Month End Close Optimization: Benefits & Outlook

Just like most everything else in the corporate world, enterprises are looking to decrease process time and enhance capabilities. Finance & Accounting (F&A) departments are certainly not immune to this push. F&A leadership is looking to optimize their month-end close cycles, reducing the number of days it takes and increasing their shareholder value. And similar to other business realms, companies are looking to automation as their ticket to do so.

It used to be the norm for companies to have a 4-5 day month-end close cycle. As recent as 15 years ago, enterprises continued their normal accounting cycles as they had done for decades prior. However, due to the overarching push to transform businesses into new ways of working, all processes have been under the microscope as potential areas for optimization.

Given the very transactional nature of accounting month-end close activities, F&A leaders have leaned into this area as a means to automate where possible, and improve or change processes so they are more relevant to today’s modern F&A world.

So what are the benefits to optimizing your month-end close cycle time?

1.?????Reduce Non-Value Work – for many enterprises, it costs more to pay an Accounting employee to reconcile $481.53 during month end close than it does to write it off, if calculated on a per hour basis. Executives have the opportunity now to shift their mindsets and cut out the activity that doesn’t materially impact their bottom line. In doing so, they decrease the work that isn’t giving appropriate ROI, and in turn, free up capacity during this demanding time for work that is more impactful.

2.?????Enhance Decision Making – as the shift of the function of Finance & Accounting within an organization continues, month-end close cycles are an integral part of the “why”. F&A departments in today’s age are expected to better partner with their respective business units and provide the Financial information that is cornerstone to making informed and strategic decisions for moving business forward. If one can make a decision on how much to buy, where to invest, or who to reallocate, on August 2nd rather than August 8th, they are going to see exponential improvement and return when doing so month over month over month.

3.?????Improve Timeliness – the transactional, manual work that has defined Accounting departments for years takes, plainly put, a lot of time. Manually calculating accruals, manually researching reconciliations, manually allocating expense so it hits the right cost center. It all takes a lot of time. And it’s done month after month. By taking a deeper look at these processes that occur every ~26 days, enterprises will find trends, recurring activity, and clear-as-day opportunities to automate, or systemically generate many of the journal entries needed each month. By leveraging systems, RPA (robotic process automation), or more complex automation, companies will be able to significantly reduce the time it takes to close their books each month.?

Now, while these are recurring benefits, there are some upfront requirements to achieving them. In order for an enterprise to fully leverage systemic optimization and full automation capabilities, there needs to be 1) clean and structured data, 2) cooperative system interfaces, and 3) real-time (or timely) system refreshes. By no means are these three easy requirements. If a company is looking to improve their month-end close cycles, they need to start with these foundational elements. That said, by improving these three areas, companies will see an improvement in more than just month-end cycle times. In turn, they will also set themselves up correctly at the beginning, and then can effectively begin to analyze the processes themselves.

So what is on the deep horizon? Well certain companies, who are highly digitized and have advanced master data management, are already using the future of month-end close capabilities: “continuous accounting”. Continuous accounting is the migration towards real-time business results, at any point within a given month, by automating from batch to continuous processing. This allows business units to make better-informed decisions based on financial data and performance right at the moment they need it within the month. Most large companies are not equipped to execute this at this moment in time, but as companies continue to transform and digital assets continue to increase, this will become more of a widespread reality.

In the meantime, analyzing current-state processes and identifying opportunities for improvement, especially for an activity as prominent and repetitive as month-end close, should only prove a great benefit.