CFOs and corporate controllers are almost always looking to close their company's books (in accordance with all regulations) faster and more efficiently.
In today's fast-paced business environment a faster close means being able to spot and act on problems or opportunities sooner; it also means more time available for accounting staff to perform value-add analysis that can improve business decisions, and that in turn that elevate the finance function into a more strategic partner to the wider business.
Suffice to say there are significant tangible benefits to a faster close. Yet there is also a high cost of the technology needed to move from five to four days, for example. Many companies will need to decide if five days is a "fast enough" close for them to know if the technology is worth it. Looking beyond that, however, the assumption of this article is that some are simply doing it better than others.
To put this idea into numbers: the median finance organization closes the books in seven days. The fastest 25% of companies close the books in five days, and the fastest 10% of companies close the books in four days or fewer. Or looked at another way, the difference between being a median company or a 10th percentile one is at least three whole days of extra time for the accounting team each month.
This data comes from a comprehensive Gartner study of accounting close practices from 2020-2022. Perhaps more interesting than just knowing some companies manage to close faster than others is that the study revealed some common themes amongst companies with similar close times, in effect offering a roadmap to improve the time to close the books, summarized in Figure 1.
Figure 1: Typical actions taken to close the books, by number of days to close
The characteristics of organizations detailed in Figure 1 all align with four broad categories: process improvements; talent and organizational design; policies and procedures; and technology application. Below we will expand on these characteristics as they map to the time to close.
Seven-day close
Companies that sit between the 50th and 25th percentile have a time to close of five to seven days. So, while these aren't the fastest companies to close, they are faster than the majority.
In terms of process improvements, two things stand out. Firstly, these companies are typically holding post-close meetings that allow for continuous improvement by identifying obstacles during the close and improvements that can be made. Secondly, they map the critical path of the close. This can take the form of a list or a process map but what really matters is that tasks needed to complete the close are listed in chronological order so here is a collective understanding of what needs to be completed when.
When we consider talent and organizational design, providing greater authority for the controller to make decisions is a common trait. A controller with authority can standardize geographic or business unit practices and enable easier streamlining of information in the close. Another common characteristic here is the appointment of a global process owner: a full-time, dedicated person (or team) accountable for end-to-end process improvement and standardization.
Looking at policies and procedures, companies that close faster than seven days are using risk and/or materiality assessments to identify work that can be moved away from the quarterly close period, and also are completing a "soft" close on non-quarter months: a method where finance leaders use estimates, in place of a full reconciliation of accounts, to reduce effort and save time in preparing a set of internal financial statements.
Finally, technology use is a big differentiator in close times. To reduce close time below seven days, companies are consolidating enterprise resource planning software into one modern system or ensuring that multiple ERPs are integrated seamlessly. Another key technology differentiator is automating at least 50% of journal entries. Manual journal entries are a substantial time sink for close teams, so reducing this number significantly through materiality thresholds or automation has a big impact on close times.
Five-day close
Holding a pre-close meeting is a common additional process improvement found in companies closing faster than five days. With the close being downstream of several processes, such as accounts payable and receivable, preclose meetings provide an opportunity to identify and manage any possible process disruptions.
Having a staff member reporting through the finance function whose role is entirely devoted to the maintenance, evaluation, configuration and development of finance-specific technologies, systems and tools (AKA a finance IT lead) is the main additional talent and organizational design factor observed in companies that close this quickly.
As with companies that close under seven days, using risk and materiality assessments to identify and shift workloads that don't need to happen in the close period is key. The main difference here is the process is more developed with full elimination of more tasks in the close period.
The key technology marker here was that companies have eliminated ERP customizations. Controllers should be ready to shift their business processes to fit the ERP rather than customizing the ERP to fit the business, because more often than not the processes in the ERP represent best practice across multiple organizations.
Four-day close
The things that finance organizations in the elite 10th percentile of time to close do that others don't are predominantly related to talent, organizational design and technology and there are also clear links between the two areas in the following characteristics.
With regard to talent there are two main aspects. First, accounting staff have a very high degree of digital literacy that enables full use of available technologies: possessing digital competencies of technological literacy, digital translation, digital learning and development, digital bias management and digital ambition. Second, the function has the capability to create and maintain a data governance structure that is key to unlocking the most value from business data.
There are also three main components to technology application in this group of companies. First, ERP systems are used to their full potential and, in most companies, this is not the case often simply because of a lack of awareness about what the full set of capabilities is. Second, the use of an application programming interface, robotic process automation or similar technology to integrate accounting close inputs directly to the ERP system to greatly reduce manual work. Third and final technology application is to ensure reliable inputs from upstream processes such as accounts payable and accounts receivable because finance processes can be disrupted by digitization changes in other functions as finance transformation leaders have limited visibility into individual business teams' strategies.
