©seb_ra/ISTOCK/THINKSTOCK
It’s easy to take for granted all the technology advances of the past few decades. Today we hold face-to-face meetings with colleagues halfway around the world through our laptops. We know within a few clicks if a line of business is underperforming – and we can do something about it before it’s too late. We also make smarter M&A decisions because we can more accurately model the risks, valuation, and costs before final decisions are made. Yet for all the ways that technology has made our work lives easier, there’s one area that still lags.: Closing the books. Despite the ubiquity of spreadsheets and ERP systems designed to accelerate and automate transactional processing and other traditional finance functions, closing the books still takes longer than it should.
In a recent study of finance professionals, Host Analytics and Radius Global Market Research found that on average, 35 percent of businesses require six to nine days to close the books while another 16 percent of businesses take 10 days or more. Given all the available technology options, not to mention the added productivity and cost savings that come from cloud-based platforms, there should be more efficient ways to accelerate month-end close.
Opening the problems of the close process
Part of the problem is the acknowledgement that the close process could be more efficient. Based on the findings from the Host Analytics survey, more than two-thirds of businesses believe that their month-end close, consolidation and disclosure processes are efficient.
Another gating factor in running more efficient financial processes is the difficulty in accessing the necessary data. We all shake our heads at the inefficiencies of silos, human error and integration of spreadsheets that continue to slow us down. Meanwhile, big data gets bigger. While there’s no lack of information, identifying the most pertinent and useful data for the business issue at hand isn’t getting any easier.
A third critical factor that’s holding up the close process is the globalization of business. As much as technology has enabled smaller players to compete and prosper on a global stage, the actual tools of the finance and accounting trade weren’t designed to easily handle internationalization, much less globalization. For example, spreadsheets remain largely self-contained snapshots of specific areas of the business. Factoring in currency conversion, elimination of intercompany transactions, and minority ownership still requires extensive manual intervention and reconciliation.
For many businesses, cloud-based enterprise performance management (EPM) systems are the way forward. According to the Host Analytics and Radius Global Market Research study, 41 percent of finance professionals have a cloud-based EPM solution, 29 percent are evaluating and within the next three-to-five years, 28 percent will move to the cloud. That leaves only two percent that currently say they don’t have plans to move to the cloud.
Optimize EPM through “continuous accounting”
To fully optimize investments in EPM, finance should apply what Ventana Research calls “continuous accounting.” It’s based on addressing three areas that cause tactical roadblocks for finance. First is how an organization uses technology and manages information. Specifically, improving efficiency with the use of software to automate mechanical, repetitive accounting processes.
Second is in the scheduling of tasks. In continuous accounting, a process management approach distributes workloads, eliminates bottlenecks, reduces or eliminates the need for temporary help, efficiently manages spikes in workload, and essentially gets the job done more efficiently.
The third aspect of continuous accounting is instilling continuous improvement in the departmental culture. This may require abandoning “we’ve always done it this way” mindsets that inhibit change. It also calls for regular reviews of performance, immediately addressing shortcomings, and the highest levels of the organization consistently communicating the need for continuous improvement. According to Ventana analyst Rob Kugel, “By focusing on these areas, finance executives can achieve steady gains in effectiveness.”
In many ways, the principles of continuous accounting reflect the foundation of an EPM strategy. Continuous accounting enables finance to close the books faster while streamlining, if not eliminating rigorous administrative tasks, leaving more time to focus on strategic issues such as 2017 planning under a new U.S. president, evaluating major technology advancements including blockchain, or conducting due diligence on an acquisition target.
John O’Rourke is Vice President at Host Analytics.