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The Ultimate Guide to Financial Close

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The financial close process is essential to understanding and verifying your company's true financial position. 

While that sounds simple enough, the year-end financial close process has the potential to bog you down on many fronts. If you don't know what's working, what's not working and--most importantly--how to fix it, you'll continually head down the same path.

On the plus side, there's no shortage of steps you can take to improve your company's year-end financial closing process. It all starts with a thorough review of your current month-end and year-end closing processes. A manual, or analysis with financial close software gives you all the information and insights you need to take the appropriate action.

What Is The Financial Close Process?

Financial close is exactly what it sounds like. It's a recurring process during which accounting teams "close the books" on a specific period of time, such as a month or fiscal year. 

During this process, account balances are thoroughly reviewed and reconciled in order to identify any irregularities and errors that need to be addressed. Financial statements are then produced in order to provide a detailed look into your company's financial position for key decision-making stakeholders such as investors, lenders, and management-level employees. 

Ultimately, the financial close process tracks the health of your company through the aggregation of the data produced by these financial reports.

What Are The Steps To Financial Close? 

You must customize your financial close checklist to match your business. There's no one-size-fits-all solution. 

Adding to this, the month-end financial close process and the year-end financial close process will share some differences.

The primary difference is that the month-end closing process only takes into consideration one month of business. Conversely, the year-end process brings together 12 months' worth of data. 

Here's a good start to any month-end or year-end financial close checklist:

  1. Gather Financial Statements
  2. Collect Past Due Invoices
  3. Collect Necessary Forms and Data
  4. Review Payroll
  5. Reconcile Bank Accounts

Now let's look at all of these steps in more detail. 

The Steps in the Financial Close

1. Gather Financial Statements 

Your financial statements give you an in-depth look at the overall health of your business. And with that, executives can make more informed decisions.

At the very least, you should gather the following financial statements:

These three statements from the 3 statement model, not only are financial statements important to the month and year-end closing processes, but they'll come in handy during tax season.

2. Collect Past Due Invoices

This is a particularly important step during the year-end financial closing process. Do your best to collect money that's owed to you before the calendar turns.

Some steps you can add to your collection strategy include:

  • Setting up payment terms
  • Sending out regular payment reminders
  • Establishing a payment plan
  • Offering to accept different forms of payment

The longer past due invoices linger, the more difficult they are to collect. Also, when you carry these invoices from year to year, it can cause confusion on the accounting front. 

Read our definite guide to payment operations to learn more.

3. Collect the Necessary Forms and Data

The forms and data you need depend on the size and type of business, as well as company structure. 

In regards to forms, be sure that you have a W-4 on file for every employee. And if you use contractors, they'll need to complete a W-9. 

Data includes things such as cost of goods sold employee expenses, revenue numbers, the value of assets and liabilities. 

4. Review Payroll

Accounting and payroll records are a big part of any financial closing process, regardless of the time of year. 

Your payroll records must be accurate and up to date, allowing you to continue seamlessly into the next month or new year or.

Pay close attention to details such as:

  • Total payroll
  • The total cost of benefits
  • Withheld tax amounts
  • Year-end bonuses

Take this one step further by creating a year-end payroll processing checklist. 

5. Reconcile Bank Accounts

Reconciling bank accounts is the process of cross-checking your accounting records against your bank records for accuracy.

The best way to do this is by comparing the information on your bank statements to your accounting records. Does the balance on your bank statements match your accounting records? If not, what's the reason for the discrepancy?

If you take the time to reconcile your bank accounts monthly, there's less chance of running into a complex problem at the end of the year. 


For a more detailed breakdown of the year-end close—and a downloadable checklist you can use for your own close process—check out our guide here.


Common Issues And Problems With The Financial Close Process

The way you close out the financial year is unique to your company. However, some basic issues have the potential to cause trouble for every business, regardless of size or industry.

Here are five typical issues with the year-end closing process:

1. No Defined Process

If you're going to close out the financial year the right way--and that's your hope--you must have a defined process. Even if the process isn't perfect, it's a starting point to build from and you can make any necessary changes moving forward.

In some companies, there is not a seamless or well-established closing process. Instead, it comes down to nothing more than a group of employees relying on their memory and knowledge to make the best of the situation.

