The benefits of a continuous close: How real-time accounting can lead to more accurate forecasting and better time management.
The uncertainty and the fast pace of change that have characterized the business environment in recent months, due to the COVID-19 pandemic, have made the limitations of the traditional monthly close increasingly obvious. When finance teams need to respond quickly, they need accurate and up-to-date data. As a result, more and more finance teams now realize the advantages of a continuous close, sometimes called a “rolling close.”
What’s the difference? In a continuous close, automated processes and workflows keep the books updated and balanced in real time. That’s in contrast to a monthly close, in which financial operations follow a rigid monthly calendar.
Because a continuous close provides up-to-date data, financial information reflects what’s actually happening more accurately, instead of what happened last month.
The power of real-time data.
This change has far-reaching implications across an organization – it empowers decision makers to think strategically about the future, instead of reacting to the past. It also allows finance teams to answer the question, “How am I doing against budget right now?” not two, four, or six weeks ago. The analytical power that a real-time view of a company’s financial position unleashes is meaningful and can support a more agile approach to planning and forecasting. In other words, moving to a continuous close is a cultural change, as well as a shift in accounting procedures.
However, the monthly close has long been a cornerstone of accounting practice. Why are strategic finance leaders rethinking their approach to closing the books? And why now?
Part of the answer lies in the speed with which organizations must pivot on crucial business plans, not only in the extreme, as in response to the unprecedented events of 2020, but also in response to other events, like a serious new competitor or major shifts in demand for a product or service. In order to make informed decisions, executives need up-to-date information. But the irony is that finance teams are often expected to produce cutting-edge analysis using archaic tools and processes.
Innovation opens opportunities for change.
Because a continuous close is dependent on having the right tools, another important factor behind its rising popularity is tied to technology. As anyone who has completed a monthly close is aware, reconciling, coding, and posting transactions to the GL is a time-consuming process, usually drawing information from various sources. It is also highly dependent on manual processes.
Innovations in technology now make it possible to automate the collection of real-time data from multiple sources, while syncing financial activities as they happen directly to the GL. This technology has opened opportunities to rethink standard procedures, including the monthly close.
Drawbacks of a traditional monthly close.
Of course, even before 2020, many finance team members dreaded the monthly close. As any accounting professional knows, it’s all hands on deck, and a lot of other work is put on the back burner until the books are closed. Tensions can run high, especially since the risk of error is elevated when using manual, complex processes. And costs in terms of the time involved can add up. The APQC’s General Accounting Open Standards Benchmarking survey found that 25 percent of surveyed companies spend at least 10 hours closing the books every month.
That survey was completed before COVID-19 led to a dramatic increase in the number of people working remotely. Dealing with a distributed team can make it even more difficult to get quick answers to questions or to share documents like receipts. It’s no wonder that a survey taken during a NetSuite webinar found that 43 percent of participants felt their monthly closes are more difficult when done from a remote location.
It’s important to remember, however, that there isn’t necessarily a clear-cut distinction between a continuous close and a monthly close. It’s possible to simplify and shorten a monthly close by drawing on the concepts of continuous accounting. For example, a finance team could introduce more real-time automation processes in order to shorten the time involved for a monthly close.
Continuous close: Tools for success.
A continuous close isn’t possible without the ability to gather data in real time and sync it to the GL. This is why the process of closing the books at a certain time each month made sense for decades – the technology simply wasn’t available to get the required information on demand.
But now, platforms such as Airbase can enable a continuous sync between corporate spending activities and the GL. In other words, as employees spend money, the GL updates automatically. To add accountability, supporting documents are uploaded as purchases occur. When employees request approval, an audit trail is created, and they can upload contracts, invoices, receipts, and other required documents, right into the purchasing event ticket. After making a payment with a virtual or a physical card, the system can be configured to chase down any missing receipts.
That means that all activities are captured by the system as they take place. Traditionally, closing the books has often involved asking a lot of questions and resolving errors, particularly when it comes to employee expense accounts. A report from the Global Business Travel Association states that almost one in five submitted expense reports contains at least one error. Resolving all of those errors at the end of the month can take a lot of time, but when expenses are processed in real time, any issues regarding documentation are resolved long before the end of the month.
The impact of a rolling close on data integrity.
In a continuous close, as many processes as possible are automated, especially tedious tasks, like data entry, where errors are more likely to occur. That means data is less vulnerable to human error. However, automation can be a challenge for finance teams who haven’t embraced new technology. A comprehensive spend management system ensures that automated processes follow accounting workflows in an intuitive manner.
The result is receiving more accurate data, with actionable information available sooner to guide decisions. In a monthly close system, reports often have to be created on an ad hoc basis when needed for decision making, which can disrupt workflows. With Airbase, spend reports can be generated whenever they are needed.
When they’re not chasing after receipts or creating last-minute reports, finance team members can focus more on strategy and long-term planning.
The technology is now available to give managers better visibility into spending in order to take proactive steps to implement change. The result is a more empowered organization that is ready to face the challenges and opportunities that lie ahead.
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.