Shorten Your Month End Close - Starting now!

Welcome all, to 2015 - an auspicious year in which you WILL improve your work/life balance by cleaning up and speeding up your month end close.

Why do you need a shorter month end close?  Simple you get performance information back to the business faster - which is the entire point of the process.  As a side benefit, shorter closes also tend to refine processes so they are more efficient throughout the business.  

Essentially, you need to be shooting for at worst a work day ("WD") 5 close - my personal view is that you should have completed your reporting by that time as well, but some are saying you can have an extra 3 days to complete that.  Ideally, WD 3 is better and is a target I tend to shoot for.

Why not WD1?  Practically you need a lot of resources in the Finance team to get that to work.  Most businesses without business intelligence systems are better off accepting a slightly longer close.

So, the key question is - how do you go about shortening up your close?

Below I set out a process I've used a number of times with success.  Note that this is not overly easy to do, but it IS worthwhile.  When I've done this process, it has resulted in increased commercial awareness and better practices within the business, while at the same time reducing the collective time spent in the production of reports.

In outline, you need to divide this process into three separate stages and do them in order!

1)  Identify Bottlenecks

2)  Plan solution

3)  Implement and Enforce

Before you start

The main reasons why a lot of these close shortening projects fail to work is that there is no one driving the project through within the Finance team as well as the reason for the change not being clearly explained, understood and supported by the business units.

In respect of the first point, obviously you want the CFO/FC (whoever directly reports to the MD/CEO) to push this project.  There are 2 reasons for this, firstly they can more easily clarify the priority of the improvement tasks compared to the usual workload; secondly it helps to get the CEO/MD on board and keep them informed.

Unless you are confident that the changes to the process are purely internal to the finance team, then you'll need to get business buy in for the changes necessary.  In my experience, the changes that normally impact the business are:

• Timing and accuracy of inputs, such as accruals, stockpile levels etc
• Report format and content
• Providing accurate variance explanations.

In particular, changes to the timing and accuracy of inputs can have significant effects on the business teams (think requiring accruals earlier, or changing format of accruals) - their buy in is essential so the finance team may have to provide assistance to help the business unit adapt to the changes necessary.

Communication is critical.  You need to communicate why things need to change, and what benefits are going to be achieved.  In particular, you need to ensure that the CEO/MD is fully on board, because - FOR SURE - there are going to be some wonky reports being produced as part of this process.

Practical Tips - Before You Start

1. Any changes to processes outside of the finance team will require CFO/FC support.  Don't try changing processes outside the finance team unless you have this support - it will simply fizzle out.
2. A great way of getting buy in from business units is to discuss existing reports with them.  Often, this will create rapport as both finance and the business units will want changes.
3. To get buy in from the wider business, focus on the reason management reports are being produced.  Management reports are performance reports - hence, it is important that they are produced quickly and are accurate.  Inaccurate reports are often a sign that the business (or business units within the business)  is not fully on top of their commercial processes (hence accruals are incorrect) or deficiencies in broader system processes.
4. Be clear as to whether you are closing FINANCIAL or MANAGEMENT reporting.  Personally, most months the key factor is management reporting, so I'd suggest focussing on that aspect.  Financial estimates, reconciliations etc can be done during the month - in most cases they don't materially impact the management reports anyway.

Identify Bottlenecks

Your bottleneck is not this bad....

Clearly, the first thing to do is ask yourself why you aren't able to meet the WD5 target now.  Then you need to write the issues down.  Group them under logical headings so you can start to see what the causes are.

Generally, I've found that the issues will group under three broad headings:

• Transactional ERP issues
• Reporting issues
• Business Interaction issues

However, you can group under any headings that make sense in your business.  As an alternative, group the issues by business unit affected - that's often helpful in allocation of solutions.

Transactional ERP

In this group I generally include issues relating to the capture of transactions into the system.  Examples of these include the time taken to manually process journals (particularly if you are having to manually enter accrual, payroll or other journals), reconciliation of the ERP to other systems (eg separate payroll or project costing systems) etc.

When listing issues in this group, it is worthwhile to be specific.  For example, if manual journals are an issue for  payroll and accruals, then list these separately.  This is because the background process which supplies information to the manual journals are different, and hence have different solution.


Reporting system

The reporting system you are working with is likely to have some bottlenecks in it.   These can range from inherited excel models which are difficult to update or modify, to business intelligence systems which don't produce the right numbers.

Other issues with the reporting usually relate to the size or usefulness of the reports.  Sometimes, existing reports have grown too large and users are not, in fact, reading them.  In these instances there are often shorter, "newer" reports which report the key information users need - a simple fix is simply to adopt/modify these and drop the old ones.

