Closing the books at the end of a reporting period — month, quarter or year — is an essential activity that accounting professionals rarely look forward to. The last-minute rush to send out invoices and pay bills, review and reconcile transactions, post adjustments and perform the many other end-of-month tasks results in long hours, late nights and overtime.
Finance teams also face pressure to complete these tasks quickly and without errors so financial reports can go out. Trying to be fast and error-free at the same time is difficult under the best of circumstances. In the real world, where conditions are almost never ideal, achieving this kind of perfection is even tougher. For an accounting department with limited resources, inefficient processes and outdated software, it's almost impossible.
Is There Something Wrong with Your Financial Close Process?
It's not always easy to admit that a tried-and-true approach doesn't work. Cumbersome financial close processes(opens in new tab) often persist, despite their flaws, simply because that's the way things have always been done. People accept that the errors, reporting delays and other headaches they deal with each close are "normal." As a result, they miss opportunities to improve.
Fortunately, there are several red flags that indicate a company's financial close process is broken:
Lack of documentation. A well-run process begins with a set of clearly defined steps, the order in which they should be performed and, ideally, a timeline for completing them. Without this kind of structure, it's difficult to know if the process is running smoothly or identify problems that may be affecting performance.
In many organizations, however, the financial close process isn't documented. Accounting leaders often assume the people on their team know what needs to be done, so documentation isn't needed. Or, they may simply lack the bandwidth to put the process in writing. Regardless of the reason, tasks are more likely to be overlooked, completed out of order or performed incorrectly when leaders haven’t defined the steps.
Lack of automation. The accounting department is the master record keeper for the business and is responsible for ensuring all financial transactions are properly recorded and posted to the general ledger(opens in new tab). Historically, this has been a manual process, with bookkeepers and accountants spending much of their time reviewing paper documents and performing data entry. This increases the risk of accounting errors.
In many organizations, the financial close remains a largely manual process, despite the ease with which closing tasks can be automated. These companies take significantly longer to close their books and generate reports than those that have automated the financial close. This not only demonstrates that manual processes are inefficient, but because they delay access to critical management reports, this inefficiency can also affect the timing and effectiveness of business decisions.
Over reliance on spreadsheets. Using a spreadsheet application to perform routine accounting tasks, like amortizing expenses, managing revenue or tracking depreciation is another sign of a broken financial close process. The information these spreadsheets contain ultimately has to be entered into the accounting system — an extra step that adds needless risk to the financial close process.
While spreadsheets are useful tools, they shouldn't be used to manage critical data. They're inherently insecure, especially if shared with others, and easily modified, perhaps unintentionally, which can result in accounting errors. And because spreadsheet applications lack detailed audit logs, there is no way to track changes or determine when they were created.
Distributed data. The financial close touches many departments. Accounting may need information from sales or project management to prepare customer invoices. They may require confirmation that goods have been received in order to pay vendors or track inventory data for the balance sheet. Waiting to receive these details is a major frustration for accounting personnel and can add days to the close process.
Ideally, this information should be readily accessible from a central location. This single source of data doesn't always exist, however. Companies often have multiple systems to manage different business process: a CRM system for sales and customer support, for instance; an inventory management system to track inventory. Or they may have multiple accounting or ERP systems — especially organizations with subsidiaries.
Pulling information from multiple places, reformatting and uploading it to the general ledger takes time and requires technical expertise that not everyone has. Moving data between systems also increases the risk of errors that can show up in financial reports if they’re not caught and corrected.
Insufficient controls. A lack of adequate controls is a sure sign that a company's financial close process is broken. Publicly-traded companies in the United States are required to follow generally accepted accounting principles (GAAP) as defined by the Financial Accounting Standards Board (FASB). Many privately-owned businesses either need to or choose to comply with these standards as well.
An effective compliance program helps ensure these rules are applied consistently and protects the company from internal fraud. Good governance also involves strict adherence to internal policies and leading practices. Every company should have a defined hierarchy for approval of purchase requests and payment of vendor bills. Approval requirements and authorization limits must be followed consistently across the organization with no exceptions. Accounting managers must also maintain proper separation of duties between accounts receivable and accounts payable staff. Proper controls not only protect the business but also play in important role in ensuring the integrity of financial statements.
NetSuite Automates the Close Process
NetSuite financial management and accounting software(opens in new tab) automates the close process, helping ensure the timeliness and accuracy of financial reports. With NetSuite, the accounting organization can stop relying on spreadsheets. Revenue recognition, depreciation and other accounting processes can be managed within the accounting system, instead of using a variety of different tools. This saves time and reduces the risk of errors.
NetSuite’s governance, risk and compliance(opens in new tab) capabilities help companies achieve their risk management objectives with built-in processes and automated controls designed to address the increasing complexity of regulatory, operational and industry requirements.
Finally, NetSuite's unified business management platform integrates accounting, sales, shipping and other departments, providing a single source of data that eliminates the hurdles, frustrations and delays caused by storing information in department silos. In combination, these capabilities give companies the ability to accelerate the close process by helping ensure tasks are completed accurately and on time.
Join this live product demonstration webinar(opens in new tab) to learn how NetSuite’s financial management and accounting solutions accelerate the close process.