CFO Series: Monthly financial reporting: How quick should it be? (6 of 6)
Caleb Dressel, 50 SCM Freestyle and 100M Fly World Record Holder
I have worked with companies both large (billions) and small (million). Regardless of the size of the organization, the path to a quicker and more insightful close is the same. Often, small and medium-sized business owners don’t know as much about accounting and can’t challenge their well-intentioned accountants.
If your close is longer than 5-7 days, there are problems in your close process regardless of the size of your organization.
It surprises me how frequently businesses in 2021 still don’t get their monthly financial reporting quickly. Top performing companies are closing their books in 4-5 days and produce management reports in 7. Median performers 6-7 and 12 days, respectively. What good are financial results if you get them 15-20 days later?
Even if you have addressed the appropriate revenue coding issues (Part 2), have good data integrations (Part 3), have designed a good chart of accounts & business units (Part 4), and have automated key reporting (Part 5), if you fail to have a solid close process you actually render your work less impactful.
The following are some areas that might be impeding your staff:
No monthly timeline: Without a committed close timeline, your staff will inevitably never hit a target deadline. Hold your staff accountable for adhering to it.
Materiality: Don’t let perfection be the enemy of good or even great. Are the staff focused on things that are simply not material? For example, while “technically” correct, do you really need to record a prepaid insurance expense for your companies 10 vehicles if that isn’t material to the business?
Multi-Location & Multi-Company: If your organization has multiple locations and / or multiple companies and the processes and systems aren’t aligned correctly the longer things might take. However, good processes and good design can help overcome system limitations. In addition, if you're companies operate off of different general ledgers, the basic financial amounts should be loaded into one system to make the consolidation easier.
Business & Travel Credit Cards: If your firm is still using paper expense reports and / or doesn’t have a expense management software that integrates with credit cards, this is likely a time drain on your staff. There are great systems like Expensify, Abacus and even AMEX that can make everyone’s life much easier. And those that use cards the most will love you for the change. AP automation has one of the highest ROIs for system implementations.
When does the close start?: If the close process starts on the 1st of the month, you’re staff is already behind. Spread the workload out. Part of the key to a quicker close is knowing what needs to be done when. In fact, certain entries related to say fixed rate debt or an amortizing prepaid expense can be done for the entire year at once.
Here are five questions you can ask your finance staff: Are you using excel to produce financial reports, the consolidation or other analysis? Do you wait to reconcile cash before releasing financial statements? Do you have and adhere to a close timeline each month? Do you capitalize and depreciate all fixed assets for the current month end period? Does your accounting staff work late regularly?
If the answer is “yes” to three of more, you likely have opportunities to improve your processes significantly. If this is happening with these “basics”, then the more complicated items are more than likely also going to be even more problematic.
Finally, it may be that your organization simply needs a fresh look from an outside perspective or a recurring oversight of a Fractional CFO. Experts can help improve processes and help staff get out of their own way. Be willing to invest in some system integration if it’s necessary.
Remember: Do not settle for anything short of 5-7 days.
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