That's not a viable, accurate, or long-term approach. That's a cluster of people who are scrambling to collect documents, rushing others to provide the applicable information, and hoping that everything comes together by the deadline. 

2. No (Or Little) Automation

There used to be a time when the year-end closing process relied solely on human input. And while that's still necessary to a certain degree, there are more tools than ever before for automating the process. 

Without automated capabilities, you'll continually run into issues such as:

  • Delays completing tasks, such as collecting expense receipts from salespeople
  • Two or more people working on the same task(s)
  • Working extra hours in hopes of meeting key deadlines
  • Greater number of mistakes

Automation is no longer the future. It's the here and now. When you automate the year-end financial closing process, you increase your speed, reduce mistakes and put less stress on yourself and your team. 

3. Scrambling To Find Data

This issue can take time to fix, but the sooner you address it, the sooner you can find a solution.

The year-end closing process is full of data, data and more data. But if you don't have access to what you need when you need it, it's a challenge to efficiently move through the process.

Let's assume that you have to collect expense-related data from several departments. While it sounds simple, that's only the case if you have a standardized system in place. Without this, some employees and departments will forget to send the data. Additionally, those that do will share the data in different formats, making it a challenge to organize.

4. Too Many Cooks in the Kitchen

This doesn't mean you should tackle the entire process on your own. But it does mean to beware of having "too many cooks in the kitchen."

The more people involved with the year-end financial closing process, the greater the chance for mix-ups and time delays.

You know how many people you need to get the job done. Assign them tasks and deadlines, track their progress and manage the process as a whole. 

When you have unnecessary people in your "kitchen," it'll only complicate matters. 

5. Lack of a Post-Close Review

The last thing you're thinking about during the year-end closing process is what will happen next year. And once the process is behind you, you won't want to think about it for quite some time.

That's a big mistake. A post-close review is just as important as the process itself. This is what you'll use to fine-tune your approach for the following year. 

During your post-close review, you can address questions such as:

  • What went wrong?
  • What went right?
  • What types of changes are necessary?
  • Do you need more help? Less help?
  • Were there any delays? What was the cause?

Even though it's not your idea of fun, conducting a post-close review will benefit you in the long run. You'll thank yourself for it 12 months in the future. 

How to Improve the Financial Close Process

At this point, you have a clear understanding of typical issues associated with the financial closing process. But that's not good enough. You need to implement a solution (or solutions).

The good thing is that there are many ways to address the issues above while also improving your closing process as a whole.

Here is a solution for every problem listed above:

1. Define a Process 

If you don't have a defined process, now's the time to create one. Here are the basic steps for doing so:

  • Decide who you want to involve in the closing process
  • Make a list of tasks and responsibilities by mapping workflows
  • Build stable internal controls to prevent miscues
  • Implement technology to save you time and reduce headaches

Remember this: Every step during the financial closing process should add value. If it's a time-waster or something that doesn't move the process forward, eliminate it. 

2. Automate as Much as You Can

Automation technology is available in almost every industry imaginable and that definitely holds true for financial professionals. 

This Deloitte's report touches heavily on automation and its benefits. 

"Automation brings clear benefits to the close process in terms of efficiency, transparency, and speed. In finance organizations that are lacking automated capabilities, tasks are often delayed simply when a key member of the team is on vacation or out sick."

It's natural to hide from technology, especially if you're used to the system that you have in place. But if you ever want to take a step forward in regards to efficiency, transparency, speed and accuracy, automation technology -- powered by Vena -- is a must. 

3. Implement a Standardized Data Collection System

Scrambling at year-end to collect data is no fun. You're under a tight deadline so you don't have long to wait around. The problem is that the people who have what you need may also be working on year-end projects. 

The solution to this problem is implementing a standardized system for data collection, such as providing the necessary employees with access to a shared spreadsheet. In other words, you want everyone in your company--from top to bottom--to provide data in the same manner.

You don't want one person sending you an email, another sharing a spreadsheet and others using Slack. This puts pressure and stress on you as you then have to collate the data before you can do anything else. 

4. Set a Defined Team

Help is a good thing when it comes to your year-end financial closing process. But remember this: more is not always better.

If you have too many cooks in the kitchen, disagreements are more likely to happen. Also, this increases the odds of overlapping work, which eats into time that could be used to complete other tasks. 

All key players -- primarily accounting personnel -- should have a clear set of tasks and responsibilities. Everything they do should add value to the process.

