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Month-End Financial Close Discussion

Sheila Saffold's Profile

Month End Financial Close

Good morning.  I'm new to this group, and looking for best practices for the financial month-end close.  How long is your close?  If it's particularly short, do you rely on estimates?  What type of internal analysis does your group do, prior to finalizing the finanicals? How do you distribute the information to department managers and use their feedback? I'd love to hear your success stories!

Answers

Scott Lane
Title: CFO and CRO
Company: TPG Credit Management
(CFO and CRO, TPG Credit Management) |

I have seen close periods from +2 to +10 business days. In all instances estimates are involved and judgment must be applied to consider whether changes get booked in current or subsequent months.

Most firms seem to be staffed only to close the books with little resources focused on analysis, not the best situation in my view. The most common analysis I have seen are account reconciliations where every G/L account, balance sheet in particular, is tied out to supporting information and period fluctuation analysis.

Best practices I have seen are to involve business people in the review and approval of their numbers, require them to take some ownership. In larger companies this is usually more formal, involving committees and signatures. In smaller companies it is usually a quick email that confirms they agree to their figures.

Worst case scenario is if nobody but accounting recognizes and takes ownership of the numbers. Best case scenario is if accounting is framed to be just processing the businesses results.

Sarah Jackson
Title: Associate Editor
Company: Proformative
(Associate Editor, Proformative) |

Good point, Scott.

Here's a white paper jam-packed with insights:

"The Modern Approach to Closing the Books: An Introduction to Continuous Accounting"
hhttps://www.proformative.com/whitepapers/modern-approach-closing-books-introduction-continuous-accounting

We also have courses on this subject, including:

"Best Practices For A Quicker Close"

https://www.proformative.com/courses/financial-close-best-practices

Enjoy!

Best... Sarah

Shane Patrick Connolly
Title: Chief of Staff
Company: Council District 10, City of San Jose
(Chief of Staff, Council District 10, City of San Jose) |

Ensure that the closing process is well-documented and that a closing calendar is published ahead of each month-end, distributed not only to accounting but to functional/business unit (BU) leaders and those who provide inputs into closing. Be sure their deadlines are included so that your process stays on track.
Obviously, 'real' numbers are best, but use professional judgment and best estimates when necessary for timely month-end. You might extend qtr or yr-end by one day to avoid estimates, if possible, and get buy-in on estimates from those whose numbers are effected. I recommend the balance sheet be thoroughly tied out and support documentation is complete before closing is completed. Test for profit/loss and major revenue/expense reasonableness against relevant prior period(s) as well as budget/forecast. It's essential to allow enough time to get buy-in on final numbers from functional/BU leaders. If they ignore you, at least you have done your due-diligence and have solid ground on which to stand when, as happens in some organizations, the functional or BU leader intimate that accounting some how pulled the numbers from thin air and weren't simply reporting the facts that were presented by their people. If you're doing some form of daily Dashboard (which often involve a number of estimates or assumptions), your leadership team should have a good idea of, at a minimum, the way the numbers are trending and not be particularly surprised by the actuals at period-end.
Other best-practice: if applicable, daily tie-out of A/P, receipts, invoicing, so that at end of period your team is balancing only a day's worth of data instead of a month's worth.

Mark Stokes
Title: CFO
Company: Private
(CFO, Private) |

Completely agree. Make the businesspeople own their numbers. Finance and accounting are there to write history and provide visibility to the future, but a)mistakes happen, b)garbage in, garbage out, and c)the businesspeople need to know and own their numbers. All too often when the numbers are unfavorable the businesspeople (GM, Sales VP, etc.) look to accounting as if they drove the result, rather than just tabulating the outcomes.

As CFO I send pre-close financials monthly to the Business GMs at my company and either I or my Controller review those numbers with them to make sure we're all on the same page.

Lee Amon
Title: Director of Marketing
Company: Silicon Valley Accountants
(Director of Marketing, Silicon Valley Accountants) |

One of the things we have seen is that the close process is unique for each organization. So, while it is possible to benchmark yourself against others, see my previous post on the benchmark survey recently published by Mohler Nixon & Williams, best practices need to be tailored for your specific organization.

