As a CFO, the buck stops with you to ensure the month-end close is efficient and as timely as possible. More and more, we’re seeing CFOs and their finance teams struggling with the month-end close, which then becomes an arduous process that creates significant pressure. This is particularly the case in companies with outdated or inefficient processes. Our experts in CFO services have collated a list of best practice processes to streamline your month-end close, and ensure your numbers are reliable and accurate. If implemented correctly, these strategies will reduce the time it takes to process any month end accounting adjustments and finalise management reports to just three days.
Common month end activities
Processes that commonly make up the month-end close include:
- Accruals and prepayments
- Updating Fixed Asset Register and posting depreciation
- Reconciliation of balance sheet items
- Posting journals for payroll, income recognition, etc, and,
- Preparation of month end reports.
Your business might be efficient at some of these processes but lagging with others, so it’s important to assess your month-end and consider where you need to improve.
To do this, ask yourself:
- How long is it taking you to close each month?
- How efficient is the process?
- What are your pain points?
- Are you waiting for other parts of the business so you can close?
- How much time are you spending in Excel?
Benefit of a quick month end
The main advantage of reducing your month-end close to three days is that key decision makers have the information needed to make effective decisions sooner. Decisions are made faster and are based on timely information. Information that comes in later than three days can be outdated and either irrelevant or ineffective at supporting good decisions.
Another benefit is that it frees up the finance team to undertake analysis on the month-end results and make recommendations to management. It also enables other business units to maintain focus on their day-to-day as opposed to pulling information together for the finance team.
Importantly, it can also take off some of the heat. If your staff are anticipating a long and inefficient process, they’ll likely experience some stress which could impact their performance. On the other hand, if they’re looking forward to a streamlined process, their morale is probably going to be higher, their performance better – and you might even find staff are taking less sick days around month-end.
How to prevent bottlenecks
When talking with our CFO clients, we’re commonly told that they’ve already reduced their month-end process to as few days as possible. And this is often from clients that are closing in 14 days. In our experience, there is no reason why the month-end close can’t be reduced to three days. Here we discuss some common bottlenecks and how to overcome them:
Delays to invoices being issues and received
This is one of the most common impediments to reducing the month-end process. If the business is still invoicing customers on day five or day six, the finance team can’t even begin the close.
Communicate with the entire business that this makes a big impact, not only on month-end but cash flow. Getting paid faster improves cash flow and frees up the admin team from constantly chasing customers. Implement a process whereby invoices are issued immediately. If your invoices are currently issued at day 10, transitioning from this to issuing immediately will be difficult. You should do this over the course of a few months, perhaps even a year, making the process tighter each month and communicating that immediate invoicing is the end goal.
Similarly, supplier invoices should be in prior to month end. In most cases, you should be able to communicate to your supplier why this is important, and they will accommodate. If not, you could look at accruing those expenses, particularly if you have a reasonably good idea of their amounts.
Delayed credit card statements
This is another common bottleneck. We suggest using expense management software. This allows those that are key in the business and spending money on their credit cards to tell you what those expenses are during the month.
Time pressure at month-end
Our suggestion here is to consider the tasks that you could undertake earlier in the month. For example, if you’re doing a month-end creditors run and you’re paying them on the end of the month, bring that forward until the 24th or 25th. You can still date the payments on the final day of the month for cash flow purposes, but there’s no reason why you can’t complete the majority of this task a little earlier.
Producing the report pack is time consuming
Consider using a monthly template. There’s myriad software available to produce the report pack. If this doesn’t interest you, you can still build a template into Excel. If you’re providing commentary on variances or other areas of the report, make these notes throughout the month. Finally, talk to the users of the reports and find out exactly what they need. We regularly see clients producing 20 or 30 pages, half of which are unnecessary as no one uses this information.
Other bottlenecks and their solutions include:
- Month end journals not completed on time: Enter your journals during the month, or better yet, automate them.
- Incomplete payroll entries: Enter during the month and send reminders to staff.
- Inventory: stocktake during the month and adjust at the end
- Bank reconciliation: Continuous bank reconciliations will prevent build up
- Revenue recognition: Estimate WIP and income in advance.
Achieving the holy grail doesn’t happen without a good deal of change management. As a CFO, you will need to lead the execution of a change management program and follow the steps below to effectively achieve change:
Identify: First, you need to identify and understand the change required. This includes the bottlenecks mentioned above that might cause your close to be inefficient.
Prepare: The next step is to prepare your organisation for change. It’s critical that you communicate to the business that it’s a business-wide project rather than a finance project. Each business unit needs to understand the purpose of this change and their role in the process for it to occur effectively.
Plan: Once you’ve prepared the organisation, you need to set the scope for the project and determine how its success will be measured. This includes setting KPIs for different business units.
Evaluate: Test the processes. Its key here to ensure communication between different business units and management. We need to ascertain whether the steps we’re going to implement to drive change will actually work.
Armed with our top strategies for reducing the month-end close and critical steps to follow to achieve the change, we hope you can begin the process and alleviate some unnecessary stress at month-end.
William Buck recognises that the rapid evolution of the CFO mandate has left resources within the finance function of many organisations stretched to capacity. Subsequently, we have developed a full range of specialist services covering all CFO and finance function competencies. For tailored advice, contact William Buck, and visit our CFO services page to find out the other ways in which we can help.