Should you find that there are too many people pulling the closing process in different directions, review your team to pinpoint the key players. 

5. Create a Post-Close Review Process 

You spend so much time working through the actual closing process that it's easy to overlook what comes next. The post-close review process is essential to your future success. Without this, you won't know what went right, what went wrong and how to make changes for the better.

Customize your post-close review based on your team's performance and future goals. Here's what the process might look like: 

  • Determining when to start the closing process in the future
  • Understanding what type of data you do (and don't need)
  • Deciding who should and shouldn't be involved in the closing process
  • Reassessing and reassigning responsibilities
  • Organizing closing documents for future reference

A comprehensive post-close review process will help you better prepare for next year by ensuring that you have an accurate and stable foundation to build from. 

Month-End vs. Year-End Close: How They Work

As previously mentioned, accountants typically perform the financial close process at the end of every month or at the end of a fiscal year. In each of these scenarios, your company may create different reports, depending on the stakeholders receiving them. The two closing processes are very closely related, with each month-end close feeding into the accuracy of your year-end procedures.

There is the option to reconcile accounts on a quarter-end basis, however, this method of managing accounts can be error-prone. The month-end financial close process allows you to catch errors before they turn into major dilemmas down the line. By making this a monthly process, your close is not extended and your company will benefit from timely reports. 

The closer you're able to complete the closing process at month's end, the better off you will be when year-end closing rolls around. Otherwise, you will likely set yourself up for troubling reconciliations--specifically with intercompany and interfund transactions.

Establishing a set of rules for your month-end vs. year-end financial close process is essential to accurate and consistent reporting, as each process impacts the accuracy and efficiency of the other. A fast close is possible on a monthly basis if you have tight processes and good tools in place, ultimately leading to better strategic decision making year over year.

Closing Out the Financial Year With Excel 

There are many ways to close out the financial year, but it's critical to choose the approach that's best for your company. Using Excel for financial close management is an option to strongly consider as it provides benefits such as:

  • Familiarity: You already use Excel for day-to-day operations.
  • Technology can complicate things: Your focus should be on business insights, not complex technology. Excel is a program that you know and understand. 
  • Accuracy: For more than 35 years, businesses have been using Excel for everything from tracking data to accounting--and that's just the start. With a long track record of providing accurate results, you'll have peace of mind.
  • Scalability: A system that can't easily scale is a system that'll eventually let you down. Vena can scale alongside your company's growth, including revenue and employee count.

With Vena, you can scale and transform your close process without abandoning Excel. If you want to close your books with confidence--and it's safe to say that you do--with Vena, you can manage the year-end financial close process with the flexibility and familiarity of Excel while gaining trust in your numbers.

Vena in Action: Cut Month-End Close Times by 50% 

As we've discussed within this guide, an efficient and accurate financial closing process is essential for every finance team. However, reconciling accounts and closing the books can be a sluggish and difficult process when reporting on multiple business units each month. That's the problem Capstone Infrastructure had before getting introduced to Vena.

Capstone Infrastructure is an independent Canadian power producer, serving the clean energy sector with 24 facilities across the country. They were dealing with significant quality control issues, data integrity, and a lack of standardization. Completing the financial close process using offline spreadsheets didn't help the matter.

After implementing Vena, they were able to focus on improving data accuracy, reducing the amount of time spent on reconciliation, and standardizing the month-end financial close process--all in one central database. Vena's capabilities empowered Capstone to reduce their month-end close times by 50%, decreasing from 10 days to just 5.

"Vena has truly transformed our financial reporting capability and significantly reduced our errors and the time it takes to complete our financial close process. By setting up standardized and largely automated templates in Vena, we have cut our monthly close process in half."

  • Devendra Kalwani (Finance Manager, Capstone Infrastructure Corp.)

Read the full case study here.


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About the Author

Jonathan Paul, Senior Director, Content & Communications, Vena

As Senior Director of Content and Communications, Jonathan Paul leads content strategy and execution at Vena, overseeing the development of owned media and content experiences that help finance professionals fuel business health, as well as their personal and professional growth. When he's not dreaming up new ways to offer audiences value through content creation, Jonathan loves to lose himself in an immersive video game with a solid narrative, lose golf balls pretending to be good at golf and lose time dreaming about time travel.

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