Summary

Ventana Research recently completed a primary research study, “The Fast, Clean Close” (sponsored by Longview Solutions). We compiled results from the survey responses of 424 validated participants, almost all of whom have finance department titles and work in companies with more than 1,000 employees. The results strongly suggest that CFOs and controllers should make closing faster a management priority because it enhances the effectiveness of the finance organization. For example, it can make actionable management information and analysis available sooner to give public companies more time to analyze and check their numbers before filing financial statements. Spending less time on closing also means there is more time for people in finance departments to do more valuable work. For almost all companies, there is no “silver bullet” that will accomplish this objective. Instead, focusing on managing the closing process better was a consistent theme that surfaced in the study’s findings.

View

Managing the closing process with greater precision and control turns out to be the best way to shorten the monthly and quarterly intervals. Companies that accomplish process improvement are able to close faster than those that do not. Another important factor contributing to a faster close is having a process around the process; that is, since it is unlikely that a company will find a single factor that will substantially cut its closing time, companies showing closing time improvements tend to be those where senior finance department executives have implemented an ongoing process improvement process. Our research, which also was sponsored by Business Finance, the Institute of Management Accountants and Technology Evaluation Centers, found that companies that have created a group that reviews opportunities monthly or quarterly were able to shave a day off their quarterly close over the past two years; that’s about twice the improvement achieved by companies that address these issues on an ad-hoc basis or do not attempt to address them at all. Another important correlation we found was between companies that set out to shorten their close and those that achieved good results. Three-quarters of companies that set out to shorten their close wound up doing so, compared to just 16 percent of those that did not. Making this a finance department priority is the necessary first step to accelerating the process. Managing the process with consistency was the most frequently cited factor by respondents from companies that shortened their close over the past two years. Simplification is another element to shortening the closing cycle, either by standardizing or reducing process steps or by eliminating unnecessary detail. Greater centralization of accounting functions also can help, particularly if there is no good business reason not to centralize.

Although almost half of the companies participating in the research were able to shorten their monthly and quarterly closes over the past two years, we believe companies can achieve substantially greater progress. For one, a majority of companies believe that they could be closing at least a day faster. For another, our Maturity Model analysis finds a majority of companies fall well short of best practices in this area. Ventana Research uses an assessment process to gauge organizations’ people, process, information and technology maturity on four levels. We use the terms Tactical, Advanced, Strategic and Innovative to characterize the maturity stages. In this study, we measured process maturity by how long companies take to close, whether they have processes in place that can lead to a shorter close and the improvements these companies have made.

We found the largest group of participating companies (42 percent) have closing processes that are at the basic Tactical level. Not only does it take them longer than average to complete their close, but none has shortened the process and some even take longer than two years ago. They also do not have a formal, regular process for identifying and remedying factors that contribute to a longer close or have no process of any sort for assessment and change. Another 19 percent are at the next level, Advanced. These companies take five or six business days to perform their monthly or quarterly close and shortened their closing period by a day or two over the past two years. Those that are at the Strategic level of process maturity (28 percent) typically have improved their closing time by three four business days and close their quarters in three or four days. At the Innovative level of process maturity (11 percent of participants), most companies have improved their closing times by three or more days and can close in one or two business days. The Innovative companies most often have monthly review meetings to discuss closing problems and work out ways to resolve them.

Assessment

Having the right set of processes and managing them consistently are important to achieving a faster close. Almost all of the respondents in our research agreed that shortening their closing interval – monthly or quarterly – was important. Moreover, the amount by which they want to shorten the close was proportionate to the time it takes today. For example, a majority of companies that are taking more than two business weeks to close want to cut a week off the process. Ventana Research recommends that companies that want to shorten their closing cycle focus on the process and software aspects of the close. Managing the process with the object of closing as soon as possible is a necessary first step. Likewise, having the appropriate software often is a prerequisite to achieving sustainable progress in accelerating the close.

About the Author