We believe the best way to do this is with a culture of continuous improvement, along with tools that help you to measure your close.

Topic Expert
Barrett Peterson
Title: Senior Manager, Actg Stnds & Analysis
Company: TTX
(Senior Manager, Actg Stnds & Analysis, TTX) |

Our primary close process takes five work days with reports issued on the seventh work day. Most ledger master accounts are reconciled during the close, and nearly all major balance sheet captions are analyzed. Actual transactions are used primarily with estimates where required. Income tax accruals are recorded on the sixth day using estimated effective tax rates which are reviewed quarterly The close process compares preliminary income statement data to plan and forecast and review 13 month moving averages. The close process also includes a summary balance sheet change review with an internal activity format cash flow statement for month and year-to-date. We will sometimes add one day at quarter-end and two at year-end, except for final pension plans data which awaits the actuarial report in late January. Income tax accrual asset/liabilitiy reclassifications are done annually at year-end. We identify and establish during the month key data flows to minimize unexpected items arising in the close. Annual estimate items are reviewed at least quarterly...monthly where feasible. State tax law changes are monitored constantly and reflected at least quarterly.

Andy Wong
Title: VP Finance & Accounting
Company: C2 Educational Systems, Inc.
(VP Finance & Accounting, C2 Educational Systems, Inc.) |

We are a $300 Million company. Our Monthly Financial Close is 4 days, with FLASH review with our CFO on day 5. After this is done, Executive Team FLASH Review is done on workday 6 or 7 (depending on their calendar) and then it is released. Our close is based upon actuals with A/P accruals recorded as needed based upon account analyses. Unfortunately, Accounting is made primarily responsible for all accounting actuals, comparisons to budget/plaan and prior year, as well as to explain variances with very little input from the various cost center managers.

I completely agree that the many cost center managers/businesspeople should own and explain their results, but we're told they don't have time. So Accounting has a monthly scrable performing detail results analses and pulling detail invoices from A/P to try to explain cost center spending, particulalry where there are large variances to comaprison data. A typical review meeting with the CEO would include questions to me as control for each department, who traveled and what was the purpose of their travel? Listing the who is the easy part, but knowing by department who among more than 1,000 emploees traveled each month and for what specific purpose is absolutely rediculous!!!

I believe finance and accounting are there to accurately capture and report what went on financially with the business. but with limited staff and a tight close window, cannot reasonably have all the detail answers for management and that the managers who spend the money and approve the spending should have to play a bigger role. As the owners of their P&Ls, they should have to own explaining it as well.

As Mark Stokes said, "All too often when the numbers are unfavorable the businesspeople (GM, Sales VP, etc.) look to accounting as if they drove the result, rather than just tabulating the outcomes." Now how does this make sense when they are ones who spent/approved the spending?

As Controller, I have found it is an uphill battle trying to change behavior and processes. As I make efforts to improve processes, efficiencies, and management effectiveness, I fear I am viewed as not being a team player.

I do firmly believe an Accounting Staff can be strong, effective, and supportive of the business doing the right things, but all too often are viewed as necessary evils rather than valuable partners to the business.

Andy

Topic Expert
Patrick Dunne
Title: Chief Financial Officer
Company: Milk Source
(Chief Financial Officer, Milk Source) |

We are an $800 million dollar, three business unit company with operations only in the US. We close in 2 days. We spill into day three only if there is an significant issue to address. The best advice I can give anyone is, don't start closing after the month ends. We make any entry that we can in the before the last day of the month. The rest is just plain discipline as we have one G/L system that still processes batch transactions on a monthly basis, but this is not a barrier to a quick close. Our business units are close to being closed on day one and using day two to do more analysis on why results varied from expectations. We also use some tools to communicate faster between locations such as using IM's to get quick responses and communicate entries to be made. I have also been in an multi-nationals where closes were delayed, but usually due to lack of discipline in completing entries before the month ended.

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

Make the processes somewhat automated. I'm involved with a client where dependent data doesn't "line up exactly" into control data for a simple cut and paste. A colossal waste of time.

