Smart Finance
Seven steps to a fast close Laatst bijgewerkt: 2 November 2017

I have helped companies improve their consolidation processes for more than ten years. Having financial (control) information available faster, more efficiently and more reliably, is imperative to many companies. Not only for the financial department, but also for other departments and external stakeholders and regulators. The organisations where I work differ, in terms of revenue, from 50 million to 4 billion euros, but higher revenue amounts do not always mean that the consolidation processes are better arranged. Often enough, the opposite applies. However, all these companies have one thing in common: they want their financial figures to be available as soon as possible. In specialised jargon, we call that Fast Close.

What is fast?

When we talk about fast close, we mean performing the consolidation and reporting process as fast as possible, to have the relevant control information available immediately after a period is closed. When would you call this fast? You rank amongst the best companies if you can have your monthly results ready in 3 business days, your quarterly results in 5 business days, your annual results in 10 business days and your budget cycle in 20 days.

Why so fast?

The biggest advantage of closing the period fast is obviously that everyone inside and outside of your organisation will have the relevant control information sooner and can, therefore, look to the future more informed. And if you help Business Managers to make better decisions, in the capacity as Finance Department, you automatically become more of a discussion partner to the business rather than a supplier of information.

In many cases, the reason for fast close is a very practical one: a firm deadline. This not only applies to listed companies. Deadlines for the supply of information are also imposed on many private companies. Deadlines from the board and from management, or from external parties like regulators or government agencies.

Fast is not simple

It might sound like a simple task, consolidating and reporting faster, but it certainly isn’t. If this were the case, many companies would have been able to close their financial periods fast. What is it then that hampers a fast close? A few examples from actual practice:

  • Who doesn’t know them? The somewhat resigned comments like ‘the department is always a little slow to supply the information’ or ‘that’s simply the way it works here’. Fast close only works when the corporate culture accommodates a fast close. A culture in which everyone is motivated to supply fast and people address each other in that respect. In the closing process, it’s the weakest link that determines the end result!
  • Without proper sponsorship from the organisation, it is impossible to make binding work arrangements with all parties involved in the consolidation and budgeting; arrangements that are essential for a well-oiled fast close.
  • Many companies run into complexities that have a negative effect on lead times when they perform consolidations of financial data from the various systems. Think of the consolidation between numerous companies from various countries based on different currencies. Or, information that must be collected from locations with poor accessibility. However, increasingly complex laws and regulations (like IFRS) also make the consolidation processes complex.

Despite these obstacles, many companies still stand to gain much – with clever thinking and a structured approach – in terms of the speed at which they close their financial periods. To achieve this, you must step away from the hectic schedule of daily life and look at your processes, working methods and systems from afar. I recommend, when doing so, that you follow the 7 steps below.

Step 1: first determine what you want

This may seem like an open door, but many organisations reason based on what they know (the current situation). They focus entirely on supplying what they are currently supplying, faster, in most cases, the entire P&L statement and balance sheet. In fact, the priority should be the specific control information, like the sales figures, etc. Why not supply the sales information first, and the rest afterwards? Such phasing will ensure that the most important management information is available first, without being hampered by other figures that take a little longer. The inter-company figures, P&L statement and balance sheet can then be supplied in a subsequent step.

The phasing will differ for each company. Therefore, it is best to first consider what control information is most important to you and your stakeholders. Also, be sure to properly define the term ‘fast’ for your company. How soon do you want information to be ready and when will you be satisfied?

Step 2: analyse the bottlenecks

If you know what you want to supply, and when, you can analyse why that is not working at present by scrutinising the current processes and identifying all existing bottlenecks. During this process, you’ll have to look closely at the various accounting systems (general ledgers) and the ways in which data is supplied and entered, while engaging in discussions with the main involved employees. It is useful to portray the entire process schematically and to mark the bottlenecks. This quickly shows you which parts of the process require improvement and which parts might be better when replaced entirely.

You might encounter various bottlenecks during this step. These problems could be process-based or technical, but may also involve lack of the correct people or the necessary (safeguarding of) knowledge. Don’t just pay attention to the lead times for the steps in the process, but also take note of the quality thereof. Is all financial data complete and correct?

 

Step 3: look at the best practices

You now know which problems to tackle where. But, how do you do that? Luckily, you are not the first one dealing with this. A great deal of what others have come up with in this respect, is reusable, even if you operate in an entirely different sector.

For example, by now we know that one of the main steps towards a fast close is to better establish the inter-company process. By ensuring that all counter parties and accounts are current and correct in the general ledgers and that amounts are adjusted on time. And/or, by agreeing that the requesting party is always right.

In other words, there’s no need to reinvent the wheel, but getting hands-on experts involved allows you to utilise various best practices.

Step 4: redesign your processes

With the practical experience on your side, it’s time to redesign the consolidation processes from the diagram that you devised in step 2. Solutions are chosen and worked out for all bottlenecks, preferably step-by-step. My experience is that it’s better to always design and implement part of the process than to want to do everything at once. This way you’ll experience the effect of the change and can then proceed with the next improvement. However, think about which changes will have the greatest effect and start with those! In most cases, this involves the introduction of phasing and the supply of information and ensuring less dependence on IT knowledge by automatically linking source systems (general ledgers).

Step 5: change the culture

A fast close is mostly human work and therefore depends on the commitment of the people playing a part in the process. Also, if the consolidation lead time is truly determined by the weakest link, everyone involved must be driven to make a positive contribution. In other words, spend enough time to generate involvement by explaining why fast close is so important for your organisation. Explain how the process works, what must happen for it to work and what it will afford you in the end. Informing everyone that they ‘have no choice in the matter’ and assigning work arrangements ‘without any consultation whatsoever’ is certainly not the best way to achieve a fast close!

Step 6: brief the employees

Inform all involved employees of the new working method. Don’t simply focus on their own work instructions, but show them that they are part of a bigger process and that they contribute to a higher purpose. By providing insight into the entire process, their work is put in a broader context and the quality of collaboration will increase. Don’t forget about the people who also supply information that’s needed for the closing process!

Employees will obviously require training in the new working methods, tools and procedures. In other words, invest in proper (online) training programmes and compact, unequivocal work instructions.

Step 7: start using the new process

Now it’s time to start using the (partial) adjustments. Ensure that you start with the technical adjustments and that they work well, before getting the users on board. This certainly applies for adjustments that likely should be made in the source systems, like correcting input errors. Once you’ve started using the adjustments, be sure to frequently monitor how users perceive the new process. What is going well? What is not going well or not working properly? Is the adjustment providing the desired acceleration? You can further refine and optimise the process, based on the experiences, to subsequently introduce new improvements. After all, you are far from done after just one step!

From collecting to analysing

Once you’ve gone through the above steps and you’ve improved your processes and systems iteratively, you’ll see that the periods can be closed off much faster than currently. With smarter processes, enhanced automation and trained employees. This, in turn, saves time and energy for all those involved. This time and energy can then be devoted to analysing the figures, so you can discover the story behind the figures, instead of always just working on collecting them.

What would it mean for you if you could deliver your reporting and analysis within 3 days every month?


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