Financial Close: Optimise the Financial Closure Process

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When it comes to the financial closure process in a business, accuracy, agility, and analysis prove to be key. However, the month-end close process is often rife with challenges, time-consuming data matching and transactions. With financial automation software, your team can mark off the month-end closing checklist in no time and with utmost peace of mind.

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Here’s what you need to know about how to optimise the financial closure process.

Coming Up

1. What is Financial Close?

2. What are the Stages in the Month-End Closing Process?

3. What are the Challenges of Financial Close?

4. What is Financial Close vs Closing the Books?

5. What are Common Financial Close Process Problems?

6. How to Improve Financial Close?

7. How to Improve Financial Close with Automation Software?

8. Final Thoughts

What is Financial Close?

Financial close refers to all the accounting and financial activities/processes that take place regularly in order to close the books on the prior month, quarter, or year. If a company owns subsidiaries, then the financial closure process also includes consolidating financial statements and analysing intercompany data.

Once the financial statements are prepared and ready for review, they are used by management and stakeholders to assess the company’s financial health and are also used to inform decisions going forward. The financial closure process offers insights for historical trend analysis, comparing budgets, actuals, and forecasts, and reviewing KPIs.

In certain cases (like when the company is public), the documentation and resulting reports from the financial close process are required by stakeholders, lenders, investors, and regulatory agencies, which is why the financial closure process may directly affect compliance risk.

What are the Stages in the Month-End Closing Process?

It’s possible to break down the financial closure process into eight steps. These steps can be performed manually or with the aid of automation solutions. When automation solutions are involved, the time it takes to fulfill each step is dramatically reduced and the risk of human error is prevented.

Let’s review the main steps:

1. Record Daily Transactions

When you record daily operational activity on a daily basis, it can help to reduce the month-end close timeline as you are prepared. Any departments that affect financial records should also complete their activities continuously so that the accounting department has everything they need when the time comes.

That being said, an automation solution like SolveXia can pull data from disparate systems so that your team has access to all transactions in a centralised location.

2. Reconcile Accounts

When it comes to any subsidiary ledgers (payables, sales, investments, etc.), it’s important to reconcile these accounts with the general ledger. Automation software can integrate all programs so that you can capture, reconcile, record, and match transactions across ledgers in minutes.

3. Record Monthly Journal Entries

Automate recurring journal entries like accrued expenses, depreciation, amortisation, and the like.

4. Reconcile Balance Sheet Accounts

Cash accounts tend to be the source of mistakes because cash tends to be used for many transactions. Reconciling cash on a daily or weekly basis can help to spot mistakes early on so that you can fix them before the cash flow is affected.

5. Review Revenue and Expense Accounts

After you’ve reconciled the cash account, it’s time to review the revenue and expense accounts for accuracy.

6. Prepare Financial Statements

When all the subsidiary ledgers and accounts have been properly reconciled, you can prepare the financial statements, manually or by using an automation solution to compile the data for you.

7. Perform a Review

This is a crucial step that relies on internal control, as the statements go through an approval process to upper management. By using an automation solution, your team has access to the process and visibility (with notes and updates) as to all the actions that have transpired to create the statements.

8. Close Systems

If all looks good to go on the financial statements, the accounting period is closed within the system.

What are the Challenges of Financial Close?

The financial close process is filled with data, transaction matching, statement creation, and reporting. Not to mention, one of the most valuable outcomes is the ability to analyse the data. However, as firms grow in size, the complexity of their financial closure processes follows suit as there are more accounts to track and reconcile.

Most organisations report their greatest financial closure process challenges are:

  • Timeliness
  • Poor quality of data
  • Disparate systems
  • Human errors
  • Under-supported teams
  • Remote teams

The world is relying on remote work more than ever, which further enhances the need to properly store, secure, collect, and manage financial data. SolveXia can help connect all your systems to centralise data and perform reconciliations automatically.

What is Financial Close vs Closing the Books?

There are a lot of teams that will use the phrase “closing the books” interchangeably with the financial close process. However, there’s nuance between the two, namely:

  • Financial close: This is a broad term that includes closing the books, but it also entails all the accounting processes that take place at the month’s end. The financial closure process also includes generating financial statements.
  • Closing the books: Closing the books is the final step in the financial close process. Closing the books resets the account balances to zero and also makes sure that the prior period’s balance remains untouched thereafter. Net results are transferred to the balance sheet so that the retained earnings reflect the period’s operations.

