As accounting becomes more reliant on technology, finance chiefs across a range of sectors are reaping substantial benefits from closing their books faster.
It takes most companies four-and-half days to capture a quarterly snapshot of their financial position in 2017, down from six days in 2009, according to PricewaterhouseCoopers LLP benchmarking studies. The consulting and accounting firm examined the practices of roughly 500 companies around the world with a median revenue of $2.5 billion.
A faster quarterly close was the priority for Eric Shander when he joined open-source software solutions company Red Hat as chief accounting officer in 2015. Mr. Shander and his team spent 14 months streamlining and accelerating the process.
Tasks such as account reconciliation were previously left to the end of the reporting period, contributing to the last-minute rush. Now, accounts are reconciled every few weeks. Mr. Shander also redistributed book-closing responsibilities across the finance team to ensure a more equitable workload.
Red Hat now closes its books comfortably in two days, down from five days previously, said Mr. Shander, who was named chief financial officer in April.
The finance team has been more productive as a result of the extra time, Mr. Shander said. They have caught and fixed errors, dug deeper into the data before announcing results and pivots to identifying priorities for the next quarter earlier, he said.
“We’re actually considering moving up some of our earnings announcements as a result of it,” he said. “It’s been a huge success.”
Advances in technologies are helping companies accelerate their book-closing process. More companies are automating their close to reduce the amount of manual activities, such as journal entries, said William Marchionni, senior business adviser at consulting firm Hackett Group HCKT -1.31% Inc.’s Finance Operations Advisory Program.
“Some top performers are getting management reporting data on revenue, shipments, cost for goods sold, and other key metrics on a daily basis from their information systems,” Mr. Marchionni said.
For Dun & Bradstreet CFO Rich Veldran, the lure of cost savings has prompted investments in robotics and automation technology that accelerate the quarterly reporting process. The data and analytics company closes its books in four days, despite operating across more than 200 countries, which adds to the complexity of its financial reporting process.
“There’s a real opportunity for us to do things in a much more automated, faster way, within finance,” Mr. Veldran said, adding that his team is already testing several potential applications for robotic process automation in the finance function.
A new software system was key to helping Duke Energy streamline its quarterly close, said CFO Steven Young. The electric utility in 2007 launched a three-year revamp of its financial infrastructure, after a series of acquisitions burdened the company with a patchwork of financial systems and processes, Mr. Young said. Duke reduced its closing timeline by 30% to 40% to just a handful of days by 2010, Mr. Young said, though he declined to state the exact number of days. The company has continued to improve its quarterly close through new technologies.
“The advantage is that you get data disseminated through the organization quicker, you can then communicate trends, patterns and that can result in quicker decisions to take tactical actions in response to the data,” Mr. Young said.
Companies that operate across multiple geographies and sell different types of products and services often require more time to close their books than a single-product, single-geography business, said Beth Paul, a partner at PwC.
CFOs in a particular sector, such as airlines, autos or retail, often aim to close their books and report results around the same time to keep in line with industry norms.
“There’s a view that they need to be consistent with their peers because if you’re lagging, it could lead people to wonder why,” Ms. Paul said, adding that straggling behind the pack could raise doubts about management’s competency.
She also noted that certain sectors, such as banks and financial services, tend to close their books faster due to greater investments in technology.
Still, for many CFOs accelerating the quarterly close process remains a low priority. Instead, these companies have focused on meeting increasing regulatory demands and deployed resources to operational projects such as entering new markets or launching new product lines.
“Account-to-report has historically been the last place where companies invest. It isn’t client facing, and they have ended up doing things on a shoestring,” said Hackett Group’s Mr. Marchionni.