Barriers to a continuous close.
The monthly close has long been an onerous task for finance teams. It’s a nose-to-the-grindstone job that can stretch on for days, or even weeks, and take attention away from other important responsibilities. A continuous close solves these problems. In a continuous, or rolling close, the books are updated in real time. Financial records are always current. All supporting documentation is available at any time, so finance teams don’t have to chase employees to resolve issues or track down receipts.
However, the transition from a traditional monthly close to a continuous close isn’t necessarily a firm line, and a truly continuous close may be more aspirational than realistic for most organizations. But when the right processes and systems are in place, a “soft close” becomes possible. Journal entries aren’t backlogged, and an entire month of financial information doesn’t have to be processed and aggregated all at once. The finance team may still need to perform a "hard close" at month end, but the process will be much shorter. Up-to-date financials support more informed forecasting and decision-making at any time of the month, as a business moves closer to a continuous close.
Three compelling reasons to move towards a continuous close.
1. More time. Airbase’s Annual Benchmark Survey of Finance Professionals found that over 60% of finance teams spend more than a week on the monthly close. That’s a lot of time that could be better spent on higher-value tasks.
2. Better decision-making. Instead of relying on data from the past, decision makers can work with current financials for more accurate forecasting and better-informed strategic planning.
3. Fewer errors and less risk of fraud. Traditional closes leave more room for error, in part because accountants have less time to scan for mistakes or signs of fraud. Additionally, the stress of trying to close the books on time can cause team members to make errors.
Below, we’ll explore some obstacles that may stand in the way of implementing a continuous close in your organization and how they can be overcome.
Overcoming the obstacles to a continuous close.
1. The problem: Resistance to change. Accounting and finance teams are typically accustomed to regimented and familiar processes. That’s understandable, since accounting processes should be as consistent and predictable as possible. However, moving towards a continuous close frees finance professionals from a significant amount of stress and time-consuming manual work, and opens up time for more strategic work — the kind of work that really makes a difference, and that ultimately feels more fulfilling.
The solution: A growth mindset, throughout an organization. The implications of a continuous close extend beyond the finance team’s workload. The overarching end result is a more informed, empowered company.
2. The problem: Too many manual tasks. Without the right systems in place, many closing tasks, like bank reconciliations or data transfers, are manual and repetitive. A finance team simply can’t handle them every day to keep everything updated for a continuous close.
The solution: Accounting automation. Automated accounting processes that sync every transaction to the GL eliminate that time-consuming manual work. When purchases sync to the GL automatically, finance teams are closer to being able to perform soft closes on demand at any time.
3. The problem: Poor audit trails. Our Benchmark survey found that collecting documents is one of the most time-consuming tasks faced by finance teams, and spending time finding receipts or looking for approvals certainly blocks the possibility of a continuous close.
The solution: Approval workflows that build in document collection. In an intelligent spend management system, the approval process automatically creates an audit trail, with contracts, invoices, receipts, and other necessary documents collected within the purchasing ticket. If payment is by corporate card, receipt collection enforcement can be configured within the system.
4. The problem: Unreliable data from disparate sources. If data is collected from different systems at different timeframes, it must be consolidated and reconciled in order to close the books. In addition to being inefficient, this process raises the risk of errors, and having to continually confirm data accuracy takes even more time.
The solution: Shift to single platforms when possible. Switching to a consolidated platform solution for AR, AP, and payroll helps bring together accounting tasks instead of spreading them out across multiple software solutions. For example, when every non-payroll dollar that leaves a company — including purchase orders, invoices, corporate card, expense reimbursements — is on the same spend management platform, the accounting team doesn’t have to do cross-platform reconciliations in order to close the books.
5. The problem: Errors and missing information. Mistakes happen. But all errors must be resolved during a close. Pending charges must be resolved, and missing information tracked down.
The solution: Real-time reporting capabilities, upfront approvals, and automated categorizations. With an immediate view of all spending, it’s possible to filter reports to see exactly what’s missing. In Airbase, for example, a pending charges report will show all unresolved charges.
With a well-designed approval process, missing documentation and incorrect data, such as tags or categories, are addressed up front, and out-of-policy spending is flagged immediately. Plus, up-to-date reports are available at any time, eliminating the time and hassle of creating ad hoc reports throughout the month.
6. The problem: Booking accruals, depreciation, and amortization correctly. Time-consuming accruals, depreciation, and amortization calculations take place at the same time, when accountants are already stretched thin.
The solution: Automated accounting processes can simplify these calculations. Platforms with amortization modules, for example, can generate a full amortization schedule for those purchases that need to be recognized during the service periods by simply entering a start and end date. These entries can now be managed in one platform, instead of separate amortization schedules. Even complex amortization schedules can be created if the platform is able to work in conjunction with your GL’s library of custom amortization schedule templates. Also, with the right automated systems, accruals can be automatically calculated for approved POs.
Fixed asset accounting takes place at monthly intervals. If your accounting policy requires month-end depreciation accounting, recording depreciation is one task that must be performed at month end, and therefore prevents a truly continuous close. However, when other closing functions are happening automatically, depreciation can easily be scheduled as part of a manageable workload.
7. An overwhelming Chart of Accounts. Too much granularity in a Chart of Accounts can make closing difficult. At the same time, as the backbone of your financial reporting, it needs to be accurate.
The solution: A clear and concise Chart of Accounts streamlines processes. Categories and tags can provide the detailed information you need without adding volume.
Moving towards a continuous close results in a more informed, responsive organization, but the right tools and processes must be in place. Schedule your free demo today to see how we can help you implement the automation that makes a continuous close possible.
Airbase offers a one platform solution to manage all non-payroll spend. It provides oversight and control over spending with real-time reporting and automatic syncing directly to your general ledger. Control all payments – physical cards, virtual cards, ACH, and checks – from one place. Close faster. Empower employees. Control spend.
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