Modernize Your Month-End Close

Overview

The Symptoms

Symptom #1

Manual work and duplicate data entry

Businesses that rely on additional disconnected systems (like Point of Sale, CRM, E-Commerce, Production, Crop Management, Time and Billing, and Payroll) must get critical information from all of them into their accounting system. Often that requires rekeying summary information into the accounting application and then endless reconciliations after that to make sure both systems match.

No one knows how much inventory is actually on hand until the month-end inventory count. Then there are the spreadsheets required to track the reconciliations and the volume of journal entries needed to correct the mistakes made in the transfer of data. This is wasted time and effort that does nothing to add to the value of a customer’s experience or the bottom line. In Kaizen (Toyota lean production system) terminology, that effort is known as “Muda” or waste, one of three problems leading to supply chain inefficiency.

Symptom #2

Delayed financial reporting

How long after the end of the month are the company’s financial statements prepared? With disconnected systems and manual entries, getting an accurate picture of the company’s financial results is impossible until the month-end close is complete, so teams are stuck creating their own spreadsheets just to keep track of their results during the month.

With this approach, once the month is closed, no one can understand why their numbers don’t match accounting, which leads to a cycle of reconciliation between the accountant and departmental leaders and frustration on both sides. Once again, the organization is unable to make timely decisions, and everyone is stuck working long hours to complete low-value work.

Symptom #3

Incomplete or erroneous transaction entries

How many coding, entry, or approval errors are being chased down at the end of each month? Suppose the company’s accounts payable (AP) invoice payment system involves the flow of a paper document from one person to another for coding and approval before it is ever entered into the accounting application. In that case, the opportunity for errors is high. Not only must accountants depend on the approver’s ability to select the proper account code, write it correctly on the document, and then initial the document (all in legible handwriting), they must also depend on the reviewer to forward the document to accounting.

What happens if it gets lost or destroyed? There is no control of that document as it moves through the organization. At the end of the month, the accountant must first play the role of hunter/gatherer and comb through office cubicles searching for any unrecorded invoices and then pivot to cryptologist, attempting to decipher notes handwritten on coded documents.

Symptom #4

Manual adjustments, accruals, and allocations

And now it’s time for the accountant to deal with all the reporting requirements needed to remain GAAP compliant and to reflect departmental results properly. At the end of the month, accountants must consider proper accounting cutoff, which leads to a myriad of manual accruals and deferred revenue entries for many companies.

Other companies allocate their overhead expenses across multiple departments using tediously prepared manual journal entries. Depreciation and amortization expenses must be tracked and entered as manual journal entries. The accountant needs a complex spreadsheet just to keep track of all the data sources that must be consulted to create the required adjustments.

Symptom #5

Lack of standardized processes

Each month brings with it a new set of closing challenges. Business units must be adjusted and consolidated. Intercompany transactions must be recorded. And as new accounts are added, new systems are implemented, and new regulatory issues are impacted, the accountant must create systems to handle them. If the standard month-end close is documented at all, it is kept in a spreadsheet or document and no one knows where to locate the latest version. Frustration ensues on the part of everyone involved.

Symptom #6

Manual reconciliations

Bank and credit card balance data is reconciled manually using monthly bank statements. Electronic transfers must be accounted for and often entered from the bank statement, resulting in large swings in cash balances at month-end. Transactions must be reviewed and adjusted, and no one can find the underlying source documents or match bank deposits with the underlying receipts. That’s when more spreadsheets are created to help simplify the month-end reconciliation process.

Symptom #7

Limited managerial insights

If the company relies on external reporting tools or monthly spreadsheets for financial statement reporting, it is probably due to limitations in the chart of accounts structure. Many systems build their financial reports from the rigid structure and organization of their chart of accounts. These systems meet the basic requirements of GAAP reporting. Still, they do nothing to meet organizational leaders’ managerial and decision-making needs, which is why the company turns to external spreadsheets for reporting. The more tabs required in the external spreadsheet, the more ill-suited the current financial solution is to the needs of the business.

