Software to Close By

Closing the books is a pivotal event in finance departments. It is the prerequisite to many critical management functions such as performance reviews, business reforecasting, and providing financial statements to shareholders, creditors, and regulators. If your company is at all competitive, it should aggressively be looking for ways to streamline and speed its closing process.

Most Companies Take Too Long

Back in the 15th century, when Luca Pacioli was codifying the rules of double-entry bookkeeping, merchants usually closed their books only at the end of a business venture, such as a voyage to the Spice Islands or selling bolts of cloth at the trade fair in Bruges. Today, corporations close their books monthly because this is the typical billing cycle, as well as quarterly or annually because this is when they report their financial results. Although the accounting function was one of the first to benefit from using computers, the closing process still retains many vestiges of the days of paper ledgers, adding machines, and green eyeshades. As a result, most companies take too long to close their books.

Who says so? They do.

In a recent study, Ventana Research found that about half of larger companies (those with 1,000 employees or more) take up to five or six days to complete their monthly close, and a slightly smaller proportion complete their quarterly close in a similar period. But the grass really is greener: About three-quarters of companies that take three business days or more to do their monthly close think that they should shorten their close by at least a day or two. Half of the companies that take seven or more days want to cut their closing cycle by three or more days. The results were similar for the quarterly close.

Why do companies want to shorten the close? Our research panel cited most often two basic objectives. First, closing sooner makes it possible to spend more time looking at results before making them public. Second, achieving a faster, accurate close can benefit the entire organization by giving people actionable information about problems and opportunities sooner. Another, less noticed reason is that a well-designed, well-executed accounting close requires fewer resources (chiefly people and time) to perform the purely mechanical tasks. This gives more people in finance organizations more time to do the value-added work that finance executives wish they could do if they had more time or more people.