Originally published on the Certent Insider blog.
Technology is supposed to save time, and the most successful technologies make it easy to do. With the advent of the automobile, few people continued to try and make the horse and buggy more efficient. But even today’s concept cars still have four wheels and a front-end engine.
The same logic applies to modern financial tools, especially when it comes to the month-end close.
The Least Wonderful Time of the Month
Ask any finance professional what part of their job they like the least, and they’re more than likely to say Financial Close Management (FCM) and in particular, the month-end close.
Working through nights and weekends, cutting, pasting and consolidating data from dozens, if not hundreds of Excel spreadsheets – it’s no surprise FCM is the bane of many finance departments, as a sub-par month-end close can have costly consequences:
- Taking up to 2 weeks to complete, even longer to report;
- Reducing the trust that finance and management have in the final numbers;
- Taking resources away from forecasting, modeling, and other decision-making supports;
- Challenges in meeting the increasing breadth of regulatory reporting requirements;
- Reporting inaccuracies that directly impact companies’ share price and credit rating
In addition to the amount of manual effort involved, another contributing factor to the pains of financial close management is the degree to which companies still rely on standalone spreadsheets. Research from the Financial Executives Research Foundation and Robert Half have shown that 65% of companies still use manual, spreadsheet-driven means for their financial close process.
And the errors that too often stem from this approach come with steep costs. Approximately 20% of companies issuing restatements report a resulting change in credit rating, according to PwC. Not to mention the impact on investor confidence.
FCM: The Devil’s in the Details
While the same could be said of budgeting or forecasting, the month-end close is a different breed of financial management. It’s time consuming, high stress, and done under tight deadlines. And if that’s not enough, it comes around every 30 days.
What’s more, the FCM process requires much more attention to fine-grained detail, often spread out across multiple regions, business units, and subsidiary companies.
The three main phases of FCM all involve multiple tasks that are time-consuming and error-prone at best including:
- Closing: data collection and adjustments, account reconciliation, transaction matching, manual journal entries, intercompany transactions, close workflow and management
- Consolidating: currency translation (ForEx), intercompany eliminations, joint venture and minority interests, company and top-side journal adjustments, sub-ledger systems, accruals, and prepaids
- Reporting: both internal (financial and management dashboards) and external (GAAP, footnotes and disclosures, and regulatory compliance) reporting
From Close Out to Burnout
It’s not hard to imagine the toll Financial Close Management takes on your team at a personal level. A recent CFO Magazine survey highlights this reality in a study of work-life balance. Among the more than 400 finance executives that took part:
- 52% claimed that work stress has had a harmful effect on their health, and
- 68% experienced burnout at some time in the recent past
Simply asking employees to work faster and longer hours can only accomplish so much in terms of accelerating the close cycle, often with disastrous results.
Overtime and burnout lead to turnover, an all too common and costly reality in the finance department. Turnover not only adds to the risk of accounting and reporting errors; according to PwC it can cost up to 65% of an employee’s annual salary just to fill an open position.
The Solution: Automated, Integrated Spreadsheets
How do you bridge the gap between the tools your team knows best, and the growing pressures put on them every month? There is certainly no shortage of technologies available – from mega-vendors to niche software players.
We’ve found the best FCM solutions combine three key ingredients. The first two are consistently at the top of most financial technology wish lists: automation and integration. Whatever application you’re using, it must include:
- Source System Integration: The keystone of automation. Eliminate the manual bottleneck of data collection through real time integration with your existing ERP, GL, or other accounting systems.
- Enterprise-Grade Workflow: Gain control over the entire process with workflow that includes version control, a detailed audit-trail (including footnote disclosure), and easy to assign tasks for contributors.
But no technology is a silver bullet. In fact, many companies already have too many overlapping, sometimes redundant applications for most to be effective.
The third ingredient in the best FCM solutions, and the one application that outperforms all others in adoption, familiarity and flexibility is – Excel.
Excel gets the job done, so don’t try to replace it – find a solution that embraces it.
Find a solution with these ingredients, and you’ll combine the best of both worlds; automating the manual processes that need it, and allowing your team to work with the tools they know best – i.e., spreadsheets. Indeed, with automation and integration, Excel can be the key to working smarter – not harder – and giving your team the morale boost they deserve.