The close process is known to be a pain point for many finance teams, but in this article, we will show you that it doesn’t have to be. “Continuous close” can actually save you time and improve your financial reporting.
If you care about expediting your financial accounting close process without sacrificing data quality or losing your mind, then read on!
What is Continuous Close?
The term “close” in accounting and finance refers to the period of time at the end of an accounting period when financial statements are prepared. The close process can be a lengthy and manual affair, involving lots of paper shuffling and number crunching.
In recent years, however, there has been a shift towards what is known as ‘continuous close.’
Continuous close (otherwise called continuous accounting or rolling close) is the practice of using automation and modern systems for keeping accounts current on a daily basis and being able to provide financial information at any time during the monthly reporting period.
The goal is to ensure that the company’s books are up to date at all times during the month and that this is achieved without stress.
The concept of continuous close is relatively new. However, it has a number of compelling advantages for businesses and only a few minor drawbacks.
The Benefits of Continuous Close
The following are the advantages of moving to a continuous close process:
1. Increased transparency and visibility
With continuous close, all transactions are accounted for in near real-time. This means that there is no lag between when something happens and when it is reflected on the financial statements.
This increased transparency can help businesses make better decisions as they have access to up-to-date information at all times.
This also makes it easier to track where money is being spent and see where improvements can be made.
2. Real-time value (with enhanced forecasting ability)
With transparency and visibility comes the ability to make decisions based on real-time information.
This is valuable for businesses as it allows them to react quickly to changes in the market or their own operations.
It also allows businesses to take advantage of opportunities as they arise instead of waiting for the next month’s financial reports.
At any point, managers can see exactly what is going on in the business and make decisions accordingly.
3. Improved accuracy and few errors
The close process is often fraught with errors due to the manual nature of many of the tasks involved.
With continuous close, the reliance on manual processes is greatly reduced and automation is applied, which leads to improved accuracy.
This also means that businesses can avoid the costly process of having to restate their financial reports due to errors.
4. Reduced costs
The close process can be very costly, both in terms of time and money.
With continuous close, many of the manual processes are eliminated, which saves businesses both time and money.
For example, when reconciling accounts, it’s common for accountants to discover entries from a month or more ago that they can’t recall.
One of the most time-consuming parts of the closing process is investigating and resolving this sort of mistake.
With continuous close, businesses can avoid this problem altogether as accounts are reconciled daily.
Additionally, businesses can save on external audit fees as the need for auditors to review monthly financial statements will be greatly minimised.
5. Better compliance
Continuous close can also help businesses comply with financial regulations.
To explain, businesses in regulated sectors are expected to maintain accurate and up-to-date books.
Increased automation decreases errors while providing more insight into what has been completed and when.
Continuos close makes it simpler to audit accounts because it’s easier to work on a few lines on a journal than untangle massive journals done monthly.
6. Improved and faster decision-making
In addition to the benefits above, continuous close also enables businesses to make decisions faster.
This is because businesses have access to accurate and up-to-date information at all times.
Furthermore, businesses can avoid the delays that are often associated with the month-end close process.
7. Increased company agility
When information is more readily available, companies are better able to make decisions. That means increased agility.
Up-to-date records allow ad hoc reporting for business decision making to be almost instantaneous, allowing executives to take timely action on opportunities that arise.
This level of agility would not be possible if businesses were relying on monthly financial closing.
The Problems with the Continuous Method of Closing
Are there problems with continuous close?
Well, just as with any new method, there can be teething problems when implementing continuous close. However, these problems can easily be overcome with the right solutions.
1. Legacy systems
Some businesses are still using legacy systems that can’t run a continuous closing process and this can be a major obstacle to shifting to real-time numbers.
These old systems were not created with the goal of having books that are always totally up to date and reporting at any time during a month in mind.
The solution? Upgrade to a more modern system that can support continuous close.
2. Cultural resistance
There may also be resistance from employees who are used to the old way of doing things.
They may not be comfortable with the change and need time to adjust.
To resolve this, employees need to be properly trained on the new system and its capabilities.
They should also be made aware of the benefits of continuous close so that they can see how it will benefit them in their roles.
Buy-in from all stakeholders, including senior management, is also crucial to ensure a successful transition.
3. Monthly payroll management
A question that may arise is: how will you keep track of a monthly payroll as continuous close is done daily? Will you accrue on a daily basis?
Well, doing so manually isn’t a viable option as it would be too time-consuming.
Fortunately, automation can help.
SunSystems and NetSuite, for example, provide more sophisticated systems that can make daily accruals for payroll, which are then unwound as soon as the payments are made.
4. Consolidation problems
Consolidation is one of the most time-consuming operations when it comes to month-end.
This is mostly caused by systems that are not integrated and have a completely distinct chart of accounts.
This can be overcome by migrating to a third-party reporting system such as Query & Analysis, which can handle different account numbers and formats.
Another option is to update their systems along with the chart of accounts for each distinct entity.
Is Continuous Close Right for Your Company?
Now that you know all about continuous close, it’s time to answer the big question: is it right for your company?
There’s hardly any business that won’t benefit from continuous close.
However, some businesses will benefit more than others.
Generally speaking, businesses that are growing quickly or have a lot of transactions will see the most benefit.
This is because they will have more to gain from having up-to-date information and being able to make decisions quickly.
How to start?
If you’ve decided that continuous close is right for your business, the next step is to start planning for the transition.
Here are some tips on how to do this:
- Define the process
The first step is to map out the entire process required to close your month-end so that you know what needs to be done and who is responsible for each task.
- Set up a cross-functional team
You’ll need to set up and bring a team on board. Early engagement is essential to accomplishing your goal, so get them invested in your vision.
- Define and assign tasks
Prepare a transition strategy that covers duties and responsibilities. Determine which of those activities needs to be done and by who.
Data quality checks
Ensure that your data is clean and accurate. This is crucial for making sound decisions based on the numbers.
Communicate, communicate, communicate
Throughout the entire process, communication is key to ensure that everyone is on the same page and knows what needs to be done.
Get started with the right system
Infor SunSystems and NetSuite are two powerful, modern systems that can support continuous close.
Both systems are fully integrated and offer real-time visibility into your business. They also support sophisticated automation, which can help you close your books quickly and efficiently.
The choice of system will ultimately depend on your specific needs and preferences.
With FinanSys as your partner, the transition to continuous close will be seamless. Our team of experts can help you assess your needs and recommend the right solution for your business.
Get in touch with us today to learn more.