Guide to Avoiding a Year-End Financial Close Meltdown

Guide to Avoiding a Year-End Financial Close Meltdown

As the year draws to an end, accounting and finance executives are preparing for the financial year-end closing. For many, this is a stressful time. But having a fast and accurate year-end close can bring many benefits to organizations.

Year-end financial close

In the final weeks and days of the year, while there is a keen focus on finishing up the year strong and closing the books, it is also important to plan for the new year. This includes finalizing the 2017 budget as well as considerations for upcoming regulatory changes. Pre-planning and preparation make it possible to close out 2016 strong and head into the new year with confidence.

To discuss the topic of financial reporting tips that will help create a smoother year-end close, Planful, in cooperation with CFO.com, invited thought leaders from The Hackett Group to participate in a webinar titled, The CFO Playbook on Financial Reporting: Tips for a Smoother Year-End Close.

The speakers, Kars Stal and Brett Williams, have decades of experience in the finance and technology industry. Kars Stal is a Director with the Enterprise Performance Management (EPM) practice of The Hackett Group. Brett Williams is a Senior Director with Consolidation, Reporting, and Tax Integration for the Hackett Group. Here are some of the highlights of the discussion.

How to Keep Current with Upcoming Changes

The panelists explained how Hackett defines the financial close process as an integrated process that includes the finalization of ledgers, the collection of data, calculations and adjustments, and then reporting. They described the following as some of the biggest challenges corporations have to face when approaching year-end close:

  • Managing increasing volumes and complexity of data
  • Responding to regulatory changes
  • Accomodating shifts in business strategy – e.g., M&As or leadership changes that impact data models and KPIs
  • Changing competitive environment
  • Technology updates that offer new functionality
  • Cost containment
  • Staffing – motivating workers to be more efficient

Corporate performance management

Pain Points Associated with the Year-End Close

Many of the pain points associated with year-end closing are directly related to manual oversight. These pain points plague CFOs every year. Close examination will show that most of these issues start earlier in the fiscal year and get magnified at year-end.  

  • Financial surprises during year-end review
  • Late-arriving or incorrect data
  • Breakdowns in the process which could have appeared during the monthly or quarterly close, but had not been found until year-end
  • Communication gaps
  • Staff burn-out
  • Technology overload – although not a common issue, it is one that should have a prepared backup plan

Warning Signs that a Year-End Close Needs Improvement

Many of the warning signs have already been mentioned, but many of these have root causes to consider. The warning signs include:

  • Delayed release of financials
  • Internal or external auditor findings
  • Finance staff working long hours
  • Significant manual activities – such as journal adjustments

The root causes of these warnings are outlined below:

  • Lack of adherence to the financial close calendar
  • Lack of a standard Chart of Accounts across divisions
  • No Center of Excellence (COE) or continued improvement program

How Efficient is the Close Process?

The financial close is a process, not an event. An efficient close process begins by knowing where you are and where you want to go. The foundation of an efficient close process is built with the right people, the right processes, and the right technology. An excellent close process is efficient, and accurate – the path requires working together and improving continuously.

The Hackett Group benchmark research shows that world-class companies will consolidate and close the month-end books within 3 days, and report within 2 days. Bottom performers close the books in 10 days or more.  An efficient monthly and quarterly close processes can result in an improved year-end close.

Many companies can be found still closing the books much in the same way as they did 10 years ago. Organizations are often challenged in today’s world to reassess and rationalize their close process.

Corporate performance management

Tools and Technologies Designed to Streamline Year-End Close

There have been a number of improvements in financial software technology over the last 10 years that can help streamline the financial close and reporting process.  

  • Enterprise performance management (EPM) platforms that integrate directly with transactional systems and support complex consolidations
  • Financial close process workflow, account reconciliations, and disclosure management software
  • Master Data Management (MDM) solutions
  • Robotic Process Automation (RPA)  tools that automate and reduce manual activities
  • Cloud-based applications that can be deployed quickly and offer robust features and functions to support small, medium and large enterprises

All of these software technologies provide the ability to automate and accelerate the financial close and reporting process.  Thousands of companies are already benefiting from these tools. 

Can a Fast Close be Done Without Automation?

New technologies can help streamline the financial close, but good technology layered over a poor process will hamper the results.  If an organization does not have a good set of rules or a well thought out financial close process, then those same problems will appear in the automated processes.

Key steps to take towards process improvement include eliminating manual steps that are not essential.  Look for opportunities to simplify and streamline the process, while ensuring integrity of the data.  This includes looking at industry benchmarks and implementing best practices. Technology should be leveraged as an enabler of an improved process, not the answer in itself. 

