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        Robert Kugel's Analyst Perspectives

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        Corporate Controllers: Always Be Closing!

        It strikes me that the motto of successful salespeople – “ABC: Always Be Closing!” – could apply equally to corporate controllers, albeit in the accounting sense. For a while now I’ve been advocating continuous accounting, a holistic approach to managing the finance and accounting function that, in part, emphasizes using technology to distribute workloads more evenly over an accounting period – in effect to always be closing rather than waiting until the end of the month or quarter. Continuous accounting also stresses improving efficiency by automating repetitive processes and enhancing organizational effectiveness by improving data integrity in finance processes.

        By consensus, companies should close their vr_office_of_finance_09_fast_closers_have_more_timely_informationbooks within one business week, yet our benchmark research on the Office of Finance finds that only 40 percent of them are able to meet that goal in their quarterly close. This is not a trivial matter – there are solid business reasons for closing within a week. An important one is that a fast close enables company executives and managers to access essential performance metrics quickly and to take action sooner to address an opportunity or issue. Our research confirms this correlation. Three-fourths (75%) of companies that close their books in one or two business days said they have timely information available to run the company, compared to just 10 percent of those that take more than two business weeks to complete the process. However, despite nearly universal agreement (among 83% of companies in our research on developing a fast close) that it’s important or very important to accelerate their company’s close, we also find that companies on average are taking a day longer to close their quarterly books than they did a decade ago.

        Using ineffective technology certainly plays a role, as I’ve discussed, and a poorly designed or badly executed process is also a barrier to closing quickly. Conversely a well-designed, well-executed process that uses the right technology opens an avenue to accelerating a company’s close.

        Closing the books is a highly definable, repetitive procedure, similar in that way to a manufacturing process. In both cases, attention must be paid to the design of the process. It must be examined step by step to determine, for example, whether there are unnecessary or redundant steps and whether the steps are in the most efficient sequence. The execution of the process must be evaluated to confirm that handoffs between individuals are always crisp and that exceptions are handled quickly. As in manufacturing, it’s important to take a total quality management approach – one in which design of the process and related methods eliminates as many sources of defects as possible. Building quality into the process minimizes the need to spend time discovering the source of a mistake and then fixing it. On average research participants estimated that they could save one to two days in closing if all errors were eliminated.

        vr_office_of_finance_11_automation_speeds_the_financial_closeIn the case of the close, the process should be supported by systems designed to prevent errors from occurring. Our fast close research has led us to conclude that having overly manual processes is a major reason why the average time to close increased over the past decade. Our research also finds a correlation between the degree to which companies have automated their close and how soon they’re able to complete the process: 71 percent of companies that have substantially automated the parts of their close that can be automated said they close their books within six business days, compared to only 43 percent of those that have automated some of their close processes and just 23 percent of the companies that apply little or no automation.

        Technology also supports the objective of distributing workload across periods. Today’s financial software gives companies much more flexibility in how and when they perform their work. However, the classic accounting calendar is so engrained in our minds that almost nobody even thinks about changing it. But it is worth thinking about. The monthly, quarterly and annual cadences of the accounting cycle aren’t set in stone, and adapting them appropriately can make the department and the corporation more efficient and effective.

        Much of what we think of as “normal” bookkeeping and accounting procedures are actually rooted in the centuries-old limits imposed by paper-based systems and manual calculations. Periodic processes that are performed, say, monthly or quarterly developed as the best approach to organizing, coordinating and executing the calculations that are needed to sum up the debits and credits in journals and ledgers. The pacing of these manual systems represents a trade-off to balance efficiency against control. Their timing is the result of having to wait for there to be a sufficient volume of entries to justify taking accountants off line to perform manual summations, adjustments and consolidations. At the same time, companies need to maintain financial control by regularly checking their books for fraud, procedural issues and errors. In practice, weekly was generally too short a period to be efficient, while quarterly was too long to maintain control. That’s why there are so many monthly tasks.

        Even when computers began to be used to automate doing the debits and credits, the old accounting calendars persisted. That’s because the limits of technology forced software companies to use batch processing that could be run on only weekly and monthly schedules. But within the past decade or so information technology reached a threshold to support transformation of core finance and accounting processes by enabling a continuous approach to transaction processing. Technology now allows companies much more freedom to schedule their accounting cycle tasks to distribute workloads across the period. For example, it’s not necessary to do all of intercompany reconciliations and eliminations at the end of the month – it can be done more frequently, reducing the end-of-period workloads, shortening the close, reducing the need for temps and destressing the department. Technology, especially as it affects ERP and financial management systems, can also spread workloads more evenly. For instance, in many cases it’s possible for corporations to cross-post intracompany transactions to eliminate discrepancies at their source. Increasingly ERP vendors are adding analytic capabilities, which I’ve commented on, to these transactional systems to enable a weekly (or theoretically even a daily) soft close. That can substantially reduce the amount of period’s-end work that accounting departments must perform.

        Accounting is a discipline that requires doing things exactly the same way over and over. That provides the necessary consistency. But doing it the same way isn’t necessarily the best way, which is why our definition of continuous accounting includes an emphasis on continuous improvement. “Always be closing” not only suggests spreading workloads more evenly, it also means continually examining the close process, the technology supporting it and human factors for opportunities to shorten it and reduce the time and effort needed for its completion. Controllers who are committed to enabling their finance organization to play a more strategic role in their company should always be closing. With a determined effort, they can reap the benefits of doing that.


        Robert Kugel

        Senior Vice President Research

        Follow Me on Twitter @rdkugelVR and

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        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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