Deadlines are not met
In my work, I often meet companies where period closures are stressful. As a result deadlines are not met, overtime is necessary and mistakes seem to pile up. This is very recognizable for the management of companies. The pressure to deliver the figures faster and faster is more and more increasing. Having the feeling that you run from one closure to the next and always busy with working on closure and not with other fun stuff. Recognizable?
This is really not necessary. And it is also not necessary to use all kinds of complicated and expensive tools. The solution is relatively simple. It’s all about 2 things:
– high-quality input
– structured controls
High quality input
High qualitative input consists of the first-time-right principle, often used in Lean working. Corrections in a later process will be reduced if you assure that the first processing is correct. The term Lean working was introduced in 1988 by John Krafcik, but the roots lie much further back. Lean working originated in Japan in the mid-20s at the Toyota factories. At that time, the principles of Lean working was introduced to reduce lead times and reduction of production cost. Today Lean working is also still actual. Lean working involves more than streamlining the processes, it is about the added value to the services for your customer. Reports are for the internal customer (the management) or external customer (parent or investment companies). However lean working can make the period closing much more efficient.
Structured controls
During the period it is important to carry out the most essential checks. Reconciliations between, for example, current accounts, bank balances, and so on can be made weekly or daily. This limits search and reconciliation work at the end of the period. By highlighting important checks you save a lot of time. In many ERP packages it is possible to match and reconcile bookings. Use this function to easily cross off entries on suspense accounts against each other and to keep an overview of the build-up of the balance at all times.
5 Steps to optimize the process
There are 5 simple steps to improve the period closing process. You can immediately apply these 5 steps in your work situation.
Step 1:
It starts with defining the necessary output (the reports, the KPIs) and defining why these reports are needed. It often happens that reports are made that no one looks at anymore. First of all, because the information is outdated (due to late reports) and secondly because the information is completely irrelevant. Define the added value of the reports. If this added value cannot be defined, delete the reports. Also, delete the reports that are irrelevant or that have as a reason: ‘we have always done it this way’ or ‘the management just wants this report’. There must be a clear added value and reason for the reports.
Step 2:
Map out the processes that are needed to draw up the information. What does it take? Where does the information come from? Define the problems that exist now with the period closures. What kind of problems do you keep running into? What corrections have to be made each time? Which flow in the process causes delays or delays? Do you always have to wait for, for example, the inventory report of the warehouse department or the overview of the sales invoices that need to be invoiced? Map out the dependencies and draw all activities of the closing process.
Step 3:
Strive for the perfection of the 1st input. If you do the 1st input (posting, for example, the purchase invoice) in a correct way, you do not have to check and/or correct the booking during the rest of the process. So make sure you have quality control at the front. Set guidelines on how administrators should deal with prepayments, investments, installment payments, intercompany bookings, dimensions, etc. Train the administrators to consciously process the administration. Setting up an incentive for the best way of working in this department because will motivate and stimulate correct bookings.
The next step is to discover wherein the process improvements can be made. Where and how can you shorten the lead time? Eliminate the waste of time (according to Lean six Sigma principle). Harness the power of technology by automating several typical points such as intercompany connections, inventory valuations, and reconciliation checks.
Step 4:
Use a period closure checklist mentioning all steps and checks. This can easily be done by using Excel but also with a fully integrated ERP solution. Indicate who should carry out the work, when, and who is responsible for it during this part of the closing. Also, use this checklist to record disruptions/challenges and issues. What have you encountered during this period and what could be better next time? Evaluate the process.
Provide a single reporting database with one version of the truth to eliminate reconciliations between financial statements, management reports, and group reports.
Step 5:
Use the plan–do–check–act principle throughout the process and each subsequent period of closure. Plan: Identify what and how you would like to carry out the work. Do: Determine how the work was carried out. Check: What went well? Or what not? What can be done differently next time? Act: Standardize the things that are going well.
By applying the above steps, you can achieve excellent results within a few months and significantly reduce the lead time of the period closure. Keep in mind that the way you approach this process determines the pace of the change.
Please send me a message if you would like to receive more information or an example of a period closure checklist.