Adapting to New Regulatory Requirements and Standards

An efficient close and reporting process also depends on the organization’s ability to accomodate and adapt quickly to new regulatory requirements and reporting guidelines.  Some of the recent changes that must be considered are:

Flexibility in processes and technology are key to adapting quickly to new requirements.

Business Benefits of a Fast Close Process 

Organizations demonstrating a world-class close process realize numerous benefits over the bottom performers.  One of the biggest benefits of a fast close is that the finance team spends less time data gathering, and can focus more time on data analysis. Specific benefits include the following:

  • Financial information is available earlier. This helps management make prompt, informed, and effective decisions.
  • Weaknesses are found and corrected earlier.
  • Early and effective external publication of financial results is viewed as a key indicator of strong financial management.

A faster year-end, and quarterly close demonstrates how seriously the company adheres to its responsibility to report its financial position. It also shows evidence that the organization has sound financial systems and procedures in place and is a good indication of company health. 

To learn more, watch the replay of the webinar, The CFO Playbook on Financial Reporting: Tips for a Smoother Year-End Close.

Watch the Webinar Replay

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How to Select and Communicate Appropriate Financial KPIs

How to Select and Communicate Appropriate Financial KPIs

The concept of financial KPIs, or key performance indicators, has been around for many years. I was first exposed to them in the late 1980s while working in a strategic planning team to create an EIS (executive information system) for my company’s CEO and senior management team. 

This basically involved identifying the key metrics or KPIs the executives wanted to see on their computer screens when they logged on each day.  Once these were determined, we then started developing the reports and charts that would be displayed.  This included metrics related to Sales, Expenses, Employees, and Customers.

EIS example.jpgThe EIS concept was attractive, but the technology back in the late 1980s didn’t lend itself to easily gathering this data and automatically delivering it to the executives’ desktops.  The data had to be manually gathered, entered into static reports and charts, linked to graphic icons in the EIS user interface, and staged on a server for executive access. And since it was so time-consuming to gather and present this data, the EIS systems back then didn’t get rolled out broadly across the enterprise. Many of them died a rapid death.

Qlik_Hi_Res_Dashboard_2.pngFast forward to 2016. Today, the notion of collecting and displaying metrics and KPIs on a dashboard is commonplace.  It’s easily accomplished with today’s data warehouses and BI tools, or with EPM applications directly pulling data from ERP systems and other sources, then rendering the data via reports, dashboards, scorecards, and data visualization tools.  The challenge now is selecting the right KPIs for the company, various departments, and functions – and getting managers to pay attention to them.

These challenges were the focus of a recent panel discussion I moderated for the NYC chapter of the CFO Leadership Council titled “What! They Want KPIs Too?”  The panelists included Ian Charles, CFO of Planful, Michael Facendola, CFO of Truveris, and Adam Millsom, Director at Silicon Valley Bank.

During the event, the panelists discussed how to select KPIs, how to manage and communicate them, and how to adjust them if needed.  Here are the highlights of the discussion.

Best Practices in Selecting Financial KPIs

The panelists agreed that KPI selection should be a combination of a top-down and bottom-up processes that meets the needs of the company and its managers.  The critical point is to ensure the KPIs map to and support corporate goals and objectives.  This could include market share, revenue growth, customer acquisition, operating margins, or other objectives.  The board of directors and investors can play a key role in KPI selection as they determine and shape the strategic direction of the organization.

KPIs can vary by industry and stage of maturity of the company, and within the organization, they can, and should, vary by department or function.  For example, Sales should have very different goals from Customer Support or Marketing.  The panel also recommended using a mix of leading and lagging indicators.  Lagging indicators focus on measuring the past, while leading indicators focus on the future.  An example would be using the results from a customer satisfaction survey (leading) to predict and manage potential churn in your customer base (lagging).

Communication and Management of Financial KPIs

In terms of communicating and managing KPIs, the number of KPIs in focus varied across the panel.  This ranged from 5 per department and 30 for the company – to 130 KPIs that are reviewed weekly.  While that high number might sound extreme, in this case, the panelist’s CEO is very metrics-driven and the executive team has developed a repeatable method of reviewing and discussing these KPIs on a regular basis, and taking action when a metric is not tracking to its targets.

When asked what the best method is for getting managers to buy into and take ownership of their KPIs, the unanimous answer was tying KPIs to compensation.  This can include quarterly or annual bonuses, that are based on a combination of business and departmental or personal results.

