Don’t waste another $6 million on your financial close -- Automate for better accuracy and efficiency

Cash in handEvery member of the finance department knows the importance -- and the effort it takes -- to perform the monthly, quarterly and year-end close in order to create corporate financial statements. The tabulation and documentation demand complete accuracy and coordination between all the moving parts of an enterprise.

For large organizations, it's a tremendous process challenge just to consolidate information from so many geographic locations, departments and corporate silos in a relatively short period of time.

How Do You Close?

Recently Redwood conducted a study of 56 large companies in the Global 1000 who use SAP at the core of their enterprise. The research spanned a variety of industries including financial services, oil and gas production, technology, telecommunications and utilities. The goal of the study was to find out how these organizations meet the perpetual challenges of the financial close.

We examined every step in their close processes, and the results were surprising. There was remarkable similarity across various industries in different geographies -- in the amount of manual effort put into financial close processes. In fact, all of the companies surveyed still depend on many manual tasks throughout the financial close, even when core processes are supported by a robust ERP and high-quality IT infrastructure.

Most companies perform a period-end close on a monthly basis. This, in turn, supports the quarterly and yearly financial closes for compliance reporting (e.g. 10-Qs and Form 10Ks).  With each close, large companies must bring together a wide range of sales, expense and balance sheet data from a number of separate legal entities. Of course, the bigger the company, the more divisions or separate legal entities they have to cope with.

The finance department is quite literally accountable for discovering and correcting or explaining any variances that may be found. The tabulation involved in coordinating all of these pieces of data from different legal entities requires a high degree of accuracy and full documentation of every step. With the repetitive nature of this work, you might think that the close process would be supported by large-scale automation. Unfortunately that wasn’t the case.

Room for Improvement

Our research examined the documented closing processes at each organization, and matched those processes against what was actually done. From this we gained deep insight into what really happens in the financial close. We could see how much each company followed their own documentation, and what steps relied on customization or sheer human effort. The variations we measured showed great room for improvement.

Like many other back-office functions, the financial close has yet to be fully automated -- even in the biggest companies. Instead of automation, what we saw was large-scale manual effort throughout.  Companies with an average number of 83 legal entities dedicate an astonishing 8,300 full personnel days every year to support the close process. Overall we found that, typically, 82 percent of financial close activities are completely manual, which substantially increases the risk of human error, not to mention cost. More disturbingly, we also uncovered that up to 23 percent of financial close steps that are formally documented may never actually be executed.

Higher Efficiency with Lower Risk

For larger corporations, the research highlights an area where the finance team can improve efficiency and realign staff from repetitive production tasks to strategic analysis. All of this can be accomplished with process automation.

When we examined the repetitive manual tasks common to these large companies, we discovered that 70 percent of these activities could be eliminated through automation. With this single step in support of their SAP enterprise, larger companies could save an average of US$6.48 million every year. At the same time, these companies could also refocus their finance teams toward more value-added work such as variance and trend analysis instead of tedious levels of manual tabulation and checking.

Period-end closing reports are some of the most important sources of information a company has. All CFOs need trustworthy numbers and require time to analyze financial data. They need to know why sales went up or expenses went down. Internal reports are vital to decision support at every level of the business. Meanwhile, external financial close reports support market strength and shareholder confidence. Our research shows that it's time for large corporations to take a serious look at their financial close processes. It's time to end the risky manual tasks in the financial close and automate for efficiency, accuracy and reliability.

Image Credit: Vadim Georgiev/Shutterstock

Peter MinckPeter Minck, Vice President, Business Solutions, Redwood Software, heads Redwood's North American Financial Close Automation team. Before joining Redwood, Minck held executive financial management positions at Automatic Data Processing, The Rockefeller Group, Goldman Sachs and Cohn Consulting Group, among others. With more than 25 years of experience in financial consulting and financial management in the areas of financial reporting, period-end close and financial system design, Minck has led many of the largest and most successful global organizations to transform their financial close with intelligent automation.

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