Year-end financial close management can be difficult. Quick and accurate closure is a goal that companies pursue every year. Despite companies’ best efforts, errors and delays can be part of the process. While there are a lot of best practices that can be followed to avoid mistakes, there are no objective standards that can help companies close their books without hassles. Clear and practical suggestions are the need of the hour.
This post describes three steps that enterprises use for efficient financial close management every year. By tapping into powerful financial performance management (FPM) applications, businesses can have fast and efficient financial close year after year.
1) Data Collection
A major problem for CFOs and their teams is the struggle with inaccurate data toward the end of the year. The process can become more streamlined if they can ensure data completeness and accuracy through integration. Financial close management is like a spiral. If key business processes are integrated with your organization’s accounting solution, errors can be mitigated at the end of the year. Begin the data collection process early so that your applications are integrated and tested.
If your key business systems are integrated, you will be alerted when discrepancies occur and can more easily correct these errors in time for annual auditing. If your financial performance solution is not integrated with your critical business systems, then you will have to begin the process early and perform all of these important data collection activities:
- Preparation of and sending invoices to customers for services rendered or products sold
- Preparing and processing journal entries to record the internal income and expense recoveries by the deadline
- Processing supplier invoices and supplier expense reimbursements
- Recording accruals and deferrals
- Recording pre-billings
- Collect the list of outstanding purchase orders and commitments to be carried forward to the next fiscal year
2) Data Consolidation
Data consolidation is a tricky process that does not have a blueprint for CFOs and their teams to follow. For a better year-end close, it’s important that team members are working from a common chart of accounts. Aligning local ledgers by agreeing to a common chart of accounts early in the year allows for faster consolidation toward the end.
If enterprises can use a consolidation tool to function as the central repository for data, consolidation becomes easy and financial reports can have a single platform that can meet compliance and regulatory requirements with greater accuracy.
Businesses need to have functional consultants and business analysts who can collaborate at the beginning of the year to understand the critical business systems that will pull financial information. The consultant also needs to determine which processes can be automated. The more automation is used, the higher the standardization and the lower the chance of human error.
Consultants and business analysts also need to determine who will be responsible for each deliverable in the process. Assigning responsibilities to specific stakeholders with a clear approval workflow helps as team members will know their areas of contribution during year-end close.
If all the team members are on the same page and the collaboration is in sync, your organization can execute the tasks in this data consolidation checklist with ease:
- Reporting the accurate accrued liabilities for goods received with no invoice processed
- Reporting outstanding funds for each department
- Recording status of all outstanding purchase orders that have a goods receipt processed for which an invoice receipt is still outstanding
- Reporting status of invoice receipts that report variances with goods receipt and invoice document
- Reporting outstanding rejections
3) Reporting to Relevant Stakeholders
Financial reporting standards are constantly evolving. As executives and enterprises continue to rely on organized reporting of financial information, reporting requirements have become more complex. An efficient technology solution that can help businesses bring in standardization in reporting is needed.
Effective reporting involves clearly assigning responsibilities to relevant stakeholders and monitoring their deliverables throughout the year. Integration of your organization’s ERP application with financial reporting tools can help reduce multiple versions and optimize the review, approval, and editing cycles.
Enterprises are increasingly under scrutiny, and the regulatory standards and compliance requirements have tightened over the years. Transparency and improved accuracy in reports have become critical components for financial close management. Executives in leadership roles also require reliable and accurate reporting that can be used in making informed decisions for their organization.
Each department must submit a detailed report every year-end outlining how the operating reserve will be utilized and how carried-over funds will be spent in the coming fiscal year. An accurate report of the divisional operating reserve balance will help executives allocate funds according to need.
Financial close management can be an efficient and easy process if enterprises follow a few basic guidelines. With the flexibility that FPM applications offer, executives can look forward to a clean close year after year. Financial performance management software is empowering businesses to meet regulatory challenges and report accurate results every year.