Even as technology revolutionizes the finance function, one fundamental process remains a time-consuming nuisance for many organizations: the financial close.
Investing in the processes and tools needed to speed up your financial close is a worthy cause, and not just for reducing the finance team’s pain and stress. Having trusted, timely financial data helps leaders in finance and other parts of the organization make decisions with perspective and confidence. It also helps finance staff contribute more to the company by giving them more time to analyze the numbers and provide strategic support.
These benefits have convinced many organizations to move toward a continuous financial close.
Let’s walk through the key advantages of a continuous close, common challenges that reduce efficiency and steps you can take to work toward making this innovative strategy a reality.
Understanding a Continuous Close
A continuous financial close refers to a modern accounting approach where financial processes are performed continuously throughout the period, rather than being concentrated at the end of each month or quarter. This means that activities such as reconciliations, journal entries and flux analyses are done on a daily or real-time basis, facilitated by integrated and automated financial systems.
In practice, a continuous close means that financial data is always up-to-date, accurate and ready for review at any moment, reducing the end-of-period workload and allowing for more timely and informed decision-making.
As speed and responsiveness become increasingly important to the success of finance departments, a continuous financial close can provide a major boost. Key advantages of this approach include:
- Enhanced transparency
A continuous close provides a real-time view of financial performance. Stakeholders gain access to up-to-date information so they can analyze trends, identify opportunities and assess risks. This leads to more informed decisions that help your business adapt to changing market dynamics and gain a competitive edge. This transparency can also enhance trust with investors and internal stakeholders. - Improved speed and efficiency
Traditional month-end or quarter-end closes pack a flurry of activities into a short period, often leading to bottlenecks and forcing leaders to wait until after the close cycle is complete to find out about potential issues. In contrast, a continuous close approach supports the constant flow of financial data, helping teams spot problems and decision-makers head them off faster.
This also prevents accounting staff from spending so much time dealing with last-minute accounting problems and changes, freeing them up to spend more time on activities that add more value, such as data analysis and forecasting. - Reduced risk of errors and fraud
Manual data entry and reconciliation are prone to errors and vulnerable to fraud. Reliable integrations minimize the risk of inaccuracies and help protect the integrity of your data while fueling the automation that makes a continuous close possible. Robust controls and real-time monitoring help organizations promptly identify anomalies and mitigate risks to safeguard assets. - Cost savings
The automated processes used to deliver a continuous financial close can result in significant cost savings for your organization. Reduced reliance on manual work, less time spent correcting errors and better allocation of resources can all contribute to overall cost reductions. - Facilitated audit and compliance
Audits can be resource-intensive, requiring extensive time digging for documents and verifying processes. A continuous financial close makes financial data readily accessible and auditable throughout the accounting period so auditors can access up-to-date financial information at any time. This can reduce the work your company must do to prepare for the audit and assist auditors in conducting more timely and efficient reviews.
7 Key Obstacles to a Continuous Financial Close
If moving to a continuous close was simple, more businesses would have already done it. There are several common challenges that can stand in the way of reaching this goal and that your team will need to address.
1. Collecting information from across the organization
Gathering financial data from various departments and subsidiaries can be time-consuming, especially if there’s a lack of standardized processes for collecting data.
Finance staff often spend too much time communicating with and tracking down stakeholders to get all the information they need. The shift to remote work has only exacerbated this issue with less face-to-face interaction, time zone differences and asynchronous work schedules.
2. Inefficient communication and collaboration
Effective communication and collaboration among finance and accounting teams and with other departments involved in the close process is often a struggle. If teams rely on sharing spreadsheets via numerous communication channels, such as project management tools, emails and chat apps, it can make it difficult to find information and can lead to misunderstandings, delays and mistakes. That means more last-minute changes that further impede efficiency and prolong the financial close process.
3. Fixing and normalizing data
When your staff finally does get that data from other teams, it’s often littered with inconsistencies and inaccuracies that are the product of manual entry errors, differing accounting practices or systems using different formats. The research and effort necessary to validate and normalize this data adds to the time employees spend on administrative rather than strategic work.
4. Complying with regulations
Meeting various regulatory requirements, such as Generally Accepted Accounting Principles (GAAP), International Financial Reporting Standards (IFRS), Sarbanes-Oxley, and other local and industry-specific standards requires adherence to specific guidelines.
The web of tax codes across different jurisdictions adds another layer of complexity, especially if you sell online to customers all over the country or globe. Ensuring compliance manually can be difficult, time-consuming and sometimes require help from outside experts. Failure to comply can bring severe consequences, including penalties, fines, restatements and more rigorous audits.
5. Outdated tools
Relying on spreadsheets or legacy systems for financial close activities can hinder efficiency and accuracy because they require a lot of manual work and limit transparency. These tools may also lack the functionality needed to handle large volumes of data or perform complex calculations, leading to errors and inefficiencies.
6. Meeting tight deadlines
Time constraints present a fundamental challenge in the financial close process. It’s not just reviewing transactions, fixing errors and creating journal entry corrections that eat up time, but also tasks such as verifying depreciation and revenue recognition calculations. Balancing the need for completeness and accuracy with the imperative from leaders for timely financial insights strains the accounting team.
7. Lack of automation
At the root of many of these challenges is insufficient automation. The absence of automated workflows for tasks such as data reconciliation, journal entries and financial reporting can prolong the closing cycle and increase the risk of inaccuracies.
7 Steps to Overcome Complexity In the Financial Close
Organizations that want to assist their finance teams in closing the books faster and moving toward a continuous close should consider the steps below.