The Cure

Cure #1

Data moves freely from one system to another

Thanks to Acumatica’s intelligent design, open architecture, and choice of deployment options, it can be easily integrated with other systems no matter where they reside. Financial and operational data can be integrated and evaluated day by day. With Acumatica’s built-in CRM capabilities, sales and accounting are both working from a single set of numbers. Each day of the month, information is accurate and available for leaders who need to make informed business decisions. Imported data follows the same business logic as screen entries, ensuring real-time data consistency.

Cure #2

Real time financial results keep everyone on the same page

Once operational and financial systems are fully integrated, business leaders can rely on daily financial reporting to manage and track their results. There is no additional cost for adding users under Acumatica’s unique pricing model. If access rights are a concern, Acumatica’s granular, role-based security will ensure that no user has access to sensitive information. Users have always-on access to the information they need, and there is no longer a month-end scramble or the need to spend countless hours figuring out why individual reports don’t agree with official accounting results.

Cure #3

Transactions are digitized and routed for improved accuracy

Thanks to applied Artificial Intelligence (AI) and Machine Learning (ML), Acumatica can automatically create AP documents directly from scanned vendor bills and can identify elements of expense receipts for coding. Once entered and coded, source documents can be attached to each transaction (from a mobile phone or computer), and then routed through automated workflows for review and approval. With automated coding and customizable workflows in place, the likelihood of revisions or adjustments at the end of the month is greatly reduced.

Cure #4

Automated adjustments eliminate manual entries

Automated transaction entries replace manual tracking, recording, and posting:

• Using deferral codes, various scenarios for automatic revenue and expense recognition can be set up. Deferred revenue or expense is then automatically calculated based on those codes, which can be generated and assigned to individual line items.
• Fixed asset data is maintained in Acumatica (and updated from AP and AR transactions as need) so that depreciation and amortization expenses can be automatically calculated and recorded each period.
• Intercompany transactions are automatically posted to impacted companies within a single database, eliminating duplicate effort and month-end adjustments.
• Configurable allocations create automated entries based on one of the following rules in Acumatica:
  • distribute amounts based on user-defined coefficients (weight)
  • distribute amounts based on percentages
  • distribute amounts based on a dynamic ratio of the period-to-date account balances
  • distribute amounts based on budget data

Cure #5

Configurable processes result in consistently applied procedures across all areas of the business

Customized workflows can be used to create automatic assignments that reduce the time required for document assignments and routing for all the required approvals for any document type. Automated alerts and notifications keep everyone apprised of any actions that are needed from any device – including a mobile phone for remote employees. Reviewers can then access all document types for review from a single form.

For project-based businesses, billing rules can be used to automate the calculation of amounts being billed to customers for a particular project.

Cure #6

Automated bank feeds and document attachments make daily reconciliations possible

Daily transaction feeds can be imported from banks that provide data in one of the following formats, Open Financial Exchange (OFX), QuickBooks Online (QBO), QFX, or Excel format. That means users can create daily reconciliations and have real-time access to true cash balances. No more waiting until the end of the month to close out accounts.

Cure #7

Multi-dimensional financial statements meet the real-time needs of business leaders

For full flexibility, Acumatica uses segmented keys to define individual components of the chart of accounts as well as their purpose and length. Once account numbers are assigned, individual row and column parameters are used to create customized financial statements, including budget to actual comparisons if needed, that meet the needs of every user in the organization.

Month-end should be just another day of the week

It’s time to harness the power of automation. Rather than facing the cumbersome, old school nightmare of closing the month based on the calendar, modern organizations can close as they go, on a continuous basis.

With a system like Acumatica in place, accounting staff can be freed from the anxiety of a rushed month-end close while enabling the rest of the leadership team to have timely access to critical financial data. Most of the low value, high tedium tasks can be automated, and accounting is empowered to plan, create forecasts and scenarios, and even provide training to staff members.

As the business moves forward in the digital age, the impact of increased efficiencies on the bottom line will be great, but the benefits for members of the modern organization: improved morale, enhanced communication, and regular collaboration will be even greater.