What’s the secret to making your close a non-event? Focus on automating the first mile.
The financial close is nothing short of an ongoing battle for many companies. Finance teams come under the same intense pressure at the end of every month, quarter and year as they struggle to complete the hundreds, if not thousands, of interdependent tasks that feed into the close process.
At the same time the close is undoubtedly critical to trust, financial visibility and regulatory compliance. It’s the foundation for the accuracy of a company’s numbers so they can be consolidated quickly to meet reporting deadlines.
The challenge that has consumed finance chiefs and professionals for decades is this: How can organizations remove at least some of this pain and make the financial close process smoother, simpler, faster and more accurate?
The answer lies in an often-neglected part of the record-to-report (R2R) process. When looking at ways to improve the efficiency and accuracy of the close, organizations have typically targeted the so-called last mile of finance at the corporate center where the consolidation, reporting and filing is done.
But there are actually huge opportunities to reduce time, eliminate manual effort, duplication and errors much earlier in the overall close process, in what is known as the first mile of finance. In an executive briefing note, Gary Simon of the finance research group FSN says:
“It is the first mile of finance that drives the efficiency of the last mile. These two ends of the process are inextricably linked. An enterprise cannot deliver its financial statements until the very last submission has been received from its reporting entities. Clearly, companies seeking to accelerate the entire R2R process ignore the first mile at their peril.”
(Executive Briefing: Automating the First Mile of Finance – FSN/Redwood, 2019)
This first mile incorporates all the hidden interdependent tasks and close activities that lead up to the submission to group finance. This can involve hundreds of staff and thousands of time-consuming tasks such as reconciliations, allocations and journal entries. These tasks are often done in spreadsheets using manual workarounds.
Therein lies much of the problem with the first mile. Research by FSN shows that when asked what delays the reporting process the most, almost two-thirds (65%) of CFOs cited errors and delays in data submissions from other business units, while 40% blamed difficulties in reconciliations and intercompany. Thirty-nine percent flagged a lack of collaboration and process visibility.
Automation provides the opportunity to tackle these first mile issues that leave your finance teams with huge amounts of time-consuming manual work at the end of every financial period. Automation also helps improve the accuracy of the close. It reduces instances of misstatements, missed entries and incomplete inputs.
Elements of first mile close that are ripe for automation include:
A Hackett Group study shows that world-class companies place very high importance on finance automation and reducing manual transactions and entries, automating 96% of journal entries compared to 73% for their peer groups.
Your finance professionals are smart people. Automation removes manual drudgery that can consume their workday and frees them to provide valuable analysis and insight instead of simply chasing data.
Organizations can automate finance processes across both internal corporate activities and shared service centers. For example, we worked with one global CPG company to help automate 98% of its financial close tasks, reducing time to close from 10 days to seven days and improving data quality.
Historically, modern finance functions have not had the tools to automate the gaps left by ERP and consolidation tools. Redwood’s R2R finance automation solutions not only allow the acceleration and automation of the first mile of finance, but release your highly qualified staff to spend time on the tasks that help create value.
Find out how to make your close a non-event with Redwood Finance Automation.
About The Author
Shak Akhtar is the Senior Vice President of Finance Automation for Redwood Software. Cutting his teeth as an accountant at IBM before working for leading IT companies such as SAP®, BEA and iTwo, Shak Akhtar combines his abundance of financial and IT experience to fulfill his global responsibilities at Redwood Software. That includes spearheading the adoption of robotic process solutions by enterprises across their back office operations and chairing client led financial transformation workshops.