Efficient financial closing is crucial to any company’s financial department performance. However, not all companies excel in this area. To find out what sets high-performing companies apart, the EY Closing Excellence survey research from 2021 analysed companies in Sweden, Norway, Denmark and Finland.
Financial Closing best practices – saving time and resources
The survey results revealed that companies with large reporting entities and thousands of full-time employees are performing differently. In fact, the difference between top performers and the industry average is quite noticeable. Top performers deliver finalised monthly reports after only six working days, whereas average companies spend 12 days in financial close reporting. The difference is even more evident in quarterly and annual reports, where top performers spend between nine and sixteen days less than the average.
High-performing companies understand Financial Closing best practices – the importance of data quality and consistency, so they use preventative controls and invest in data science competencies. In contrast, the population average must work on updating their IT systems and improving their process efficiency to eliminate manual work.
On average, companies spend 12 days in financial closing activities. Financial Closing Best Practices show that top performers spend six working days less per month than average companies.
- Average companies spend 20 days on quarterly reports. However, top performers spend only 11.
- Top performers have not been able to improve their performance of fewer than 11 days since 2018, which could be due to higher demand for the reports.
- Top performers spend around 23 days on annual reporting, with an industry average of 39 days.
Key to improving financial closing processes
Detailed process descriptions and flowcharts are critical. 50% of top performers have detailed process descriptions for selected processes. Another half of the top performers have the same detailed approach for all significant processes. Average companies have only 43% mapping for the selected financial processes and 36% for all significant processes. 21% of average companies need to have critical processes mapped.
If you want to improve the way you close your books, here are the top five practices that distinguish top-performing companies from average ones:
Automate your processes: All top-performing companies and 70% of average companies use automation to streamline their closing process.
- Integrate your IT systems: Half of the top-performing companies and 45% of average companies prioritise integrating their information technology to improve the closing process.
- Standardise your systems: Using standardised systems, half of the top-performing companies and 45% of average companies ensure consistency and efficiency.
- Develop data science competencies: While only 20% of top-performing companies invest in data science, this can be a significant advantage in optimising the closing process.
- Train your employees on IT systems: Only 20% of top-performing companies and 10% of average companies prioritise educating their employees on IT systems, but this can make a significant difference in the effectiveness of the closing process.
Remember that the financial close process affects many other financial processes in your organisation, so improving it can have a positive ripple effect throughout your company.
How to optimise financial closing processes?
The survey results suggest that the CFOs must focus on automating processes and building agility and quality into financial close processes. This will allow finance teams to focus on high-value-adding tasks. Traditionally, tasks are automated or moved to shared services centres. The most significant cost reduction potential is process optimisation, improved data and better IT infrastructure (including standardised ERP systems).
According to the survey results, 40% of participants identified that the primary challenges with automating closing activities were the need to update IT systems and a need for IT integrations.
In addition, 70% of participants reported that the primary internal challenge with closing was the use of inefficient processes that required many manual routines and iterations.
Lastly, 70% of the respondents revealed they need to devote more attention to developing and training their employees.
Where to start optimising financial close?
In conclusion, process efficiency, data consistency and system integration are fundamental to achieving a faster financial closing process. Implementing these elements can lead to increased visibility of the end-to-end process. Tools like Aico can make achieving these objectives much more manageable by directly integrating multiple instances of corporate ERPs. Aico integrates with all ERP systems, such as SAP, Oracle and Microsoft Dynamics. Aico can handle multiple ERPs and even accounting concepts simultaneously in a single instance of Aico.
This makes management easy and guarantees low TCO (total cost of ownership) over time. Aico also supports change management, such as migration from one ERP to another, or organisational changes. Simultaneous real-time integration to ERPs is the heart of the Aico system. By integrating it with your ERP system, you can easily connect automated reports with automated notifications and manual tasks. This integration allows your team to initiate, track, and configure automated tasks more comprehensively.
That would eventually lead your finance team closer to top performers.