Fast Close Concepts

• Work scheduling.  The central issue impacting the speed of the close is shifting activities out of the bottleneck closing period.  This can involve delaying regular accounting activities until the close is finished, but is primarily concerned with completing tasks before the month has been completed.  For example, consider completing commission calculations a day or two in advance for all invoices issued prior to month-end, leaving less commission calculation work to be completed during the bottleneck closing period.  At least half of all closing activities can probably be partially or completely finished prior to the end of the month.

• Process centering.  Closing the books is a highly specialized process, so concentrate all closing activities with the smallest possible number of staff.  By doing so, the level of expertise is higher, there are fewer delays caused by wait queues, and it is easier to coordinate closing activities.

• Don't sweat the small stuff.  Controllers have a bad habit of creating complex journal entries to record small transactions that have no significant impact on the reported level of financial results.  They also spend too much time analyzing small variances.  Both activities take up too much time.  It is better to skip these activities entirely, or at least shift them outside the bottleneck closing period.

• Fix errors early.  A key concern during the closing process is being blindsided by transaction errors that occurred earlier in the month, typically resulting in staff overtime to investigate and correct the problems.  An easy fix is to schedule a review of the preliminary financials a few days before the actual close, so that errors can be uncovered and fixed at a more leisurely pace.

• Optimize journal entries.  A key source of errors is journal entries that are custom-created each month, usually resulting in considerable variability in the accounts used from month to month, as well as missing or duplicate entries.  Instead, create a standard set of journal entry templates, as well as a checklist to ensure that all journal entries are used on a consistent basis.  To be even more efficient, restrict the ability to enter journal entries into the accounting system to a small number of well-trained general ledger accountants, thereby avoiding duplication or typographical errors.

• Centralize the chart of accounts.  It is quite time-consuming to consolidate the financial results of all company divisions when they all use a different chart of accounts, since this requires the manual mapping of accounts from each divisional chart of accounts to the corporate chart of accounts.  A better approach is to enforce a standard chart of accounts in all locations, with no variations allowed.

• Centralize accounting.  A major cause of closing delays is waiting for outlying accounting operations to send in their results.  Though time-consuming to complete, it is much faster in the long run to centralize all accounting operations in a single location.  This also results in higher levels of staff efficiency and fewer managers.

• Automate.  The addition of automation does not normally have a good payback when applied to the closing process.  However, it may be cost-effective to obtain automated consolidation software if a company has a distributed accounting system, as well as a workflow management system if many employees are involved in the closing process.

• Payable accruals.  A major delaying factor in the close is waiting for supplier invoices to arrive.  This can be avoided by using purchase order authorizations for all major purchases.  By doing so, there is an in-house record of what the company has agreed to pay for each received item, which is an ideal foundation for a payables accrual entry.

• Inventory.  Incorrect inventory record accuracy can delay the closing for weeks or even months – and the controller is not even responsible for the inventory!  An extremely useful activity is to coordinate a long-term inventory record accuracy project with the warehouse manager, so that no physical inventory count is needed, and accuracy levels are audited to be at least 95% accurate.