My work at SAP has made me a bit of an expert on the differences between the highways of Germany and the US. And in my professional opinion, the highways in Germany are faster, way faster. In Germany, I can get from point A to point B in a shorter period of time, through less traffic, hitting fewer potholes, and in a car that can get up to 50% better gas mileage than the average US model.
Now, the same difference can be noticed if you compare the financial closing processes of many global organizations today. Some organizations can close, audit and report their financial performance in one day, while others struggle to do the same in one month, or even longer.
What’s the difference between a financial close autobahn, and a financial close traffic jam?
According to Steve Bragg, author of Fast Close, a Guide to Closing the Books Quickly http://bit.ly/878hfw, there are hundreds of techniques that companies can execute in order to gain efficiency in their closing process. However, the essence to achieving a fast close comes down to a few basic principles:
Scheduling: planning and execution of closing activities, such as the calculation of bad debt reserve, well in advance of the last day of the period.
Automation: systematic routine of performing individual accounting tasks, such as your cash reconciliation process or your invoicing processes without human intervention or manual steps.
Standardization: aggressive efforts to standardize charts of accounts and financial reporting functions through centralized corporate controlling departments or centralized shared-service organizations.
While it may sound simple in theory, realizing these goals can be very complex, especially if your organization is large, global and operates a diverse set of financial management systems and processes.
The unfortunate news is that the challenges don’t seem to be getting any easier for companies today. According to the 2009 Close Cycle Rankings, by BPM International, the average closing cycle for many US companies has steadily increased over the last in six years.
So, what does your financial close highway system look like? Do you have formal business initiatives to accelerate your financial close or improve the quality of your financial reporting processes? If so, I’d like to hear about what your company is doing.
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