Struggling to Close the Books: Why It's Happening & How to Fix It

November 2, 2020 Theresa Rex

Struggling to close the books

Whether you're doing it at the end of the month, quarter or year, when you're struggling to close the books, what should be an essential and routine task can start to feel like a dreaded but necessary evil – emphasis on the evil. It sounds simple enough: entering the month's income, gains, expenses and losses into the journal for reconciliation and approval and resetting temporary accounts to zero. It's not the most exciting work, either. Frankly, closing the books is a little tedious.

So why does this one essential but mundane accounting task cause so many headaches in so many finance and accounting departments?

Struggling To Close Books: A Costly and Cumbersome Problem

Firstly, it's worth noting that just because something is simple doesn't mean that it's unimportant. Leadership relies on the accurate and timely delivery of the financial reports and statements that are generated during close to make critical decisions for the next accounting period. When the books close without issue it's a non-event for the most part. But when the books close late or the numbers are wrong, it becomes a real problem.

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Inaccuracies caused by late or failed closing may not wreak havoc right away, but they can cost companies big in the long run. Miscalculations based on old or inaccurate information in financial statements can raise an organization's tax bill or even trigger an audit that results in fines.  Without regular access to accurate cash flow reports, bills may go unpaid, and you may not be able to meet your loan covenants or worse – meet payroll.

Considering how important the accuracy of the closing process is, it's easy to see why the process inspires more than a little anxiety. According to a 2017 study from Dimensional Research, 60 percent of participants said that their stress levels rose during the closing process.

That process can be a lengthy one, too. A CFO.com survey found that the median amount of days to close was 6.4, while the longest monthly closings took up to an astounding 10 days. 55 percent of participants in the Dimensional Research study said that struggling to close the books on time meant they had to work outside of regular business hours, including evenings and weekends. That this causes burnout is unsurprising, but it's worrisome that 1 in 4 of participating organizations said that routine closing actually contributed to employee churn.

What's especially bleak is that all of the stress and time spent on closing the books doesn't always even guarantee an accurate, usable close. 75 percent of the Dimensional Research study participants said that they were not fully confident in the accuracy of their most recent close. 78 percent even said they had to reopen the books after they had already been closed.

A less obvious, but truly unfortunate cost of a rushed, inaccurate or failed close is that it robs organizations of the opportunity to analyze good data to make more strategic decisions. When you have an entire department working as hard as they can to simply tread water for almost a week at a time on average every month, you lose the opportunity to leverage the financial picture that close is supposed to generate. Ideally, CFOs and Controllers would be able to drill down into this data to identify areas of improvement or opportunities for growth and make sound predictions for the future.

That's just not possible when you're faced with a chaotic monthly close.

archived accounting books

Rooting Out The Cause Of The Chaotic Month-end Close

To fix a problem, you have to start with an unobscured look at what you're dealing with. If you're struggling to close the books, there may at least be some comfort in knowing that you aren't the only one: there are a few root causes that are nearly universal for organizations facing closing process challenges:

Disparate Systems That Cause Bottlenecks

Legacy ERPs or multiple data processing systems that standalone account for much of what makes the month-end close so chaotic. When you have to collect information from multiple sources that were designed to be functionally distinct from one another, you can count on bottlenecks as you wait for different information to trickle in from different departments and platforms.

Manual Processes That Are Prone To Error

When you have a team of people working around the clock under high stress – as you do at month-end close – you're going to see an uptick in erroneously entered data, mismatched spreadsheets, and inaccurate data. Think about it: whenever someone rushes through a task to get it done on time – be it sorting receipts to log expenses or simply tying one's shoes – the end result is a counterproductive mess that almost certainly needs to be redone.

Though the manual processes associated with monthly close may not be very difficult themselves, when much of your monthly close relies on completing them accurately, you're going to be in for some ugly surprises when you go to verify the work.

Time Constraints That Make It Hard To Double-check Everything

What does every finance department facing a chaotic close have in common? A lack of time and a lack of talent. The latter tends to feed into the former, with insufficient resources dedicated to bookkeeping rework and strategic accountancy. When you're struggling to close the books on time at all, freeing up enough hours to take a fresh, careful look at everyone's work is an impossibility.

Institutional Knowledge That Slows Closing Down To A Crawl

It's estimated that the percentage of the processes associated with close that exist only in the heads of the people performing them is as high as 71 percent. Let that sink in for a moment. When the proportion of documented to undocumented processes is that lopsided, your monthly close has a lot more in common with a game of Jenga than most of us are comfortable thinking about.

When that institutional knowledge is further siloed off to departments or individuals, if the one person who knows how to run the accounts payable aging report happens to have a sick day during closing, that's going to be a very bad day.

How To Close The Books Without Losing Your Mind

It's never too late to make a positive change, of course, and start working toward the results you want even if you may not see those results all at once. After you've identified the problems that are at the root of a slow or chaotic close, you'll be much better equipped to start untangling the rest of the mess.

Consolidate Accounting Systems For Better Process Flow

Universalization is the enemy of bottlenecks. It's estimated that organizations can trim two days off of their year-end close by adopting a standard chart of accounts and common financial data definitions. Implementing a universal reference point eliminates the need for guesswork or worse, improvisation. This way you're starting with clean, usable data, which makes it possible to get clean, usable results from a much more efficient close.

Differentiate Between Bookkeeping, Accounting and Automatable Tasks

Finance departments contending with time and talent shortages are sometimes forced to take an all-hands-on-deck approach that can easily devolve into a free for all. Make sure you're leveraging the right resources for the right tasks. This gives you a clearer picture of where gaps exist. When people have to burn the candle at both ends, they're more prone to error.

Sometimes, these gaps can be filled by automating your processes. But it's important to be realistic when you're adopting new technologies. It's impossible to reliably automate every single manual process, so be strategic – especially when regulatory compliance is on the line.

More: People + Technology: Why Humans Still Matter In The Age of Technology

Give Yourself More Time By Establishing A Pre-Close Checklist

Just because it's called a "month-end close" doesn't mean that squeezing every bit of work into the last week of the month is compulsory. Practice good governance as the month progresses and identify which processes can be updated and completed along the way, and then codify benchmarks around them. Creating a "close calendar" in this way will take some of the strain off and loosen time constraints overall.

Accountant Struggling

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Capture Institutional Knowledge And Define Your Processes

Enough cannot be said for carefully and thoroughly documenting your accounting and closing processes. The time it takes to capture this institutional knowledge is time well-spent. Not only does it alleviate chokepoints in the closing process, it will enable your organization to implement internal controls and segregate duties properly to prevent numbers from being manipulated and ensures mistakes are caught.

How Outsourcing Helps Eliminate The Problem Of The Closing Of The Books

If you're struggling to close the books each month, an outsourcing solution can function as a much-needed cure to this particular recurring headache. It allows organizations to bring additional resources in to handle the low-risk, repetitive aspects of the closing process and free up your hard-won accounting talent to focus on putting the data it provides to work. The documentation of processes that allows for knowledge-capture is baked directly into the outsourcing partnership, making it easy to universalize your processes and streamline them for better efficiency at the same time.

Choosing to adopt an outsourcing solution with Personiv is one of the best investments you can make in your company. We hire and train top-notch, GAAP-compliant accounting talent, providing coverage for any talent gaps you're contending with – even if you only need a single additional resource. These talented finance professionals function as a seamless, virtual addition to your in-house team and only your in-house team; never as a fractional resource.

We've been providing solutions that work for over 35 years. Get in touch today and tell us how we can put one to work for you, at up to 75 percent cost-savings.

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