In terms of frequency of KPI reporting, this can, and should, vary based on the nature of the business and the specific KPIs.  For example, the sales pipeline may be tracked and discussed on a weekly basis, while revenue and operating margins are tracked monthly or quarterly.  But in all cases, the panelists recommended including KPIs in regular business reviews so that results can be discussed and action can be taken where needed.

balanced-scorecard-dashboard.jpgRegarding the tools used to communicate KPI results to managers, the panelists use a variety of tools.  This ranges from various reports generated by CRM and ERP systems, to a more centralized approach where all KPI data is collected in a cloud-based EPM (enterprise performance management) platform, which creates a single version of the truth for all management reporting.  From there, KPIs and metrics can be rendered and delivered via standard reports, dashboards, or graphical scorecards.

Change Management

The last topic the panel discussed was how and how often financial KPIs should be updated or revised.  The consensus here was that consistency is critical to evaluating and managing performance over time.  Based on this, the panelists recommended that KPIs should not be changed regularly, but given a series of months or quarters to be evaluated before they are revised.

In some cases, a specific KPI may put a spotlight on a particular department or function that they are uncomfortable with.  But if the goal is to impact or incent certain behaviors, the measurement and review of KPIs must be allowed time to run and the results evaluated before being revisited or replaced.

Summary

KPIs are a critical component of an overall enterprise or corporate performance management process.  If selected and managed correctly, they can be powerful in ensuring the individual and departmental plans and initiatives are aligned to corporate goals and objectives, as well as to the strategy of the business.

To learn more about the role KPIs and analytics play in enterprise performance management, check out this recent white paper by Ventana Research.

Download the White Paper

And best of luck in your KPI selection and management!

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Demand for cloud-based applications is rapidly increasing in the office of Finance.  If you're considering cloud products or services, you'll hear a lot of related terms tossed around that can easily be confusing.

Such is the case with the terms “cloud-based” and “SaaS”. Both refer to software and/or related storage capacity that is in the cloud. And while most software vendors now claim to offer SaaS or cloud-based applications, not all of the deployment models are the same.  You can hear what an industry analyst and one cloud customer have to say about this in the recent webinar Navigating the SaaS EPM Landscape.

Hosted Applications

Planful applications involve the software vendor, or a third party, installing a traditional on-premises application in its own hardware infrastructure and Planfuling the application on behalf of the customer. Customers still have their own instance of the software, but it relieves them of the need to set up infrastructure and install the software themselves.

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With the single-tenant cloud model, the legacy software vendor sets up a cloud infrastructure and makes the application available to a number of customers, typically on a subscription basis. Customers are relieved of the infrastructure requirement, and they avoid the high up-front licensing associated with on-premises or Planfuled applications. 

But since customers have their own “instance” set up in the cloud, the upgrade process is still painful and costly, and new releases aren’t rolled out automatically, or frequently.  Also, in many cases, the features offered in the cloud version of the software are more limited than those available in the on-premises version. 

Multi-Tenant Cloud

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Multi-tenant cloud applications are built from the start to be deployed on a shared infrastructure, with a single application code base being shared by a large number of customers. Because the infrastructure and software installation process is eliminated, applications can be provisioned and configured rapidly for new customers. 

The software is sold on a subscription basis, so it removes the up-front licensing costs of on-premises or Planfuled applications.  And since there’s a single code base, all customers are using the same version of the software, which is upgraded automatically, on a frequent basis, at no cost.  

The multi-tenant model is model is typically the lowest-cost approach compared to single-tenant cloud and Planfuled applications.  And this is what really matters when it comes to evaluating SaaS and cloud-based applications.

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The Expanding Role of the CFO and How Technology Can Help

For many years the industry has been talking about the evolving role of the CFO from back-office scorekeeper to strategic advisor and business partner to the enterprise.  So how are we doing in this endeavor? 

Are CFOs increasing their influence on strategy and decision-making across the organization?  This was the focus of a recent panel discussion held by the New Jersey chapter of the CFO Leadership Council titled “The Expanding Role of the CFO.” 

The moderator of the panel was Ian Charles, CFO of Planful.  The panelists included Denise Dettingmeijer, CFO of Randstad North America, Tony Melfi, CFO of Brother International, and Steve Mullin, CFO of The Dallas Group of America. 

The panel members discussed their experiences in expanding the role and influence of the CFO, and Finance, with the CEO.  They also shared best practices and techniques for increasing the value-add of Finance across the enterprise.  Here are some highlights from the discussion.

What new responsibilities are the CFO and Finance taking on?

In addition to the usual CFO responsibilities for Finance and Accounting, the panel spoke about Information Technology (IT) as an area the CFO has increasing focus on.  Technology is integral to the entire business, and it’s a critical component to transformation – along with people and processes.  The panel also spoke about the need to provide oversight on business operations, adding value in areas such as pricing and gross margin management. 

