Guide to Avoiding a Year-End Close Meltdown

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

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 efficiently and accurately, it is also important to plan for the new year. This includes finalizing the new budget as well as considerations for upcoming macro changes. Pre-planning and preparation make it possible to close out 2022 strong and head into the new year with confidence.

To discuss the topic of best practices in financial reporting 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 that can be used as a year-end close checklist.

How to Keep Current with Upcoming Financial 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
• Accommodating 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

Year-End Close Challenges

Many of the year-end close challenges and pain points 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 closer to the fiscal year end close date:

• 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 You Need to Improve Year-End Close Processes

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
• Lack of adherence to the financial close calendar
• Lack of a standard Chart of Accounts across divisions
• More time spent on talking about the past than the future
• Talking about the prior month close to the end of the current month

How Efficient is Your Year-End Close Process?

The financial close is a process, not an event. An efficient financial 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 business days, and report within 2 business days. Bottom performers close the books in 10 business days or more. 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.

Year-End Close Tools and Technologies to Streamline the Process

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 Financial 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 financial 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:

• Tightened SEC filing deadlines
• Upcoming revenue recognition and lease accounting guidelines
• New disclosure requirements
• Increased SOX controls

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 year-end 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 and future FP&A. Crafting a repeatable year-end financial close checklist that entire teams can follow creates a faster, more accurate end result. Specific benefits include the following:

• Financial information is available earlier. This helps management make prompt, informed, and effective decisions.
• Process gaps are found quickly and resolved even fasterEarly and effective external publication of financial results is viewed as a key indicator of strong financial management.
• Better alignment with finance and the business on what we did and what are we going to do about it.

A faster year-end 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.