So more time is spent building then analyzing.

Gryselda Joseph
Title: Senior Accountant
Company: NA
(Senior Accountant, NA) |

ME close can be between 2-5 days. Anything beyond that should simply be reporting and data analysis. Best to maintain and publish a monthly calendar by day that allows drill downs to daily, weekly, monthly, quarterly, and relevant periodic tasks. And hard to believe, it's good to let everyone know, "it's month-end CLOSE."

Anonymous
(Controller) |

We are a professional services company. We close in about 5 days- 5 entities worldwide with majority of staff in US closing international entities - maybe a day longer on the quarter close. We close AP 3 business days prior to month end. Once AP is closed, all prepaids are amortized, we can perform our accrual analysis by vendor by entity (this takes about 3 to 4 hours). It takes us about 2 days to close revenue as we do rely on estimates for those individuals that have not completed time sheets as we book revenue on incurred vs forecast. Payroll is booked 2x a month with the registers received and all cash receipts are booked daily. Bank recs for the month are done at end of month but since most all transactions have been booked all through the month, this process is quite quick. We update our electronic work papers during the month so all balance sheet accounts are reconciled within the 5 day close. On a quarterly basis we close out projects and book any closing entries needed for projects that were completed during the quarter.

NARASIMHA BADRI
Title: Controller
Company: SOLUGENIX CORPORATION
(Controller, SOLUGENIX CORPORATION) |

We are consulting services company we close in 8 business days, we look at major drivers and make sure 98% of expenses based on actuals, Employees payroll and contractors expense are major drivers time sheets are major revenue drivers, we do reconcile every ledger account before the close, we use monthly close calendar to track the status

Philip Russell, CPA
Title: Chief Financial Officer
Company: FCB Homes
LinkedIn Profile
(Chief Financial Officer, FCB Homes) |

I typically close the books in 1 business day. I then leave the books open and make any adjustments necessary by mid month. It is imperative to have a closing checklist to have a fast close. This monthly checklist needs to be written down and changes need to be made to it over time. The monthly checklist will vary from company to company.

Sue Ashe
Title: President and CEO MobileAccountantAZ
Company: MobileAccountantAZ
LinkedIn Profile
(President and CEO MobileAccountantAZ, MobileAccountantAZ) |

I am in the process of month end closing today actually. I tend to get the easy small and straightforward clients out of the way the fist day (the banks all closed due to the end of the month being on a weekend). I have several Paypal/Ebay clients that I save for last since they involve a lot of downloads of reports and data manipulation. Restaurants I cannot finish until their psychical month end closes so I can tie out their POS to the bank accounts and file sales taxes. The longest close time for any client is 5 working days. I have all recons done and financials sent to the owners and partners

Mark Smith
Title: V.P. of Finance
Company: Arrowhead Health Centers
(V.P. of Finance, Arrowhead Health Centers) |

HEALTH CARE REVENUE ANALYSIS

Since revenue is always the beast when it comes to health care accounting, one little trick that simplified things for my team was to separate the Charges-Payments-Adjustments part of the revenue from the allowances. This made it much easier to identify potential errors in our data or in our journal entries. With this example below, when closing July I would question why the adjustments were suddenly so high. Did the accountant upload the data incorrectly or did the billing department go crazy with write offs?

Charges Payments Adjustments
July 400,000 150,000 350,000
June 450,000 75,000 250,000
May 400,000 125,000 200,000
April 350,000 100,000 200,000

For the allowances I'm looking for consistency. Seeing the Allowance Rate suddenly drop to 63% in the example below would get my attention. Since we had a complex calculation system for our allowances it could easily get messed up if the accountant made a mistake on the spreadsheet. Using this simple analysis not only gave us confidence in our numbers, it was the start of the analysis that we would report to management.

A/R Balance Contract Allow. Aged Allow. Allow Rate
950,000 589,000 9,500 63%
1,050,000 735,000 21,000 72%
925,000 629,000 18,500 70%
850,000 612,000 17,000 74%

Good luck!

(Sorry for the formatting. I didn't see an option for uploading a file.)

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