3 Reasons Your Month-end Close Takes Too Long
The month-end close is a necessary ritual that every accounting department abhors, but diligently observes monthly. If you are related to an accountant, you likely have had to plan family vacations around the month-end close. The length of the month-end close varies significantly from company to company. Some companies, large and small, manage their month-end close in three to five days. Others take ten days to close their books. In our experience, the length of the close is inversely related to the employee satisfaction in the accounting department.
If your close is greater than three to five days, here are reasons why your close is taking too long and things you can do to shrink your close while maintaining or increasing accuracy.
Multiple Dependent Steps
Have you ever reviewed all of the dependencies in your accounting close? The results would be surprising. It is important to understand all of the steps in your process and which steps hold up other steps. Working with a client, we identified one major step that occurred on Day 6 of a 10-day close that held up many other steps. By moving up that one step earlier, 95% of the client’s 10-day close was completed in 6 days.
The goal within the accounting organization, understandably, is to ensure the accuracy of the financial statement. Guided by the goal of accuracy, there is a perception that the longer the books are open, the more accurate the financials are. However, when we work with clients, we can often show that their financials are just as accurate earlier using proven methodologies.
Why would two companies in the same industry have 10-day and 3-day monthly close schedules? The answer is generally leadership and the demands of the leaders. The executives with a 3-day close have information earlier and can make changes to their forecasts earlier, change tactics quicker, and get better results more consistently. Assuming both are accurate, why wouldn’t all companies want their results faster?
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