The financial close is anything but a simple and straightforward process. Multiple key departments and stakeholders are involved, and documents are being continuously reviewed and approved while being distributed through email and messages. Factor in multiple ERP and legacy systems, a fully remote or hybrid-working team, and challenges will inevitably arise.
With so many variables at play, there’s no doubt that the entire financial close process can lead to bottlenecks. The most common causes of financial close complexities include:
- An overreliance on manual methods and legacy tools
- A disorganized system of tracking tasks and documents
- A lack of standardization across team members and departments
Close Complexity Cause #1: Overreliance on Manual Methods
The foundation of many close complexities stems from the reliance on manual accounting methods. Sticking to the status quo because ‘that’s how the close has always been done’ is often the biggest downfall for the Office of Finance. The continued rise and implementation of financial transformation and intelligent automation have naturally differentiated leading organizations and given them a competitive edge.
“Those who do not embrace Industry 4.0 risk falling behind in an increasingly competitive landscape. Companies that already started their digital transformation have been able to restart quickly in bigger and bolder ways, while others continue to struggle to deliver services and experiences effectively in the ‘new normal.’” – McKinsey & Company
While some F&A team members may be resistant to change, it is crucial to acknowledge that an overreliance on spreadsheets leads to far-reaching consequences: increased organizational risk, lack of visibility into processes, inability to provide strategic insights, and increased instances of burnout and turnover. In fact, the costs of delaying financial transformation far outweigh the costs of implementing automation technology.
Close Complexity Cause #2: Disorganized Task and Document Management
“Where did you save that document again? Is this the most current version? What do I work on next? When are you going to be finished with preparing/approving the documents?”
These questions may be all too familiar to those who have a disorganized close process in place. In remote or hybrid working environments, questions about the status of tasks or the location of supporting documentation may even be a daily occurrence.
The intricacies of financial close processes require a thorough and centralized task and document management system, but many enterprises still keep tabs on their accounting tasks and documentation through spreadsheet checklists and online file storage systems. Having a disorganized task management method negatively impacts everyone involved: accountants are struggling to see which tasks need to be completed next, financial leaders are experiencing a lack of visibility into the progress of the financial close, and auditors are unable to find supporting documentation to validify financial figures.
Close Complexity Cause #3: Lack of Standardized Processes
Standardization is key for every Office of Finance. With the complexities that exist within the close, having multiple different methodologies and workflows only exacerbates them. From different approaches to performing close activities to having essential documentation saved in several locations, navigating the close without an established method in place prevents finance and accounting teams from dedicating more hours to value-adding activities. As organizations scale and grow, standardization becomes an absolute necessity.
“Standardization and automation of processes is key to becoming more scalable and efficient. By integrating into existing source systems and standardizing and automating financial close processes, organizations can lower the risk of human error and recover valuable time. This will allow the finance team to provide better business intelligence today, and it will help set the foundation for future AI initiatives tomorrow by utilizing supplemental applications that integrate into their existing ERP systems.” – Forrester
The lack of standardized processes has widespread consequences on F&A teams as well as the entire organization. Without having a solidified and standardized system in place, teams may find that they dedicate more of their time on manual, repetitive activities. By overlooking this lack of standardization, accountants may miss essential financial close deadlines or commit overtime to meet close dates. In addition, organizations that continue using inconsistent approaches to the financial close may find that the overall quality of financial data is impacted, resulting in inaccurate reporting.
Identifying the root causes of your financial close complexities is imperative to determining your Office of Finance’s long-term success. By pinpointing these challenges and fixing them outright, organizations can ensure that they set a proper foundation for future scalability and business intelligence.
Written by: Alex Clem