Reimagining the Close: 6 Key Challenges for Financial Close & Reporting

In today’s volatile and disruptive economic environment, CFOs and Finance organisations must lead organisational decision-making processes with insight, speed and confidence.  Yet many Finance organisations are still bogged down by inefficiencies in routine processes within the period-end financial close and reporting cycle.  And that makes it difficult to shift time to value-added analysis and decision support.

Organisations that do successfully adopt modern, cloud-based solutions for financial close, consolidation and reporting have been more successful in streamlining back-office processes and driving financial performance.  And perhaps most importantly, such organisations have gained the agility required to lead at speed and adapt quickly to changing business and industry requirements.

To get there, your organisation must tackle the six key challenges which we have identified in this 2nd post of our Re-Imagining the Close blog Series.

The 6 Key Challenges for Financial Close & Reporting

Unfortunately, many close processes are simply run from memory and out of habit, often with no solid desire to improve or change the status quo.  Some organizations don’t realize there’s a better way.

Today’s post highlights the 6 key challenges many organisations face as they look to transform the financial close process.

Now is the time to identify and address each of the following 6 challenges to set your organisation on a path to real change and reimagine your financial close.

1. Ageing, Fragmented & Incomplete CPM Systems

Corporate performance management (CPM) processes supported by spreadsheets and a complex patchwork of other software can actually slow down Finance and may result in significant duplication and rework.  How?  Well, this fragmented approach to supporting close processes creates added technical complexity and administrative burden on the Finance team.  That burden includes moving and reconciling data, constantly managing metadata in multiple systems, monitoring data and managing security between fragmented products or models (see Figure 1).

All of these aspects dilute the ability of Finance teams to focus on driving performance and supporting critical decision-making.  These problems are only further compounded when there is a lack of key functionality to deal effectively with complex requirements, such as consolidating and eliminating inter-company balances automatically, without rules, or effectively handling alternate hierarchies without data duplication.

2. Increasingly More and More Complex Regulatory and Internal Requirements

Complexity increases the moment an organisation becomes international.  Why?  Well, the immediate requirement to handle complex ownership structures, multiple currencies, inter-company trading and other aspects across geographies and with different tax treatments can really explode the work of a Finance team.

Plus, the regulations governing how organisations report their results and comply with relevant local and industry rules only continue to increase in complexity once an organisation expands internationally.  Add to that the short filing timeframes given to organisations, and it becomes clear that robust and efficient systems and processes are the order of the day.  In the US, for example, Section 409 of the Sarbanes-Oxley (SOX) Act requires that public companies report any material events that result in a change in the company’s financial condition within four days of the event.  The deadline for the filing of the 10-Q (quarterly report) was also recently amended to 40 days after quarter end from 45 days.

Such regulatory requirements are pushing the office of the CFO towards not only faster closing and reporting but also the injection of more regular insights into financial results.

3. The Right Information at the Right Time

Why is getting the ‘right information at the right time’ so difficult?  It comes down to the effectiveness of the Finance processes.  The biggest issue is not having a single version of the truth and continuing to run a fragmented close process that requires trying to keep everything glued together.  That creates a less-than-ideal situation, and there’s entirely too much time being wasted to integrate, reconcile and validate data – causing unnecessary delays to key decisions.

An Accenture research report from December 2020 surveyed 450 CFOs and other Finance leaders at companies with at least $1B in annual revenue.  A key finding especially stood out: while nearly all (see Figure 2) respondents believe operating with real-time data is critical to navigating disruptions, such as the recent pandemic or the threat of a recession, just 16% of respondents are being informed by such data at the scale that’s needed.

These challenges are not limited to financial consolidation and close processes.  For many companies, financial processes are too manual and not yet automated or standardised, leading to time-consuming data entry (and re-entry) for reconciliations, reclassifications, and adjustments.

4. Too Many Manual Steps in Processes – Limited Automation

Are manual steps in Finance processes really that bad?  It’s true that some level of manual processes in small to mid-sized organisations may not be a huge problem.  It really all comes down to manageability.  As organisations grow or become more complex, manual processes add unnecessary risk, costs and time delays – all of which can accumulate over time and be very damaging.

Manual steps can result in the following pitfalls:

• An inconsistent closing calendar and checklist – creating different versions of the truth and a lack of common understanding of when actions are taking place
• A lack of quality validated data from underlying sources or ineffective data aggregation – resulting in reporting errors and poor decision-making
• A high level of manual journal entries in the close process – causing delays that can result in late filing
• Ineffective procedures for validating results – potentially sharing incorrect data in reports and with stakeholders
• Intercompany accounting and reconciliations are overly time-consuming – resulting in complexity that becomes too much and that often cannot be reconciled in the time available

All of these potential pitfalls only emphasise why automation is the way forward.  And today, the most successful organisations are embracing automation by using financial close software to better equip their people and to ensure they have agile and effective processes.

5. Limited Inter-Period Reporting Capabilities

Most organisations focus considerable time and resources on monthly, quarterly and annual reporting requirements.  So why do very few organisations use ‘inter-period’ (i.e., daily or weekly) reports?  The reason is very often because, historically, Finance processes and technology did not allow for inter-period reporting.  Finance teams had a lot of manual tasks just to complete the existing reporting cadences, which left little or no time to consider any additional regular data points or insights.

Now organisations are discovering they have vast amounts of valuable information that’s collected every day in ERP, CRM, HCM, Supply Chain and other systems (See Figure 3) – information that has not typically been leveraged to support daily and weekly operating decisions.  The organisations that can harness these large volumes of operational, and often, transactional data to identify key trends and ‘signals’ can move to support daily and weekly decisions.  Such decisions can positively impact month-end financial results and therefore the performance of the overall organisation.

6. Lack of Transparency, Auditability & Controls

Many legacy CPM and/or connected Finance applications provide file-based integration with source systems, but key advantages come with having full, direct integration between CPM and GL/ERP and other systems.  Why are those advantages so important?  Well, a lack of robust data integration capabilities creates a multitude of problems, including cumbersome manual steps, wasted resources and time, risk of errors, poor financial data quality, lack of traceability and lack of auditability.  Thus, the effectiveness of the financial close and reporting processes is fully dependent on getting timely and accurate data from GL/ERP, HCM, CRM and other systems.

The loading, mapping and transforming of data from source systems to CPM solutions can be especially cumbersome and fragmented without highly connected and business-user-managed tools.  Not to mention, data movement may be reliant on IT resources that are not knowledgeable on both the CPM model and the transformation and validations that must occur. This issue is even more problematic without the transparency and controls needed by the business to support compliance

How to Overcome the Challenges – A Strategy for Moving Forward

Many legacy Finance teams operate in the form of a conveyor belt production line.  Each person has specific tasks to complete during the close process to generate the required financial reporting – but only once production is complete at the end of the line.

For organisations looking to move away from this production-line approach, now is the perfect time to reimagine the close and effectively address these challenges with the key steps below:

• Define a close calendar to orchestrate and monitor the process on a day-by-day basis.
• Eliminate risk by reducing manual movements of data and automating data feeds/validations.
• Provide clear audit trails and visibility so that there is no question about accuracy and consistency.
• Take advantage of built-in financial intelligence to handle complex financial consolidation (e.g., intercompany eliminations, foreign currency exchange [FX], accounting for partial ownerships).
• Eliminate errors, and drive standardisation by automating reporting.
• Consider further automation opportunities for back-office processes, such as account reconciliations.

At OneStream, we call this Intelligent Finance.

Learn More

To learn more about how organisations are reimagining the financial close, click here to access  OneStream’s Reimagining the Close whitepaper.