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Techniques to Accelerate Year-End Financial Closing: Feature of the Month

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Techniques to Accelerate Year-End Financial Closing: Feature of the Month

Year-end closings are a grueling time for accountants, but the best teams don't wait until the last minute. Instead, they perform closing activities throughout the year to have a quicker and less stressful year-end closing process.

Front-loading the work makes all the difference. Administrations that swiftly complete the annual close, like the top 25% APQC organizations, do so in 10 days or less [APQC Annual Reporting Process Network]. Those at the median take twice as long, while the slowest ones still take over three times as long [APQC Annual Reporting Process Network].

To achieve impressive results like these, consider benchmarking against industry peers and setting an optimal cycle time that aligns with your company's size, complexity, and compliance deadlines.

Stay mindful of factors such as subsequently reviewing transactions after the cutoff period. A 15-day cycle, for instance, might not be enough for some businesses [Wiggins, P. D. Getting Started with Accounting Best Practices].

Pre-close activities play a significant role in ensuring a smoother year-end closing process. By performing these five strategies in the build-up to the year-end close, your accounting team can remove obstacles, make the year-end closing more painless, and focus on adding value to the organization.

  1. Plan Ahead: Develop a detailed year-end closing schedule and delegate tasks to team members. This planning prevents confusion and sets clear expectations.
  2. Involve All Departments: Financial leaders should collaborate with colleagues from HR, warehouse, payroll, and other functional departments to ensure every team understands their role in the yearly close.
  3. Create Checklists: Use checklists to keep track of the various pre-closing, closing, and post-closing activities. This helps guarantee a smooth and timely completion of the tasks.
  4. Monthly Reconciliations: Instead of delaying complex account reconciliations until year-end, perform these throughout the year. Monthly reconciliations speed up the closing process, simplify audits, and permit the team to move onto other more important tasks.
  5. Prepare for Changes: Stay informed about any alterations in the accounting or tax regulations to avoid getting caught off-guard. Scanning the horizon for potential deviations enables the team to prepare and be proactive when issues arise.

By carefully executing these strategies, your accounting team can increase its efficiency and make the year-end closing a breeze.

In summary, a well-planned, efficient year-end close is essential for any organization. By adopting pre-closing activities, teams can minimize bottlenecks, errors, and stress during this time-consuming process. Happy closing!

Perry D. Wiggins, CPA, serves as the secretary, treasurer, and website manager for APQC, a nonprofit benchmarking and best practices research organization headquartered in Houston, Texas.

Enrichment Data:

Effective pre-closing activities can significantly improve the efficiency and ease of the year-end close for accounting teams. Here are some key points to keep in mind:

Pre-Closing Activities for a Seamless Year-End Close

1. Develop a Time-bound Year-End Closing Calendar

  • Develop an Itinerary: Organize all accounting procedures and deadlines into a calendar to ensure readiness for audits, providing a headstart for future planning [1].
  • Allocate Tasks: Deliver responsibilities among team members to streamline the process [1].

2. Collate and Organize Financial Documents

  • Gather Records: Round up all financial transaction records, including bank statements, credit card statements, inventory counts, and loan account statements [1].
  • Automate Collection and Organization: Utilize CRM platforms, accounting software, and data extraction methods to streamline the document collection and organization process [1].

3. Standardize and Automate Procedures

  • Daily Transaction Recording: Ensure all financial transactions are recorded daily to reduce end-of-year workload [2].
  • Regular Accounts Reconciliation: Periodically reconcile balance sheet accounts to identify discrepancies early [2].

4. Curate Reusable Checklists

  • Monthly Close Checklists: Establish electronic checklists that can be reused each month to track progress across departments [2].
  • Integrate Key Tasks: Incorporate tasks like verifying transactions, posting closing entries, and closing sub-ledgers [2].

5. Provide Easy Access to Financial Information

  • Centralized Data Storage: Store financial data from all departments in a secure, easily accessible cloud-based platform to enhance timely reporting [2].
  • Regular Meetings: Hold pre and post-close meetings to discuss challenges, changes, and performance indicators [2].

6. Align Daily Reporting with Month-End Reports

  • Consistent Reporting Format: Ensure daily/weekly reports follow the same format as month-end reports to prevent surprises and errors [3].
  • Continuous Error Correction: Regularly inspect financial statements for mistakes throughout the month [3].

7. Prepare for Month-End Reporting

  • Prepare Early: Create a checklist of necessary reports and activities a few days before the end of the month [3].
  • Liaise with Departments: Ascertain which departments must submit reports, and communicate with relevant employees, such as payroll [3].

8. Address Preopening and Capital Expenditures

  • Correct Expense Coding: Ensure preopening expenses are classified as capital expenditures, not operational expenses [4].
  • Accurate Financial Representation: Reflect these expenses on the Balance Sheet to reflect their long-term value [4].

By adopting these strategies, accounting teams can efficiently manage the year-end closing process, reducing potential bottlenecks and errors.

[1] APQC (n.d.). Creating a Monthly Close Checklist. Retrieved from https://www.apqc.org/resources/guides-toolkits/good-processes-series/apqc-guide-financial-accounting-monthly-close-checklist

[2] McKinsey & Company (2020). Assessing the close. Retrieved from https://www.mckinsey.com/industries/financial-services/our-insights/assessing-the-close

[3] About Finance (2020). 5 Ways to Make Month-End Financial Reporting Easy. Retrieved from https://www.aboutfinance.com/content/5-ways-make-month-end-financial-reporting-easy

[4] Smith, J. (2019). How to Do a Preopening Inspection Checklist for Contractors. Retrieved from https://smallbusiness.chron.com/do-preopening-inspection-checklist-contractors-80224.html

  1. Optimize Finance Management: To ensure a smoother year-end closing process, finance teams should aim to optimize their operations by automating procedures, implementing regular reconciliations, and adopting advanced accounting software that streamlines document collection and organization.
  2. Link Pre-Closing Activities to Business Revenue: By focusing on pre-closing activities year-round, companies can maintain a constant flow of accurate financial data that supports decision-making processes, leading to improved asset management and eventual growth in revenue.

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