Spend Matters welcomes this guest post by Peter Minck, vice president of business solutions at Redwood Software.
CFOs and finance departments are always being challenged to streamline what they do. During our work and discussions with global organizations over the past year, we found many manual challenges and repetitive tasks that compromise the effectiveness of finance and accounting teams in many areas. But altogether, no single activity hijacked more effort from finance in 2014 than the financial close.
All companies are required to complete a period-end financial close monthly, quarterly and/or annually. This process is demanding and labor-intensive. Typically it requires large amounts of scrutiny and time from senior finance staff across the enterprise. That's because most companies still rely on sheer manual effort to get the numbers right, and then, validate, explain and report on them.
These labor-intensive and outdated techniques have led to no shortage of major mistakes in 2014, with several global organizations embroiled in controversy for public reporting inaccuracies. In 2015, companies will take more steps to eliminate these costly and embarrassing errors – in very specific ways.
The Undiscovered Mile of Finance
In the last 2 decades, corporate finance has focused on improving the financial close process in 2 particular areas: group consolidation and, more recently, disclosure management. These final steps are often referred to as “the last mile” of finance. Improvements here have resulted in considerable advantages for businesses. But there's more work to be done.
Many organizations have found that manual steps within complex entity close processes take as much as two-thirds of the time and effort of the entire close. This inherent manual effort at the core of the close has been called "the undiscovered mile" of finance. It's a place that currently, holds significant opportunity for risk and error. The many steps within the end-to-end entity close process are often repeated again and again – manually – increasing the chance of error with every turn. Nevertheless, each step requires absolute accuracy and standardization wherever possible. It's a worrying situation. But there are answers. The exact same qualities that make corporate entity close processes such a manual challenge also make them excellent candidates for automation.
Back Office Revolution in Finance
In the same way that the Industrial Revolution led a change from reliance on slow, manual effort to building streamlined, automated assembly line processes, we now face a back-office revolution in finance. The need for speed, rigorous governance, accuracy and auditability across the close is driving finance teams to rethink how they work in entirely new ways. It will be the companies that embrace an industrial mindset and automate the financial close that transform back-office finance from a tedious, time-consuming and risky set of tasks to an efficient process that provides transparency and insight for better control and reliability with less effort.