The financial close process has long been a critical activity for companies to accurately record and report their past performance. This is not only essential for the organization to understand what has happened, but there are also legal requirements to perform and publish this analysis.
For this reason and more, financial close is seen by many CFOs and financial leaders as the backbone of effective financial transformation.
However, change has arrived and will continue to arrive at organizations from all angles. Of course, we’ve seen unprecedented recent impacts from the global COVID-19 pandemic, and unfortunately, there may be other similar events in the future. And as we learned from recent events, Finance and Accounting teams must have the tools to conquer complexity, lead at speed, and drive performance.
For Finance and Accounting teams still relying on manual processes or “connected” Corporate Performance Management (CPM) software, financial close and reporting processes, such as statutory, risk, or environmental, social, and governance (ESG) processes, add another enormous layer of complexity.
Why? Because each and every financial close solution or departmental and corporate application must be connected. And that adds risk, cost, and complexity to already burdened Finance teams.
If your organization is evaluating whether it’s ready for financial transformation, here are 5 key signs that it’s time to rebuild your financial close processes.
1. Time Lost
If your financial close and consolidation process is largely manual, especially if you’re using Excel, it’s time for financial transformation. Why? Well, for starters, your organization is likely spending a considerable amount of time moving data and reference data between CPM processes and/or putting in a lot of effort to achieve the final result.
This means that your valuable resources are spending more time collecting data than understanding the results, and very little time analyzing the data to make better-informed decisions.
This is harmful not only to your people but also to your organization. The manual process is slowing down the process, wasting time, and making the work harder than necessary for your teams.
Need more proof? Consider the net impact on organizations as a whole. A 2019 Research Finance Benchmark survey found that 48% of organizations take more than 6 days to close the books. That period of time is too long in today’s world, and it has consequences.
It’s painful for an organization due to the missed opportunities that come with reporting that takes longer than necessary. But it’s also painful for Finance teams who have to handle complex manual tasks for several days.
2. Lack of Scalability
If you have multiple processes within the same applications to handle different areas of your business (e.g., management reporting vs. statutory reporting or different levels of budgeting and planning by business units), then you’re using the previous generation of CPM tools.
Why? Well, if the core components can’t be reused, then you’re using legacy CPM technology. For example, if a calculation has to be replicated in several processes, or an account cannot be shared or visible in multiple hierarchies, then legacy CPM technology is holding your organization back.
It is no longer necessary to implement multiple solutions where divisions, business units, and departments have the requirement to plan and report with a lower level of detail than corporate.
How can this make a difference? Well, having multiple solutions for actuals, budgets, forecasts, plans, reconciliations, profitability analysis, and more potentially means multiple different technologies and many different types of integrations to manage.
Not only will this take more time, but there is a significantly higher risk in integrations, validations, and reconciliations between multiple products, applications, and modules. A modern, unified, and scalable CPM platform brings this all into one: streamlining processes while reducing both cost and risk.
3. Low User Adoption
If your users are frustrated with the current tools and the level of service and support resolution from the vendor, then it’s a strong signal that a change is needed. This is especially true if you’ve lost staff due to such issues.
Why? Well, if your users are unhappy with the interface, capability, or service of the tools they are using, it can create dissatisfaction within your teams or departments.
Modern interfaces are everywhere today, from mobile phones we use to TVs or even refrigerators in our homes. People expect the same simplicity and ease of use in business applications.
As a result of frustration when this is not the case, some users become less engaged with their work, and many may even consider changing roles and/or companies because of this.
How can user system acceptance truly help your organization? Most financial resources are qualified and ambitious. They want to be strategic business partners and use their expertise for the good of the organization. As a result, it can be a pleasure to work with the right system, especially when it uses efficient processes that minimize manual tasks, such as performing allocations, calculating depreciation, or posting manual journal entries.
Minimizing such tasks will give users the time and scope to make a difference, enabling them to help elevate the overall performance of your organization.
You might be interested: 6 Key Challenges for Financial Closing and How to Overcome Them
4. Lack of Functionality
If you’re missing some key capabilities, it’s a good indication that a change is needed. Functionality around the periphery of the closing process tends to be especially good at signaling whether a change is required.
Why? Well, if any data comments and supporting information are stored in Excel files, notes, manual folders, or even sticky notes, it presents significant functionality issues. If there is limited access to real-time information and the only way to get data points is to wait until after the close, you are employing a high-risk strategy that could cause major problems for your organization later.
Beyond the risk, such functionality (or lack thereof) makes it difficult for users to track the process effectively. There are also multiple potential failure points, and valuable information could be lost. Worse yet, the wrong version could be used, leading to errors in reports.
How can functionality be improved to avoid these issues? Here’s how: by eliminating spreadsheets, ad hoc solutions, and other manual data repositories across multiple business units.
The result? Standardization across the organization and, more importantly, a single version of the truth for financial and operational results.
This functionality, in turn, supports better understanding and decision-making. Your corporate staff will also have the ability to drill down from summarized corporate data to underlying operational details, all within a single system.
5. Quality Concerns
If there are concerns, even small ones, about the quality of data/processes and/or known errors in reports, it’s time for a change. Frequent disagreements about data are also a sign to take action.
Why? Well, constant errors in key data or KPIs when presented at the board level are obviously problematic. It’s also not ideal if regular restatements are required due to errors discovered after the close. Both types of errors can cause unnecessary stress for everyone involved.
Additionally, in today’s corporate reporting environment, having good quality financial data is not optional—it’s a requirement. Errors or omissions in financial statements can lead to compliance issues or penalties, loss of stakeholder confidence, and often a reduction in market value.
How can you avoid these problems and instead ensure high-quality data and processes? By fully integrating your CPM solution with all source systems.
Next, the risk of data quality can be managed by using fully auditable system integration maps. Validations can be employed to control submissions from remote sites.
All of this gives your organization the ability to reduce internal control risks with better audit trails, enhanced breakdowns and source data breakdowns, and better (and complete) visibility of processes and changes.
Ultimately, fully integrating the CPM solution with all source systems will not only reduce compliance costs, internal controls, and audit requirements, but also improve confidence in the quality of financial results for both internal and external stakeholders.
Conclusion
If your organization is struggling to manage your critical financial close across the enterprise in the most effective way, now is the time to rebuild the financial close.
If your organization lacks timely, insightful, and easily accessible information for reports and insightful analysis to maintain a competitive advantage, now is the time to rebuild the financial close.
And if your Finance and Accounting teams are hindered from unleashing the true potential of Finance across the organization, now is the time to begin your Financial Transformation journey.
That journey starts with you establishing a new foundation for change and performance management.
For more information on how organizations are reinventing the financial close and whether you’re ready to leap from spreadsheets or legacy CPM solutions and begin your financial transformation, contact us!
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