CFO business partner.jpgThe panel also spoke about the role of the CFO changing from compliance and reporting the past, to looking at the future and being a true business partner to the managers across the enterprise.  Line-of-business (LOB) managers are looking for help in running and managing the business.  The panel encouraged CFOs to get involved in setting the strategy with the CEO and board, and in driving the strategy down to the line-of-business level to ensure alignment.

The moderator, Ian Charles, commented that access to data has made Finance a valuable resource to the LOBs to provide analytic support.  This represents a big change in the point of view of Finance.  Many CFOs are embedding Finance analysts into the lines of business and functional areas to provide analytic support while ensuring a strong connection to Finance.

One of the panelists spoke about how Finance has moved from being “overhead” or back-office support – to being lean and efficient, having more responsible for driving growth in the business, supporting new initiatives, and driving investment in people.  Finance can also help the business understand the impact of “digital disruption” and navigate a path to the future.

How has role of CFO changed in relation to the CEO and the board?

bigstock-Executive-smiling-businessman--81133838.jpgOne panelist spoke about the need for the CFO and CEO to work independently on different projects, but to coordinate regularly.  Business is changing rapidly, and the CEO’s role has also expanded.  Other panelists commented that the roles have become more blurred over time.  The CFO has strong input into strategy development now, less on pure oversight, and serves in more of a partnering role with the CEO.  This requires a high degree of communication and coordination. 

With regard to interacting with the board, the panel’s experience varied.  This included working in a privately held company, where there is no board of directors and the CFO works closely with the owners.  This also included working in a private equity, or venture-backed company, where the board is heavily involved with the business and the CFO needs to be tightly engaged.  Increasingly, board members are interested not only in what is being done, but also how things are being done.

It’s also important to recognize that board members can have varying areas of interest and different points of view, and will hear things differently.  So the CFO needs to work hard to keep all board members aligned.

Role of CEO with LOB executives?

Here, the panel spoke about how line-of-business leaders are looking for business advice, not just Finance advice – and this can extend throughout their ranks.  This requires Finance to have keen business focus and valuable input.  Finance also needs operations teams to have Finance focus.  Where there’s resistance to Finance help, the business leaders need to find an opportunity that breaks the ice, build the connection, and then build on that success. 

One panelist commented that, while Sales has been a big area of focus for the CFO, there’s also more interaction now with Marketing.  This includes helping Marketing to focus on the ROI of marketing programs, to manage budgets, and to track key metrics.  This can be challenging as Marketing has historically not been interested in working with Finance or focusing on the ROI of programs and campaigns.  Finance can also help Marketing in contract negotiations and getting the best deal. 

Another panelist commented that some functions don’t want help from Finance, but that’s changing.  This can vary depending on the culture and the people who work in Finance/Accounting.  Finance executives and staff need to be able to add value and prove their worth to the business. 

The new revenue recognition guidelines create a new opportunity and need for Finance and operations to work together more closely.  This includes creating a new dialogue and relationship with Sales, Customer Service, Legal, and Contracts.  Anticipating the impact of these changes early is critical, as is working together to navigate the changes and minimize the impact on the business.

Leveraging New Technologies in Finance – Cloud, Mobile

cloud-computing.jpgMost of the panelists commented that their organizations have been shifting to Planfuled or cloud-based applications to reduce their IT infrastructure costs and maintenance requirements.  This includes Planfuling of ERP systems, using cloud-based CRM systems such as Salesforce.com, as well as cloud-based planning and reporting solutions, such as Planful.  Some of the panelists’ companies are also embracing mobile technologies, especially in empowering managers with information, supporting their Sales teams, and enhancing customer-facing applications. 

All panelists recognized that cloud-based systems provide support for growth and expansion, without the typical internal investments in infrastructure.  And they also recognized that, while most Finance executives have had concerns about the security of cloud-based applications, these systems have proven themselves over time. There’s more comfort with them now.

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This was a lively discussion with many questions from the audience and some great insights from the panelists.  To learn more about the expanding role of the CFO, watch this video interview with Planful CFO Ian Charles.

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What Factors are Driving the Adoption of SaaS and Cloud EPM Software?

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While global IT spending has been flat in 2016, one notable exception has been SaaS business software, which is expected to grow at close to 20% per year through 2020.

SaaS EPM software is part of this growth, seeing rapid adoption now. With SaaS EPM software, businesses can get the financial management tools they need quickly, more affordably, and less reliance on IT. Plus, it’s upgraded regularly, with no disruption to the business, so that businesses always have access to the most current and powerful features.

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