A Faster Close Isn't About Working Faster

Companies love setting aggressive month-end close targets.

Five days.

Four days.

Three days.

Sometimes there is a legitimate business reason for the deadline. But other times, when you ask why the company needs to close that quickly, the answer is something like:

"Best in class is X days."

Or:

"Our PE consultants told us we should be closing in X days."

That's when I like to ask a different question:

When does the business actually need the financial information?

Start With the Reporting Deadline

Rather than starting with an arbitrary close target, I prefer to work backward from the reporting deadline.

When does management need the financial statements?

When does the board need them?

Are there lender reporting requirements?

Does the parent company have a consolidation deadline?

Is there another legitimate business reason the numbers need to be completed by a certain date?

And sometimes there isn't a real deadline.

I experienced this at one company that wanted to significantly accelerate its close.

I said we could do it.

But then I asked why that particular deadline mattered.

The answer was essentially that their PE consultants had told them that a best-in-class finance organization should close within a certain number of days.

Fair enough.

But getting there wasn't free.

To consistently hit the new target, we were going to need additional resources. That could include more staff, better systems, automation and significant process improvements.

There was a cost associated with achieving that faster close.

Once we compared that investment with the actual benefit to the business, the conclusion changed.

The existing close timeline was just fine.

A Faster Close Isn't About Working Faster

This is where companies sometimes get month-end close improvement wrong.

If your solution to a five-day close is asking your accounting team to work 60 hours during close week, you haven't really improved the close.

You've compressed the same work into fewer days.

That isn't sustainable.

The goal should be to make the close easier, more predictable and more repeatable.

That requires identifying the actual bottlenecks.

What prevents the team from meeting the deadline with ease?

Which reconciliations take too long?

Which entries could have been recorded earlier?

Which information arrives late?

Which upstream processes consistently create accounting problems?

Which tasks are unnecessarily waiting until month end?

Which manual processes should be automated?

Which systems aren't giving the accounting team what it needs?

And perhaps most importantly:

Is the accounting team empowered to fix these problems?

Move Work Outside the Close

One of the best ways to accelerate month end is to stop treating month end as the time when everything gets fixed.

Whenever possible, accounting should be happening throughout the month.

Reconciliations can be performed earlier.

Transactions can be recorded properly when they occur.

Problems can be identified before the last day of the month.

Recurring entries can be standardized or automated.

Account ownership can be clearly assigned.

Close checklists can establish accountability and sequencing.

Upstream processes can be redesigned so accounting receives accurate information sooner.

Every task that can be completed before close week is one less task competing for attention during close week.

Find the Bottlenecks

I think about the close much like I think about an operating process.

Where is the bottleneck?

Fixing something that isn't constraining the process may make one person faster, but it doesn't necessarily make the overall close faster.

Find the activities controlling the timeline.

Then ask what it would take to remove or reduce those constraints.

Sometimes the solution is process.

Sometimes it's technology.

Sometimes it's better training.

Sometimes it's changing responsibilities.

And sometimes the answer really is additional people.

But management has to be willing to make those investments.

If Nothing Changes, Nothing Changes

Companies can't simply announce a faster deadline and expect the accounting organization to magically absorb it.

If you want a materially different result, something in the process usually needs to change.

That requires management support.

It may require money.

It may require systems investment.

It may require cooperation from departments outside accounting.

And it may require giving the accounting team the authority to change processes that have existed for years.

Otherwise, the "faster close" becomes an exercise in asking the same people to work longer hours.

That's not process improvement.

The Goal Isn't the Fastest Close

The goal should be a close that provides management with accurate, useful financial information when the business actually needs it.

If that means three days, build the organization and processes capable of reliably closing in three days.

If the business gets everything it needs from a six-day close, understand what you're gaining before spending significant money to turn it into a three-day close.

Start with the business need.

Work backward to the reporting deadline.

Identify the bottlenecks.

Determine what needs to change.

Then decide whether the benefit of a faster close justifies the investment.

Because a faster close isn't about making your accounting team work faster.

It's about building a better process.