Closing Time!

Like so many other folks born in the 80s, I hear the phrase “Closing Time” and the song by the band Semisonic floods my mind, except that in the accounting world, “one more call for alcohol” turns into “one more call for journal entries”. Ugh. The month-end close process can be relentless and seem like it always ends just in time to start the next month’s close. The elusive “Continuous Close” seems farther and farther away as companies are bogged down by ever-changing regulations, pandemic-related grants/loans, and short staffing due to the Great Resignation.

However, it doesn’t have to be that way! At Executive Allies, our goal is to reduce the number of days to close for each client. When your team is not constantly closing, they have more breathing room, and their focus can be on overall business improvements or special projects to make the entire company better! We can provide this assistance through performing specific tasks in the close process or by evaluating the close process and making key recommendations with a focus on efficiencies and leveraging the tools already at hand.

After going through over 300 month-end closes collectively on our team, we have a few tips on how to make it go more smoothly!

1. Continuous communication

phoneHaving everyone on the team pulling in the same direction is going to make a huge difference in a successful month-end close. And, everyone on the team is not exclusive to the accounting and finance departments – the close process will involve any internal department that plays a part in the month-end close and the team also includes your customers and vendors! If your team is waiting on reports from operations, time cards from the development team, or invoices from external vendors, that is contributing to a slower close. If you want to close in 3 business days, communicate that goal to every person involved in the process in order to make that happen.

Be specific on the date or business day when you need their piece completed. John from maintenance may not have any idea that when he drags his feet in getting you the purchase orders or time cards for his team that it impacts the information used by the CEO in making decisions that directly impact the success of the business! Having clarity of expectations and the part each individual plays can speed up the process just due to a newfound awareness.

2. Keep it simple, silly!

 Accountants love details and love to be exact. While accuracy is always crucial, in some areas, especially in the accruals at month end, estimates can be our friend. The cut-off can be shifted to the 28th or 29th of the month for some accounts that have minimal activity. Posting the journal entries to accrue for utilities, depreciation, or prepaid can be done prior to month end as the information is usually available or can be very closely estimated based on prior year trends or calculations. A difference of $10 on the utility accrual is not going to change any decision made on the financial statements and can be trued up more closely at quarter or year-end if needed. By using estimates and shifting the cut-off date up, these accruals can be shifted from being entered on business day 3 (when the crush of information comes and needs to be wrapped up) to business day negative 3.

3. Automate

underutilizeTake a look at the month-end close process. Are there entries that are the same every month (think prepaid accruals, depreciation, allocation of expenses, etc.)? Can these be made to be automatically entered every month? The majority of ERP systems have the capability to set up recurring entries that are automatically input and can be posted with a click of a button after a quick review.

Additionally, make full use of the applications subscribed to. If you use Expensify for expense reporting, make sure the integration has been set up with QuickBooks or the accounting platform you have. Spending the extra hours to connect the applications will pay off in just a couple of months of exporting data into excel only to import the manipulated data back into the accounting software.

Along that same vein of fully utilizing systems, spend some time learning all the different reports that can be generated by the ERP. Does your current MEC process include exporting multiple schedules into excel to produce a beautiful and detailed spreadsheet after hours of data manipulation? Oftentimes those hours spent each month could be invested to understanding the reporting features in the ERP system to automatically generate the desired reports monthly.

4. Remove steps

stepsTake a look at the steps involved in the process and consider whether any of those steps can be eliminated. Are there reports being produced that no one ever uses? Schedule a time to discuss the financial reports provided by the end users (CEO, board of directors, department heads, etc.) to see which reports they find useful and which ones are placed directly into the shredder (or into a deleted folder). You can also use this time to go over any information or reports that they wish they had or if information can be presented in a more visually pleasing manner. Charts and tables in excel are pretty automatic and can show trends at a glance.

Next, what is the method of delivery, and what is actually delivered? Are there people receiving the reporting package in the mail that would prefer to receive it via email? Are there reports provided that are never opened or even looked at? Identifying the reports and data pieces that are actually utilized by the decision makers might eliminate the need even to produce some of the information at month's end.

5. Never stop closing and improving

dylan-gillis-KdeqA3aTnBY-unsplashMonth-end close should never start on day 0. Creating clear expectations for each person that is involved in the process and fostering an environment where each person truly owns their piece and is held responsible for their duties will result in the entire team pulling in the same direction. The days leading up to month end should be a part of the close process too!

Scheduling a meeting the day after close is complete each month to sit down with the team and evaluate the process on a monthly basis is absolutely crucial. Where were the hang-ups? Which journal entries were made on Day 3 that could have been made on Day -2? It is important that this meeting does not focus on one-off events that can oftentimes be the focus of the blame. Back to the assignment of specific steps in the overall process – each individual needs to take full responsibility for their steps and be held accountable for their results.  

The closing process adds value to the accounting and finance team, but when it becomes all-consuming and does not leave any time for planning or strategizing for the future, teams can become burn-out and bored. Improving MEC will not be easy, but it is doable, and we can help!

Contact us to provide an extra boost in your process!

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