Closing your books at the end of each month might not be the most exciting part of running a business, but efficient and accurate monthly closings are important for any organization. Month-end closings are not only essential to effective fiscal governance, they also provide management with financial information that drives strategic decisions. The sooner management gets good information, the more quickly they can respond — and organizational agility can be an enormous competitive advantage.
Smart Business spoke with Jennifer Henson, a senior business services associate at Sensiba San Filippo LLP, about how businesses are transforming month-end closings from a cumbersome and stressful process into a value driver for their management.
Why is a streamlined month-end process important?
Month-end can be a very stressful time for finance departments. Management is often eager to get their hands on financial information that will inform their decisions. Developing an efficient, ‘streamlined,’ process for month-end will create a more relaxed environment, free up man hours and ensure that management receives accurate and timely information. When month-end is completed quickly, you can adapt sooner, capitalize on more opportunities and make better strategic decisions.
What pitfalls can slow down the month-end process?
Even a well-designed process can become obsolete as needs change or become cumbersome over time. When data is not recorded correctly throughout the month, it creates a tremendous burden on the month-end process. Finance professionals often find themselves looking for missing expenses, searching for expenses that have been entered multiple times or correcting items that were coded or categorized incorrectly.
Process and procedural problems aren’t the only things that can slow down month end. Many companies spin their wheels tracking information in greater detail than is ever needed. A swollen chart of accounts may require detailed tracking that provides no organizational value.
How can an organization simplify and improve the month-end process?
Before you can fix a problem, you first have to recognize it. Look out for signs of stress within your month-end process. These symptoms might include monthly closings dragging longer and longer into the next month, finance professionals putting in significant overtime at the beginning of each month or general tension related to the process.
Once you decide that your month-end closing process isn’t working, you need to diagnose the problem and take corrective action. Do you have a cumbersome process that is creating unnecessary work? Consider simplifying your chart of accounts.
Month-end problems can also be caused by a failure to define and follow effective recording procedures throughout the month. Set strong deadlines for critical tasks and monitor adherence to your procedures. Many of the symptoms that you see during month-end are actually a manifestation of ongoing problems.
Once your ongoing accounting processes and procedures are fine-tuned, there may be opportunity to improve your closing process as well. Analyze your month-end routine. Follow a checklist, but be able to think outside of it. Ask a lot of questions. ‘Why are we doing this?’ ‘Should we be doing this?’ ‘Are there steps in our process that don’t accomplish anything?’
What else should business owners know about month-end?
Financial accounting, which includes the month-end process, is an important function within any business. It can either positively or negatively affect overall business performance. Business owners shouldn’t hesitate to ask for outside help when they need it. Experienced accountants can help setup a system that works for your specific needs. Professional expertise and experience can be very valuable. It can save a lot of time, stress and angst over the long term.
Insights Accounting is brought to you by Sensiba San Filippo LLP