CFO Success Series: Signs Your Accounting Pillar Requires Shoring Up
Imagine a runner who desperately needs to cut a few seconds off his time. He tries everything: hires new trainers, buys new shoes, drops weight, changes his diet. Nothing works because he doesn’t cut off the cement block tethered to his foot.
Many businesses find themselves in the same shoes, so to speak. They are desperately trying to drive great results with limited capital, but they neglect to take a fundamental step that can affect powerful change. That step is implementing a process that delivers timely and accurate managerial accounting reports.
Without this critical information, business leaders lose their way. They lack the business intelligence to quickly improve operations and keep pace with the competition. It’s tough to get on course when you can’t find the starting line. A small investment in the closing and reporting process can put your business back on track.
Outdated Financials: As Relevant as Yesterday’s News
Good processes consist of a series of actions that result in a specific outcome. For example, the outcome for the financial closing process is accurate managerial accounting reports with meaningful business performance measures.
When it comes to the closing process a phrase you never want to hear is, “Take your time.” Financial information is a decaying asset. The longer it takes to prepare, the less valuable it is. The less valuable it is, the less it is used. The less it is used, the more irrelevant it becomes.
A slow close creates a vicious cycle: critical information is prepared too late to be pertinent. To accommodate for the lack of timely financials, other systems are improvised. Disconnected departmental spreadsheets are used to fill the gap, leaving no place or process to connect the dots. Confusion and chaos become full-time adversaries.
A Slow Close: How Do You Know if You Have Your Own Cement Block?
Signs the closing process is not achieving its full potential include:
- The close is completed more than four days after the period end.
- No formal management review of the financials is done after every close.
- The driving force behind completing the financial reports is an external reason: bank covenant reporting, tax payments, government reporting, etc., rather than a sincere belief it is a key management tool.
- The current financials are not integral to the company’s forecasting system.
- The accounting team is focused on past shortcomings, not getting the most out of the company’s future potential.
- Owners and business leaders are not “pushing” to get the financials as soon as possible each month.
The Advantage of a Streamlined Close
What if you had a more efficient financial closing process? You could expect the following benefits:
- Make quicker and better decisions.
- The accounting team’s focus switches from “scorekeeper” to “business analyst”— a more proactive, strategic role.
- Timely financials are leveraged to build more meaningful forecasts.
- The innovation required to accelerate the close can be used as a platform to drive innovation throughout the company.
- The disciplined review of the closing process will eliminate unnecessary work and create more effective transaction processing systems.
With all those great reasons to close quickly, why isn’t it the regular practice for more companies? The number 1 reason for a slow close is poor financial management. Full stop.
Speeding Up a Slow Close will Boost Your Company’s Performance
The key issue normally preventing the implementation of the quick close is that the changes necessary require company-wide modifications—but the responsibility for the close itself falls in the hands of just a few. Incenting the salesperson in Schenectady to report their sales on time can be a lot more difficult than incenting the salesperson to make a sale. Creating a culture that values business intelligence (Is there anything that should be easier to gather and more important to us than BI on our own company?) is the number one challenge business leaders encounter when facing this problem.
How can businesses overcome this challenge?
- Communicate the purpose for a quick close. The ability to complete a quick close is often driven by a company’s culture rather than its technical capabilities or available resources. Explain the purpose to people throughout the organization. This helps break down the barriers that currently prevent companies from realizing their full potential.
- Apply lean principles or other efficiency systems to financial statements. You can easily measure waste caused by duplication of work, waiting time, or oppressive control structures with simple process flow diagrams and other techniques. These principles can lead to ground-breaking business improvements.
- Let the closers design the close with specific deadlines in mind. They understand how their new demands are going to impact the effort of their upstream co-workers. This enables them to arrange processes that meet their needs without making life miserable for their colleagues. As their product becomes more meaningful and valuable, their contribution to the company grows.
Below is a simple process flow to help you and your team transition from irrelevant managerial reporting to the best in class.
It’s not unusual for companies to cut their closing time in half, with no capital investment, simply by making process improvements.
How would you like to turn your accounting and finance staff into business analysts who help drive margin improvements and growth in your business? With process improvements, you can make better decisions earlier, spend more time on planning, and reduce the cost of preparing and analyzing your financials. And then, you can take a victory lap.
Catch up on our Series – The Defining Attributes of a Successful CFO:
Attribute #1: Accounting
Attribute #2: Finance
Attribute #3: Treasury
Attribute #3: Leadership