Implementing the processes and systems to support this entire framework may feel like a long shot right now, but know that each marks a big step forward, and each delivers immediate benefits on its own.
1. Start with accurate and consistent data
Accurate and up-to-date financial information from across your business is the starting point for a faster close. Look for a system that can automatically track and compile financial data from across your company in one place by easily integrating with all source systems. You should have visibility into this data from source to reports, and it should be easily accessible to everyone who needs it.
2. Consolidate balances in one system
By consolidating general ledger trial balances within a single system capable of financial consolidation, reporting and account reconciliation, you can be more confident that information is accurate and complete, so you spend far less time checking and fixing data.
This system can then create a single trial balance load that feeds into all reporting processes, including account reconciliations.
3. Automate transaction matching and reconciliations
Reconciling accounts more efficiently and more often not only requires automating reconciliations but integrating them with the financial close. Once you load that trial balance, it can ideally match transactions to corresponding invoices and purchase orders.
A system with this capability eliminates much of the manual work, as an employee only reviews discrepancies or unmatched transactions the software flagged. That makes for a much faster reconciliation process.
4. Simplify close management and consolidation processes
Close management and consolidation processes are critical to accurate reporting, serving as the foundation for regulatory compliance and transparency. Whether the organization is privately owned or publicly held, reporting for external stakeholders must be accurate, timely and compliant with GAAP, IFRS or other requirements.
The right software can automate much of data collection, reconciliation, adjustments and reporting while providing a clear audit trail, helping you provide timely and compliant reports while reducing the risk of errors.
5. Use a close task checklist
There are a lot of steps that go into closing the books, so it’s important to stay organized and track your progress. A tool that can automatically create and manage closing tasks with checklists helps everyone involved in a continuous close stay on track. Look for an application that can automatically schedule, assign and monitor the progress of closing tasks, whether you’re completing them every day or on an as-needed basis.
6. Automate tax calculations
Automatically calculating tax provisions and creating reports based on that data is paramount to efficiency and accuracy. This not only reduces time to close but also helps avoid surprises later by regularly estimating what you owe to different authorities. An application that pulls financial data directly from your core sources is ideal because tax calculations are always based on the most current data.
7. Explain the numbers
Complementing numerical data and financial statements with textual explanations and analysis provides additional context and helps various stakeholders understand the significance of financial reports and your overall performance.
If business leaders are looking at financial data daily or weekly under a continuous close, having quick context for what they’re seeing is important. A system with narrative reporting capabilities makes it faster and easier to create financial reports, disclosures and regulatory filings.
How NetSuite EPM Supports a Continuous Close
NetSuite Cloud Accounting delivers a complete financial management system for companies ready to begin moving from a traditional, quarterly close process to a continuous accounting approach.
Accounting staff benefit from a single, centralized source of real-time and operational data. This system also includes tools to automate processes, such as creating journal entries, managing amortization and depreciation, and eliminating intercompany transactions. Together with embedded analytics, finance and accounting teams can obtain real-time metrics to inform decisions and quickly evaluate the results.
NetSuite Enterprise Performance Management (EPM) offers the next step to help companies supercharge a continuous and connected close. Bringing together planning, budgeting, forecasting, account reconciliation, financial close and reporting processes from across the entire organization helps businesses further improve the speed and accuracy of financial processes and gain the insights they need for better decision-making.
Here’s how NetSuite EPM assists:
- Integration with core systems
NetSuite EPM seamlessly connects to NetSuite ERP and other NetSuite applications. This means you can always pull accurate financial data from your core business systems, without worrying about broken or unreliable integrations. - Real-time consolidation
Finance teams can consolidate financial data from multiple sources instantly. The system can account for minority interest in entities partially owned by the company in these consolidations to provide accurate and compliant financial reporting for the entire corporate group. This feature eliminates the need for manual data consolidation, reducing errors and speeding up the close process. - Automation of routine tasks
The software automates journal entry creation, intercompany eliminations, currency translations and account reconciliations. Automating these tasks accelerates the close process and allows finance teams to focus on more value-added activities. - Workflow management
These capabilities assist finance teams in defining and managing the close process. Finance professionals can track the status of tasks, assign responsibilities and monitor deadlines, facilitating a smoother and on-time close.
- Task management and collaboration
Team members can communicate, share documents and coordinate activities within NetSuite EPM, boosting collaboration among the finance department and with other teams to increase productivity. - Audit trails and compliance
With a detailed audit trail of all financial close activities, you get the transparency and accountability you need. This audit trail makes it easier to comply with regulatory requirements and finance teams can easily trace the lineage of financial data for reporting and auditing. - Scalability and performance
Designed to handle large volumes of financial data and support complex consolidation and global reporting requirements, NetSuite EPM can scale with your business. This means organizations can expect a high level of performance and efficiently manage the financial close process even as their business grows. - Continuous monitoring and reporting
Real-time dashboards and reports let finance teams monitor KPIs, identify trends and take timely action to address issues or capitalize on opportunities. A connected, highly automated continuous financial close is a compelling and increasingly popular goal for companies because it provides trusted and more timely data for leaders to monitor the business and make decisions and course corrections.
For finance, it lets the talented and versatile professionals in the organization contribute to the strategic moves that drive the business’s future instead of being buried by mindless manual tasks. NetSuite EPM gives businesses the functionality needed to accelerate their financial close, ultimately increasing accuracy, efficiency, and agility in financial reporting and decision-making.
Need Help?
Our Technology Solutions Group includes a team of experienced solution experts who will work with you to understand and address the specific needs of your business. If you’d like to improve your organization's accounting and decision-making with a continuous financial close, contact us online or give us a call at 410.685.5512.
