How to Achieve Optimum Financial Close

by Jonathan Collins, 01 January 2011

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topics:
Accounting and Regulations

tags:
automation BPM International Cisco financial close financial consolidation Hackett Group manual input

It’s been ten years since companies started pushing the financial-close envelope to its limits. Cisco Systems was one of the leaders of the ‘virtual close,’ moving from a 14-day window to being able to close the books and produce consolidated financial statements within hours.

As a result, the networking equipment company cut its finance costs in half and was able to provide its executives with the data they needed to achieve sales targets, manage expenses, and make daily decisions that resulted in increased shareholder value.

But data from BPM International, a business performance management consultancy, suggests that while some improvements have been made to shorten average close cycle times, significant improvements have not occurred, the Ciscos of the business world notwithstanding. Indeed, the data suggests that many leading companies actually increased the number of days it takes to close.

In part, that’s because much has changed in the world of finance. In addition to the global financial crisis, finance outsourcing and offshoring have become large topics. Many finance operations have been significantly downsized; complicating the picture still is a set of accounting rules and regulations that are becoming more complex.

This article highlights several aspects of a financial close improvement program. If you have not reviewed your close cycling with an eye toward efficiency, now is this time.

How fast should I close?

Research by the Hackett Group indicates that the top 10% of global companies close their books internally within five days.

Further research by BPM International indicates that there is a direct linkage between the number of days to close and the health of the finance group, finance processes and systems that support the financial close. If your close is taking longer than 30 days, there are significant issues, in plain sight or not, within the financial close process.

Benefits of a faster close

In addition to the cost benefits from the reduction of manual input and reconciliation, a faster close supports better decision-making due to timely access to information. This allows managers to work from the same set of facts. Since the data is timely and consistent, proper behaviour can be measured throughout the organisation. Shareholder value is increased as more time is allowed for analysis of market opportunities, with the reduction of time spent performing the close.

Financial system changes

One of the key aspects of Cisco’s success is that it adopted a fully automated financial system through the organisation. The solution was fully integrated and included an automated financial consolidation system.

Cisco also implemented an automated intercompany accounting system that allowed transactions to occur between entities without the need for accounting and finance intervention.

The final aspect to Cisco’s strategy was leveraging an online analytical processing database that allowed users to run their own ad hoc queries and analysis. This engine had a web portal front end that also allowed for central distribution of reports.

Cisco’s strategy serves as a model for companies improving their systems with reduced financial close as the goal. In summary, the financial systems strategy goals are:

Fully automated financial system including automated financial consolidation system
Automated intercompany accounting system
Online analytical processing database
Web portal

Close calendar

As a finance leader, ask yourself the following questions:
Do you have visibility into the close cycle?
Do you have a standard close checklist? Can you prove that your staff uses it?
Has the checklist been reviewed in the last year?
How are issues captured and resolved?
Do you feel like there is accountability and ownership for all close activities?

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