Shift from a Slow Close to a Fast Close

"The month-end closing process tends to be an interminable affair, potentially lasting for weeks.  This slow close causes multiple problems, including interference with ongoing accounting chores, frustration by senior managers and investors who are in the dark regarding financial results, and the increasing possibility of reporting errors as the period being reported upon falls further into the past¹."

Software vendors will tell you that you need a fully integrated enterprise resources planning (ERP) software package starting at six figures on up as the solution to your slow month-end closing process.  Since this is not an option for many small to medium size business controllers, they may feel as though there is no way out of their “slow closing” dilemma.

College accounting programs and the subsequent certifications emphasize close attention to detail and strict accounting rules and regulations.  While this is good, little attention is given to organizational skills, basic project management, and practical techniques for getting accurate financial reports out quickly after a month end.  If these skills were taught, the closing process could be cut down to as little as one day, or, at worst, less than five days.

There are several simple techniques, easily implemented, that can quickly shave days off the closing process at minimal cost:

• Make a list of the steps required to close the books. 
• Avoid the mindset that you have to do all of the closing tasks after the month ends.  Examine your list closely and determine which items can be completed before month end at your convenience.  This process of shifting tasks to before the closing date is where you will reap the biggest reduction in closing time.
• Do not let events such as “when the bank statement arrives in the mail,” dictate the date you will close out the month end.  A bank or loan balance reconciliation is an important task, but they rarely result in material adjustments to month end financial statements.
• Review the month end reporting package with management and determine if all of the information contained in it is necessary right after month end.  Determine if certain items can be cut out and reported on at a later date.  Pay special attention to items that are non-financial in nature and information that tends to be particularly difficult to collect.  The information that is cut from the month end report can be reported on in one or more weekly “flash reports” spreading out the workload for the controller.
• Create a list of standard journal entries for month end to streamline the process.  If your software has the ability to memorize entries or has a standard journal entry feature, be sure to use these tools.  If your standard journal entry list includes entries that have no material impact on the financial statements month after month, eliminate them from the closing process.
• If several divisions or locations are involved and require consolidation, standardize your charts of accounts and automate the consolidation process.  Most accounting software packages have built-in tools to speed up consolidations.  If you are not sure, get help and training.  In addition, there are alternative spreadsheet techniques and inexpensive add-on software packages that make consolidations a snap. 
• Centralize your accounting functions to one location.  This is easier than ever before with current and affordable remote technologies.
• Use estimates.  You know within a few dollars here or there what most of your costs and expenses will be in given month.  Avoid holding off closing because you are waiting for actual bills or other data to come in.  Estimate in cases where you know there will be no material misstatement of the financial statements by doing so.

With few exceptions, the improvements noted here can be implemented in a single month, potentially cutting in half the time required to close the books.  Imagine seeing and solving problems weeks or days earlier.  Turn your monthly financial statements into a current management tool instead of a historical document; develop and implement a faster closing plan today. 

For more detailed information, please contact:
Mike Breier
mikeb@ssh-cpa.com
312.726.8353

¹ Fast Close: A Guide to Closing the Books Quickly, Author Stephen Bragg, published by John Wiley & Sons.