What are Common Financial Close Process Problems?

The financial close process is one of the most important accounting processes that takes place on a continuous basis within organisations. That’s why it literally pays to be aware of the common challenges so that you can work to improve them.

Here’s a deeper look at some common financial closure process issues:

  1. Lacks Organisation: With your team working in different locations, it’s not always easy to have everyone on the same page. The financial closure process must be clearly defined with documented protocols.
    This way, everyone is aligned to perform the tasks in the same manner and is aware of what they are responsible for. Automation solutions make it simple to standardise, define, and communicate the process.
  1. Focus on Manual Work: Without automation software, your team is stuck handling everything manually. With the immense amount of data, there’s a high chance for human error and delays.

  2. Process is Rushed: The financial close process must be completed to create financial statements in a timely manner. But, it often gets rushed because the deadline is fast approaching and the process is tedious (when performed manually).

  3. Disparate Systems: When accounting teams must collect data from various systems manually, it takes more time and increases risks of mistakes.

  4. Missing Data: Data is pulled from across an organisation to perform the financial closure process. If any data is missing, such as a missing invoice, it can throw off the account balances.

How to Improve Financial Close?

Chances are your financial close process can benefit from making some adjustments. Some ways you can improve your process include:

  • Rencolie More Frequently: There’s no rule that says you can only reconcile accounts during the month-end close process. Instead, you can reconcile accounts on a more frequent basis to expedite the process by the time the end of the month arrives.
  • Spot Inefficiencies: Take the time to review the process to pinpoint where issues occur. Are there key person dependencies and bottlenecks? Find out the root of the problem so you can resolve it.
  • Develop a Standard Operating Procedure (SOP): The process should be well-documented and cover every step. SOPs clearly define each step with detailed instruction, expectations, and responsible parties so that the process can be upheld and standardised. Be sure to include hard deadlines within the SOP.
  • Access Control: The accounting team needs access to data across the organisation to properly finalise account closure procedures. Make sure that the required staff has direct access to the systems they need.
  • Review the Process Regularly: At the end of each financial closure process, take the time to review how the process went with your team and ask for feedback on areas for improvement.

How to Improve Financial Close with Automation Software?

By deploying automation software within your organisation, you can achieve operational efficiency and benefit from transparency, internal control, and accurate data.

Automation software like SolveXia can aid in your financial closure process as the low-code process automation solution ingests data from various systems and files and transforms it to perform calculations and transaction matching. SolveXia’s platform is able to produce and send reports and conduct analytics using your company’s financial data.

A financial close tool like SolveXia doesn’t require code of IT expertise to deploy. Instead, the low-code solution utilises a drag-and-drop interface that allows for business leaders to become process designers. To be a process designer, all you need to possess is strong data literacy and analytical skills to understand the insights gleaned from the data.

The solution can perform reconciliations so that your team can focus their time on high-level tasks instead of being bogged down with manual and repetitive data entries and matching.

Additionally, the use of a solution like SolveXia means that the account close process can be iterated indefinitely without having to change the process (if it’s designed adequately in the first place).

Should there be any mishaps, it’s easy to edit the new and improved process, test it in a small environment, and only make it live across your organisation once you’ve proven it provides the desired results.

With SolveXia, your accounting team can access all the data they need from multiple business units as SolveXia integrates with systems, even legacy systems, through APIs. Your business leaders and executives gain transparency and can always check in on the process without having to rely on getting a hold of a key person from the accounting department.

Ultimately, your accounting and financial process are streamlined, resulting in increased productivity, decreased errors, and lower costs.

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Final Thoughts

Your organisation’s financial closure process doesn’t have to be cause for overwhelm. By clearly documenting the process, reducing inefficiencies, and proactively managing accounts, the month-end close timeline can be expedited.

This is especially true with the deployment of financial automation software that can help to manage most of the steps for your accounting team so that they can allocate their time to analytical and strategic endeavours.

To learn more about automation solutions such as SolveXia, request a demo and see first hand how it can help your financial closure process.

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