The financial close process can be a highly stressful time for any finance team, especially when it comes to meeting tight deadlines. The process involves ensuring the accuracy and completeness of all financial records, reconciliation of accounts with various internal and external sources of data, and making sure the final report is ready on time. In addition to this, there may be additional reports that need to be generated such as sales and budget analyses.
Commissioned research was undertaken by Forrester Consulting on behalf of Trintech. 336 financial and IT leaders were surveyed. The study found that 90% of the respondents faced challenges to the financial close process. Challenges to the financial close process can come in many forms. Some of these challenges include:
The study also found that astonishingly, 44% of the respondents highlighted that mistakes induced from manual procedures are amongst their most prominent struggles during financial closings. Technology is a key component of the financial close process, yet outdated systems or inadequate technology can hinder performance and accuracy. Multiple enterprise-resource planning (ERP) instances and third-party tools with integration gaps fuel this issue. Businesses should ensure their systems are up to date and provide features that support the needs of their operations.
Limited budget or personnel can result in a lack of resources available to complete the financial close process efficiently. This can lead to errors, missed deadlines, and a lack of control over the process.
The reconciliation of accounts is one of the most important aspects of the financial close process. Without proper reconciling, errors can occur that lead to inaccurate reports or errors in bookkeeping. This can result in delays as well as significant penalties due to non-compliance with regulations.
Having an inadequate and incomplete set of processes and procedures can lead to confusion and mistakes during the close period, resulting in costly delays and potential compliance issues. Businesses need to have well-defined policies, procedures, SOPs and close checklists in place that are both efficient and easy to understand so that everyone involved can be confident when closing periods.
According to a recent survey conducted by KPMG, nearly 90% of errors related to the financial close process are undetected until after the period is closed. The financial close process must be completed accurately and on time to ensure that all financial information presented is reliable and up-to-date. This includes ensuring the accuracy of both internal and external reports, such as those required for tax filing or investor relations. Properly closing a period also helps to ensure that all transactions are recorded accurately and quickly, which can help to reduce the risk of errors or fraud.
A study conducted by The Hackett Group found that companies with an efficient financial close process are better able to manage cash flow and reduce the cost of operations.
Being able to close periods quickly and accurately allows finance teams to better manage cash flow by understanding how much money is coming in, when it’s due and if there are any delays. This can help prevent cash flow issues before they become a problem, as well as provide insight into how much capital is needed for growth and expansion.
Having visibility into financial performance during the close process gives teams the ability to make more informed decisions throughout the year. It also helps identify areas where improvements need to be made to achieve growth goals.
According to a survey conducted by Grant Thornton, nearly 40% of organizations had experienced financial misstatements due to errors or fraud in the previous 12 months.
Properly closing a period helps to reduce the risk of fraud or errors by ensuring that all financial information is accurate and up-to-date. This minimizes the possibility of incorrect payments or other fraudulent activities and can help protect a business’s reputation and bottom line.
Complying with various regulatory requirements is a key part of the financial close process.
With various regulations in place, businesses need to ensure their financial close process adheres to local laws and regulations. This also increases transparency in financial operations, as it allows companies to better track their finances over time and identify any discrepancies quickly before they become major issues.
According to a survey conducted by Deloitte, over 80% of organizations with an efficient financial close process reported improved decision-making and strategic planning. Having visibility into the financial performance of the business during the close process can help inform decisions related to budgets, investments, expansion opportunities, and more. Additionally, it helps ensure that the organization is taking proactive steps to reach its goals by pinpointing areas of improvement and identifying growth opportunities.
Organizations can take several steps to ensure their financial close process is accurate, efficient, and compliant with applicable regulations. These solutions include:
Automation can significantly reduce the time and effort required to complete the financial close process. Advanced technologies have the capability to open up CFO's time, allowing them more opportunity to invest their valuable resources in business strategy-related activities rather than analyzing financial information which currently occupies 17% of their work week. By utilizing these technology solutions, CFOs can focus on what matters most - creating and maintaining a successful strategy for their organization. Some of the recent automation improvements in the close process include facilitation of journal entries, tasks, and follow-ups through coordinated workflows, automate journal entry validation, introducing ticketing systems and automated checklist among others.
Implementing standardized processes and procedures can help ensure accuracy and consistency during the close period. A recent survey by PwC found that companies with consistent and well-defined processes reported faster close periods.
Training personnel on the financial close process can help ensure accuracy and compliance. A survey conducted by Financial Executives International (FEI) found that organizations that provide training on financial close processes experience an average reduction in errors of 20%.
Having clear responsibilities for each team member helps to ensure that tasks are completed promptly. Businesses need to set expectations and assign roles upfront so everyone knows what they need to do and when it needs to be done.
Performing periodic reviews of the financial close process can help identify areas where improvements can be made. According to a survey conducted by FEI, businesses that perform periodic reviews experience an average reduction in close time of 18%.
Leveraging the latest technologies can help streamline the financial close process and eliminate manual errors. According to a survey by EY, businesses that use advanced technologies for the close process reported an average reduction of 20% in time taken for the financial close process.
Additionally, these technologies provide better visibility into financial data, helping organizations to identify and address any issues quickly.
The importance of a successful financial close process cannot be overstated. By leveraging automation, adequate staffing, effective training, setting clear responsibilities, and periodically reviewing processes, businesses can streamline the monthly and yearly financial close periods to ensure accurate reporting and compliance with regulations. With Tickmarks’ virtual bookkeeping services, businesses can reduce errors and save time while increasing visibility into their finances.