Business Interactions

I use this group to list issues which require business areas to significantly improve commercial practices and or understanding of their commercial positions.  The reason for this is that these types of issues generally are resource intensive (training/education provided by the finance team, and process changes within the business area) and typically take longer to satisfactorily achieve.  Examples of issues here are where accruals are incomplete or incorrect (items missing, incorrect amounts) or when variance explanations don't actually explain the variance.

With this group, you'll often find that the people in the business area are keen to improve their knowledge and processes - but you have to be realistic about timeframes - this is generally not the group where quick wins are to be found.

  

Practical Tips - Identify Bottlenecks

1. When identifying issues, be very specific so you can identify the correct cause.  Always separate issues which have different causes.
2. Group your issues - generally you'll find that this assists greatly in the next (solutions) phase.
3. Always write the bottlenecks down.  The improvement project is likely to be longer than you expect and may be a bit haphazard (because unexpected stuff always comes up in finance teams).  Having a written list means nothing gets forgotten.
4. Note down who identified the issue.  Often, they will be more inspired to implement the solution!

Plan Solution!

There is always a quick solution.

Now that we've got a starting list of issues, the next thing is to document the solutions.  To make this easier, against each issue you have listed, write down the cause of the problem first.  As you do this, you'll find a couple of key causes which are linked to multiple issues.  These are obviously high priority issues to find solutions to.

However, make sure that you find the real cause of the problem.....not the one that leaps to mind first.  So, as an example, if the business units are delivering accruals late that could be because they don't have the information from suppliers OR the schedule you want them to complete is unwieldy OR some other combinations of factors.  You need to identify what is the real cause - and note that different business areas may have different underlying causes.

For each solution, identify an expected timeframe to complete and make sure that accountability is assigned to someone - as noted earlier, the person who raised the issue is often a good choice to be accountable for completing the solution.

There are separate posts on what reports should contain (here, for example) so I won't go into detail again.  Modification to reports often make the biggest difference to close times, so look here for quick wins.

Speaking of quick wins - for each solution determine whether it is a quick win.  Then, schedule them out so you are SEEING regular progress.  If you take all the quick wins up front - you'll probably improve a bit, but may not be able to sustain the gain.

Practical Tips - Plan Solution

1. For each solution, select an accountable person who is annoyed/inconvenienced by the current state.  This person (who won't necessarily DO the fix - accountable, not responsible) is likely to be more invested in getting the result.
2. Schedule Quick Wins - take a couple up front, but leave a couple to sustain you for the next couple of month ends.
3. Changing the reports are often an easy source of improvement - don't produce reports no one is reading.
4. Focus on getting the management reports out. 

Implement and Enforce!

So, now you have your list of solutions, and it is time to implement them.  However, this is the point where most improvement projects start to fail.

After the initial rush of enthusiasm, things start to fall by the wayside quickly, as job issues and pressures kick in.  This is particularly an issue with solutions that require assistance or changes in business areas - because, from experience, I can assure you their enthusiasm is not as high as yours.

The answer is discipline, combined with communication.

Up front, before you started, you got the CEO and senior execs on board.  A CRITICAL part of any month end process is for everyone to comply with deadlines.  That includes the finance team.

So, if accruals are supposed to be in at 1:00pm on WD 1, then the finance team closes the books at 1pm on WD 1 and the process moves on.  This, of course, means that the report for the month for that business area looks ridiculous.  At this point, you REALLY need to have the CEO and senior Exec on board - because the only outcome which will save the project at this point is for the business area owner to cop a hiding (verbally, obviously) from the CEO/senior execs.  At that point, peer pressure will haul the business areas into line for future months.  Note however, that you can really improve rapport with the business areas by helping them improve their processes - communication and coaching are the name of the game here.

Not YOUR fault!

In all the improvement projects I've done (which is lots) discipline in the finance team when the close happens is the KEY factor to ensuring that the month end improvement is achieved.

Discipline is also going to be important within the finance team while implementing solutions.  As the team who most likely triggered the project, DON'T be the reason something doesn't happen on time.

Practical Tips - Implement and Enforce

1. Discipline - stick to the new timelines - no exceptions.
2. Communicate - communicate progress, deadlines, timelines, benefits.  Get feedback on new/revised reports, impacts of changes to processes.
3. For the finance team, set aside 1/2 an hour per day per person to work on solutions.  Not 2.5 hours at the end of the week, 0.5 hours PER DAY.  You'll be amazed how much gets achieved when you only have half an hour.

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I hope that you find this post helpful - it is based on my experiences over time and you'll probably disagree with some or all of this.  If you are interested, a blank copy of a control spreadsheet can be found here.

I'd be really interested to hear your experiences and tips, please drop me an email or sound off in the comments!

Now, to finish off....