Innovate: How to Speed Up Your Financial Processes

A financial innovation that will drive value for your business – Process improvement can yield high returns with little or no capital investment.

We live in a world of scarce resources. One of the major challenges business leaders face is how to drive great results with limited capital. In the race for resources many businesses don’t place enough value on preparing timely and accurate financials. This is an area where a limited investment in capital can create large returns for the business.

Every minute spent reviewing the past is a minute not spent on building your future.

The financial process, like many business processes, is made up of a series of actions with a specific outcome in mind. In the case of the financial close, the outcome is accurate financial statements and meaningful business performance measures. Unfortunately, financial information is a decaying asset. The longer it takes to prepare the statements the less valuable the information becomes. The less valuable the information, the less it is used—making the financials even more expendable.

You can see the vicious cycle a slow close creates in a business. When critical financial information is simply prepared too late to be relevant, other systems are improvised to take the place of sound, timely financials. A business can end up with each department running on spreadsheets with no place to connect all the parts. Confusion is common and chaos not unusual.

The benefits gained by improving the financial-closing process include:

• Making quicker and better decisions.
• The accounting team’s focus switches from “scorekeeper” to “business analyst”.
• 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 standard practice for more companies?

The changes to achieve a quick close frequently require company-wide modifications but the responsibility for the close is normally in the hands of a few. Incenting the salesperson in Schenectady to report his or her sales on time can be a lot more difficult than incenting the salesperson to make a sale. That is why the potential for a quick close is often driven by a company’s culture rather than its technical capabilities or available resources. Having a purpose for a quick close and communicating that purpose helps break down the barriers that currently prevent companies from realizing their full potential.

Signs the closing process is not achieving its full potential include:

1. The close is completed later than four days after the period end.
2. No formal management review of the financials is done after every close.
3. 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.
4. The current financials are not integral to the company’s forecasting system.
5. The accounting team is focused on past shortcomings, not getting the most out of the company’s future potential.
6. Owners/executives are not “pushing” to get the financials as soon as possible each month.

Companies who have experience implementing lean and other broad ranging efficiency systems can apply the same principles to preparing their financial statements. Waste due to duplication of work, waiting time or oppressive control structures can easily be measured with simple process flow diagrams and other techniques. These pictures paint a thousand words and can lead to ground-breaking business improvements.

Interestingly enough, all the accounting teams I have worked with in the past enjoyed the challenge of speeding up the close. Employees recognize the value of planning and forecasting for better business results. They also recognize, when financials are not prepared until 12 or 15 days after the end of a period, the value of the information is severely diminished. They know their product, the company’s financial statements and accompanying analysis have a very short half-life as a business planning tool.

Here is one approach to speed things up—let the closers design the close with very specific deadlines in mind. They understand how their new demands are going to impact the effort of their upstream co-workers and can rearrange processes that meet their needs without making life miserable for their colleagues. Our Guide to Financial Process Redesign includes a Process Redesign Workbook. It is a great tool to guide them in building a faster, more effective closing process.

As the closing team’s product becomes more meaningful and valuable, their contribution to the company grows. 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? If the financial close at your company takes more than three or four days you have the potential of doing just that.

Imagine making better decisions earlier, spending more time on planning while reducing the cost of preparing and analyzing your financials.

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