a better handle on your data and processes. Not only will you know that your finance team is a top performer, you’ll also free yourself and your team to focus on value-added work.
Perry D. Wiggins, CPA, is CFO, secretary, and treasurer for APQC, a nonprofit benchmarking and best practices research organization based in Houston, Texas.