Financial Close: Must Know Tips

As time progresses and regulations become tighter, Chief Financial Officers (CFOs) and their financial teams face increased pressure to execute financial close more quickly and accurately. With the oversight of business management, transactions and a data-heavy landscape of information, financial departments are adopting financial technology to help cope with these ongoing processes. When data is accurately managed, and automation tools can perform the monotonous tasks instead of a human being, it helps to make the month-end process more streamlined and accurate.

What once took place across multiple spreadsheets and demanded an enormous amount of manual effort on behalf of human resources, can now be completed in minutes with financial technology and automation. Automation is changing the way the financial close process takes place as well as empowering businesses with the peace of mind to know that financial accuracy is more achievable. In turn, companies are lowering their compliance risk and making better decisions for their future.

Financial Close Definition & Automation

The process of financial close involves reviewing and reducing account balances before the accounting cycle closes. At the end of each month, businesses must close out the current period by documenting transactions so that the financial statements comply with accounting methods.

In moving transactions across ledgers and preparing documents, financial teams face pressure to complete the close financial procedure accurately and timely each month. With automation tools, this becomes easy to do. Not only does close financial documentation have to be accurate, but it also has to be submitted promptly. Using automation, this process becomes seamless and means it will never be forgotten because it is programmed to occur at the right time, in the correct format and then sent to the necessary authorities, automatically.

Financial Close Explanation

The financial close process involves information from multiple departments within a business, and therefore, to be able to do it properly, bottlenecks must be avoided.

There are four necessary steps in the financial close process, which include:

• Revenue Account Closing: Transferring credit balances to the Income Summary
• Expense Account Closing: Transferring debt balances to the Income Summary
• Income Summary Account Closing: Transferring the balance to the Retained Earnings account
• Dividends Account Closing: Transferring the debt balance to the Retained Earnings account

The movement of these transactions from one location to another must be done accurately to avoid mistakes that can create a costly compliance risk if mismanaged. The accuracy of financial data is imperative at every step of the process.

Continuous Accounting & The Need for Automation

As technology continues to support financial teams, continuous accounting is helping to aid businesses as a modern approach to accounting processes. Ongoing accounting gives real-time and accurate financial insight to companies at all times with intelligent reporting and data management. Software tools store data as it happens and allow for it only to be accessible to those who need to work with it.

With the changing times and the speed of business, the old and outdated model of record-to-report to provide monthly, quarterly and annual financial reporting does not suffice in today’s business environment. The nature of nonstop business means that financial departments always have work to do and have to keep up with the transactions as quickly as they happen to make monthly reporting possible.

By leveraging the power of cloud technology, integrating data from various sources, and automating financial close processes, continuous accounting adds accuracy and efficiency to the process.

Benefits of Automation on Financial Close Process

When all data lives in one place, there is less likelihood for a mistake to occur. Rather than working through long and complicated financial close checklists, automation technology increases data accuracy and lowers compliance risk. It also helps to cut the time it takes to produce necessary accounting reports. With operational effectiveness, the saved time can then instead be spent on analysis. Rather than bookkeeping, finance teams can leverage such easy-to-access statements to make better-informed business decisions, reduce costs and increase a company’s bottom line.

Perhaps most importantly, automation helps to reduce compliance risk in the financial close process. External auditors can quickly gain access to audit trails and economic history. Paper trails can become messy, but with the right software tools in place, it’s easy to locate necessary information to provide to anyone who may request documentation, saving finance teams vast amounts of time during audits.

With the advancement of technology, financial teams can, therefore, spend more time analysing information and providing valuable insights to different business units rather than performing data entry. This means that financial teams become strategic advisors and analysts rather than bookkeepers and audit assistants, which helps to provide businesses with the ability to innovate and satisfy customers better than ever.

Other Top Tips for Financial Close

Besides using automation technology to assist with the financial close process, there are other tips and tricks for finance teams to maintain best practices in the close process. These include:

• Don’t procrastinate
• Keep your financial statements organised
• Automate record keeping
• Itemise deductions

The Importance of Data and the Process

When it comes to financial close, data is everything. The accuracy and storage of financial data must be taken into account during day-to-day operations. To make the process easier at the end of the month, be sure to record data accurately during the month - automation solutions do this for you. If there are inefficiencies in any of your financial processes, look to streamline the process more efficiently. Data software and business intelligence tools exist to help.

The Bottom Line

From financial consolidation to financial reporting and everything in between, cloud financial technology systems are helping to change how businesses complete financial close at the end of each month. They are becoming a standard across industries of all types to help finance teams perform their duties more efficiently, while also allowing the main focus of financial teams’ human resources to be on analysis rather than data collection and manipulation.

Depending on your business size and operations, financial close may look different for every team, but regardless of your team, there is no doubt that a software solution will help increase efficiency and accuracy in the process.

Of course, introducing a new financial software automation solution will require some strategic change management and the buy-in of all relevant parties, but once the benefits are well-known and widely communicated, there should be no reason why the introduction of a software solution would go unwanted.