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        Robert Kugel's Analyst Perspectives

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        Accelerating the Close Makes Business Sense

        As the third calendar quarter draws to an end, most companies will be preparing their financial close, which is part of the ongoing accounting cycle. Periodic closing is a core finance function. Since companies found they could substantially shorten their closing intervals with computer-based accounting systems in the 1990s, there has be an ongoing focus to keep shortening the time it takes to close, and for good reason. For companies that must file financial statements with investors, closing the books sooner provides more time to devote to preparing and organizing the statements. And as regulations shorten deadlines for these filings, it puts pressure on the accounting department to finish this phase sooner. In our last benchmark research, a majority of companies wanted to accelerate their close, especially if it takes more than five business days, and nearly one-third (31%) of companies wanted to shorten their close to have more time for analysis and auditing before publishing their financial statements. Since this data is usually the most important component of a periodic review, a faster close lets assessments take place sooner and therefore become more actionable. Indeed, more than half (58%) of participants in our research said the major benefit of accelerating the close is getting financial or management information out sooner.

        As is usually the case with business issues, there’s no quick fix to shorten a company’s close. As any management or business consultant can attest, if there was one, it would have been done long ago. Our research suggests that the two most likely sources for saving time are processes (both design and execution) and use of technology.

        At the top of the list of process improvements I recommend having a high-level focus on achieving a faster close that includes specific goals and timetables and coupling that with at least quarterly (preferably monthly) reviews of tasks that slow the process down and suggestions for ways to accelerate the close. Our research demonstrates that companies that put these sorts of process management initiatives in place are more than twice as likely to achieve time savings as those without them.

        Technology also can have an important impact on the time it takes to close the books. Our research shows that companies that use a dedicated financial consolidation application close their books faster than those that use desktop spreadsheets. Companies that are heavy users of spreadsheets as part of the financial close commonly find more errors than those that use them sparingly or not at all, and this is not a trivial fact; 60 percent said that they could save at least a day in their closing period if they could eliminate all errors. Interestingly, when it comes to the time it takes to close their books, larger companies (those with 1,000 or more employees) close sooner than smaller ones, probably because larger companies have been able to use technology to overcome the challenges of their more complex accounting environments. And affordable tools are now available that help companies of all sizes speed their close.

        Looking again at the results of that benchmark research, I am reminded of some unappreciated benefits of a clean close faster. Establishing a finance department culture of continuous process improvement can address issues that delay the close and improve the department’s efficiency in other ways as well. Organizations hindered by unnecessary complexity or poor process management can address these problems systemically. Removing these obstacles frees up time for the department to focus on more strategic issues.

        We are interested in assessing whether companies have progressed since 2007 in the closing process, and toward that end we are revisiting the topic in new benchmark research. We invite you to participate in the benchmark.

        As CFOs and controllers begin to consider the performance of their finance department in 2011 and how to improve operations in 2012, I urge those that still take more than five business days to close their monthly or quarterly books at the headquarters level to target a reduction of at least one day each time. They should start mapping out a plan for achieving this goal over the next several months, identifying the process design, process execution, technology and training issues that are contributing to a less than ideal closing time. It will be worth the effort.

        Best regards,

        Robert Kugel – SVP Research


        Robert Kugel
        Executive Director, Business Research

        Robert Kugel leads business software research for Ventana Research, now part of ISG. His team covers technology and applications spanning front- and back-office enterprise functions, and he personally runs the Office of Finance area of expertise. Rob is a CFA charter holder and a published author and thought leader on integrated business planning (IBP).


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