Financial close – don’t lose sight of the end goal

June 2014 | EXPERT BRIEFING | BANKING & FINANCE

financierworldwide.com

The financial close process is the heartbeat of the finance function. Of course, reporting timeliness is crucial, but simply improving the speed of the close cycle is not enough. Deriving real value from the process depends on a quality close. The ability to make strategic business decisions based on the figures relies on complete confidence in their accuracy throughout the entire close cycle, as well as the time to analyse the results post-close. Businesses run on financial information – data integrity and close consistency are not simply nice to have.

Recent research was conducted with a number of Global 1000 companies to understand the gap between perception, reality and best practices for the financial close process within each organisation. Audits of over 50 of these companies revealed high volumes of undocumented processes, reliance on application customisation and manual activities.

Eighty-two percent of financial close processes were found to be run manually, while up to 23 percent of financial close transactions that are formally documented are never actually executed. These are troubling figures when you consider the potential impact on the quality of information delivered. Meanwhile, unnecessary manual labour in each period-end process translated into an average of 142 full-time equivalents, with companies dedicating more than 8300 full personnel days to the close each year.

All hands on deck

Piecemeal manual business and IT processes are commonplace, particularly in growing businesses. Efficient and consolidated reporting is also particularly challenging for global companies, especially for those that are comprised of more than 80 separate legal entities. This latter scenario is particularly applicable to businesses that have grown by acquisition.

This lack of cohesion is very real, though unsurprising. With enormous pressure on IT departments to deliver round-the-clock value with ever tighter budgets, processes and their supporting technologies have often evolved in silos. That is, they are designed, structured, supported and run totally independently of one another. Despite its position at the strategic core of a business, the financial close process has not escaped this fragmented evolution. It’s all hands on deck, but does the left know what the right is doing?

Going around in circles

Reliance on manual processes brings great risk associated with human error, while undocumented processes have a significant impact on compliance and auditability requirements. Uncontrolled spreadsheets, manual reconciliations and offline reporting all contribute to an ineffective close, perpetuating the endless and unnecessary repetition of key tasks.

Businesses that don’t take a structured and unified approach to reporting often suffer a lack of transparency in the financial close. This is particularly true of companies with multiple corporate entities – especially if subsidiaries span a range of different geographies – each with a different employee in charge of financial reporting. In this scenario, financial reports are likely to be repeated on separate occasions and be inconsistent as a result.

Error identification is a particularly unwieldy process to manage when it relies on manual effort, often consuming a vast amount of time and resource. This wasted effort can be avoided through process automation. By simply ticking the ‘test run’ option, processes can be triggered automatically to flag any errors that need attention. Automated error handling is key to keeping critical business processes moving, allowing the finance team to manage by exception rather than by hand.

Insightful analysis

It’s all too easy to concentrate most of the finance team’s effort and resources into just producing the numbers. But without an adequate post-close analysis, what purpose do these numbers serve? Conversations about the financial close process centres all too frequently on time to close rather than the quality of the close. Automation of repeatable financial processes that support the close shifts the value of your most important finance experts from repetitive manual reviews to valuable strategic analysis.

The issues on today’s CFO radar encompass an extraordinarily broad range of considerations and services. They must communicate strategic performance to the board and own the treasury role. They must keep up with a rapidly evolving regulatory landscape while maintaining a focus on better business reporting. All this must be underpinned by an eye for efficiency, control, governance and compliance. Ensuring a quality close that is rapid, effective and insightful has a transformative impact on all these areas of responsibility, providing early access to critical information and driving down operational costs.

Automate for transformation

With this in mind, it is important to note that automation isn’t designed simply to facilitate a race to the bottom for speed of financial close. It is also the key to having confidence and trust in the numbers that underpin the business. Carefully executed automation doesn’t require a complete system overhaul, but rather a process evolution, increasing the value of existing information technology systems to eliminate costly and unnecessary time, effort and energy.

In the same way the Industrial Revolution saw a transformation from reliance on slow, manual effort to a streamlined, automated assembly line process, we now face a Back Office Revolution. This will be essential if businesses are to cope with complexity and break out of the seemingly endless cycle of increasing IT sprawl.

It is time that large organisations find out what is really lurking behind their financial close process and streamline for greater accuracy with less effort. Automated processes give you numbers you can trust – quickly – without the risk, cost or tedium of manual effort. The financial close process is not an end in itself, but a tool to help businesses reach the valuable – and non-negotiable – end goal of better business intelligence.

Neil Kinson is VP EMEA at Redwood Software. He can be contacted on +44 118 977 2200.

Neil Kinson

Redwood Software