The best practices for closing your organization’s books on a monthly basis should be focused on the following principals: accuracy, timeliness and dissemination of relevant information to key internal and external stakeholders. In order to accomplish these objectives, organizations should:
- Develop a vision for the ideal close.
Almost every company has a similar close process goal: we want to reduce our close by x days, or we want to close by day 5. Closing your books within a certain number of days is a great goal, but you must balance quality versus quantity. Identifying the ideal close process includes defining the information needed at each level of the organization in order to support analysis of performance and decision-making, as well as the timelines associated with the delivery of that information.
- De-clutter the close process and focus on close-critical activities.
Clutter in any environment causes distraction and impedes efficient processes. Organizations should evaluate both close and non-close activities that occur during the month-end process. Any non-critical finance activities that are not related to the close should be moved to a different period of time to allow the finance function to focus on the task at hand. In addition, organizations should seek to evaluate opportunities to begin preparing for close activities prior to the beginning of the formal process.
- Evaluate materiality and variance thresholds to speed analysis.
Activities associated with developing estimates for accruals and analyses of variances are often the primary drivers behind extended close timelines. Organizations should seek to evaluate and develop materiality and variance thresholds for each of the different close periods (monthly, quarterly, annually) in order to reduce the amount of effort associated with the close and shortened-close timelines. These thresholds should be set to levels to retain the integrity of the financial and operational information produced as part of the close process.
- Evaluate and remedy upstream issues to speed downstream processes.
Organizations should evaluate upstream processes and systems as part of the overall effort to improve close processes. Often, issues experienced during the close process originate far upstream in other areas of the organization outside of the finance function.
- Project manage the close process from start to finish each period.
The close process should be treated like any other important project within an organization. As such, organizations should apply project management principles to each cycle or leverage technology solutions to manage the process and have visibility into all the activities. This includes pre-close planning and scheduling, milestone calendars, checklists, status meetings and post-close performance reviews. In addition, organizations should establish processes for issue escalation, issue resolution and rapid-decision-making.