The process of closing the books often proves to be a pain point for companies. Because the closing process kicks off the entire accounting function, it ultimately serves as the foundation of your company’s performance evaluation, adherence to debt covenants, and year-end tax compliance. Getting it done quickly, accurately, and efficiently is crucial. Let’s explore the key areas you should focus on to help improve this process.
Start With the End in Mind
It’s been said that a goal without a plan is just a wish. Your first step should be to determine what an ideal accounting close looks like for you. How soon do you need it to be completed? What reports would help your management team? What do your investors want to see? Do your lenders or other third parties need to see your financial information for you to stay in compliance? Once you have a clear picture of how you’d like your close process to function, you can take steps to get there.
Understand What’s Preventing That From Happening Now
Once you’ve identified your perfect scenario, consider what is currently preventing this process from happening.
- Where are the data originating from? Your bank provides your financial data, and your suppliers/vendors will provide invoices, but are there other places? Does your company invoice out of a separate system? How do you receive payroll details?
- From those sources, how much is automated? Many software packages provide a means for your banking data to be uploaded electronically, as do third-party payroll providers. If anything is being entered manually, could that be automated?
- Could you start your close process sooner? Preparing a “soft” interim close could streamline the scope of your typical close process by decreasing the scope.
- Are there portions that are unnecessary? Often, reports are created because “we’ve always prepared them,” when in fact, no one uses them. Are there old accounts in your ledger that can be hidden or deleted? Are there bank accounts that could be consolidated?
Take Into Account the Human Element
Next, let’s consider the role your employees play in the process. First, confirm that they’re aware of the expected timeline. Then, get their input on what (if anything) is preventing them from meeting it. Consider these possible action items:
- Is additional training required? Many accounting software packages have complimentary training tools embedded within them. A quick web search can often provide guidance on less complex issues as well.
- Are the right people sitting in the right seats? Sometimes a slight shift in duties can help alleviate bottlenecks and balance workloads.
- Are backups trained to cover for the absence of key employees?
If this area proves to be a challenge for you, there are options available to outsource all, or a portion of your close process to help get you back on track with your expectations.
Consider Your Accounting Software
Most importantly, take a look at your accounting software and how you’re using it.
- Utilizing the ability to link to your financial accounts as mentioned above is a quick and easy step to start with.
- If any portion of your closing process is performed outside of your accounting software (on a spreadsheet, for example), then determine if your software has that functionality already included.
- Are you utilizing the full scope of its reporting functionality?
This area is crucial because you could have a good plan in place, orchestrated by well-informed and well-trained employees, but if your software is limited, that could be a roadblock to reaching your goals. In general, smaller, one-location operations can expect good results with providers like QuickBooks or Xero, while larger companies, or companies with multiple locations, should explore Intacct or NetSuite. If you’re struggling to determine if your software is a good fit for you, reach out to a professional at Forvis Mazars about utilizing additional features of your current software, or exploring an upgrade.
A Few More Ideas
Some other topics to consider are the basis of your books. Do you need to keep them on cash basis, accrual, or both? How frequently are you fully closing your books? If you typically work with a monthly close, consider if a midmonth or weekly close would provide useful information for you.
Another crucial component is the structure of your chart of accounts. Using a standard numbering format (where assets begin with “1,” liabilities begin with “2,” etc.) helps simplify the process of adding new accounts and grouping them together for presentation purposes.
Wrapping Up
Often, companies are doing many of these things well but still struggle with the close process because of one or two crucial portions. Your accountant can provide you with good insight for many of the above-mentioned points, and your software provider may also be able to help by increasing the functionality of your current accounting package.
For help looking over your closing process, or guidance on any of these steps, reach out to the Outsourced Accounting Services team at Forvis Mazars.