Besides hot topics in finance, such as preparing for sustainability reporting (ESG reporting) or our USP competencies in financial reporting, such as IFRS conversions, we have very often supported our clients in optimizing their closing processes (fast close) in recent months: A Renaissance of Fast Close Projects.
In the past, listed companies tended to compete to see who could prepare their financial statements the fastest. The Fast Close as a business card of the finance department.
Today, it is digitization and the desire for efficient financial processes, or the need to have reliable management information as quickly as possible in uncertain times.
What is Fast Close?
The goal of Fast Close is to speed up the closing process by automating manual processes and creating more efficient workflows.
Fast financial statements can enable companies to react more quickly to changes in their financial position and provide investors and analysts with faster and more reliable information. The fast close process can also help optimize the workload and satisfaction of people in finance by making the close process more efficient and with fewer load peaks.
Why is Fast Close important for companies?
The reasons for fast close initiatives are very different and range from capital market requirements, control capability and efficiency enhancement to increasing employee satisfaction.
Especially in times of economic uncertainty, companies and investors in particular want to identify and react to potential risks as quickly as possible.
Ongoing financial reporting is the most important instrument for reliably assessing and analyzing a company's financial situation. Therefore, in uncertain economic times, companies and their stakeholders need their financial statements faster to be able to react promptly to potential risks. They help, for example, to better plan financing requirements and reduce financing costs.
Listed companies must also meet certain deadlines when publishing the various financial data in order to ensure the transparency and integrity of the respective capital market. As a result, the reporting of financial data from subsidiaries is usually closely timed in corporations.
Regardless of the regulations of the respective capital markets, a quick publishing of financial data can help a company to be better valued on the capital market (or by banks), as investors and analysts can understand and assess the financial position of the company more quickly. Fast financial reporting tends to increase the confidence of investors and lenders, which in turn can help companies access capital more easily and with a discount.
A fast close project is also a classic process optimization in which the end-to-end processes from a business transaction to reporting in the closing process (record-to-report) are analyzed and optimized.
By automating manual processes, using digital tools and technologies, and implementing more efficient workflows, the close process can be made faster and more efficient, which can lead to a reduction in the time and labor costs for the close process. In addition, the finance team can also benefit from a fast close process in several ways:
- Reduction of load peaks and overall workload
- Focus on value-adding activities
- Skills development
Overall, it can be said that a fast close approach can increase the scalability of the finance department and improve the competitiveness of a company. As a finance initiative, it is a clearly focused project, with a measurable goal that usually has many positive side effects in finance.
Starting points for an accelerated preparation of financial statements
Our experience shows that there are a variety of starting points for optimizing the closing process. Starting points, dosage and implementation time depend on different factors, such as
- Target publication dates
- Group structure and organization of the finance department
- Relevant accounting standards (local, group)
- IT infrastructure in finance and upstream areas
- Finance team and supplying departments
We define the optimal method mix together with you in a series of joint initial workshops, because you know the challenges best and we bring our experience and expertise to the table.
Basically, however, there are the following standard approaches that are used in one form or another almost everywhere:
- Teamwork: in many cases, there is already a lack of clearly defined and close cooperation between the people and departments involved, such as Group Accounting, Group Controlling, Accounting, Sales, Purchasing, HR, etc.
- Standardization: Standardization of processes, reporting formats and reporting content (e.g., account assignment/accounting guidelines) reduces the number of activities required to clarify, reconcile or check information and also creates standards that must be complied with.
- Automation: As a rule, there are numerous small or large levers in the record-to-report process to automate manual or semi-automated activities. These do not always have to be new IT solutions. In most cases, existing solutions can also be better utilized to automate data entry or simplify the review of accounts and postings.
- Bringing forward closing activities: Moving preparatory activities to periods before the actual closing date can reduce the amount of work required on the closing date and equalize it overall.
- Simplification of accounting and valuation: In limited cases, simplifications in accounting and valuation can also be discussed with the auditor in order to speed up the closing process. E.g. the use of estimates or standard values.
- Pre-audit: Since the path to audited and published financial data usually includes the auditor's audit work, a pre-audit agreed with the auditor can identify and reconcile defined issues at an early stage and possibly reduce the audit period after the reporting date. However, a preliminary review is not a substitute for an audit by the auditor.
- Use of checklists or closing tools: Clearly defining responsibilities and deadlines within the team ensures that everyone understands their role, morale stays high, and unnecessary confusion is avoided. This eliminates the need for time-consuming status meetings and coordination rounds in the closing process.
Each of these standard approaches can be used in different forms and intensities as part of a fast close project. However, it's important to find the right combination for your business and goals.
Aspects that are often neglected in fast close projects
In most cases, fast close initiatives are found in group constellations. The early involvement of subsidiaries and the joint development and implementation of acceleration measures play a decisive role here. If subsidiaries are informed too are or not informed at all about the upcoming changes in the closing schedule, this can lead to considerable distortions in the reporting and the subsequent audit process on local level.
In addition, changes in the closing schedule are very often planned based on theoretical assumptions. This leads to closing activities being viewed and evaluated from a financial perspective only, without including the operational business units in the planning. As a result, planned completion and target dates are often at odds with business processes that cannot be changed due to exogenous factors. A comprehensive exchange with representatives of the adjoining operational departments is therefore vital.
The decentralized storage of data and information (in Excel or Word files) is another aspect that makes closing operations significantly more difficult. If employees are absent during the closing process due to illness or the like, it is essential to define clear substitution and responsibility regulations in advance. However, if information or calculations relevant to the closing process are stored decentrally, it is often impossible for substitutes to complete the tasks in the specified time window. Central storage structures and system-immanent preparation of data are therefore the key to efficient emergency scenarios.
Speed at any price?
Under no circumstances should accelerated financial statement preparation be achieved at the expense of the accuracy and reliability of financial data.
To ensure that the quality of financial data is not compromised in the time remaining, the optimization measures used in fast close initiatives are implemented in such a way that appropriate quality assurance mechanisms are already integrated or that additional quality assurance measures are added.
- Automation of processes, is implemented in a way that reduces human error or saves time to increase data quality.
- Increased standardization, to ensure that data is already captured correctly, but also fits in terms of content.
- Definition of control processes and responsibilities to identify and correct inconsistencies or errors.
- Training employees to ensure they have the knowledge and skills needed to perform tasks effectively.
Closing processes are fundamentally subject to the conflicting demands of time - quality - cost - compliance. Therefore, we always align these four dimensions individually with our clients. But data quality always has top priority.
With our experience and combined professional as well as technical-process expertise, PAS Financial Advisory AG is the perfect partner for the implementation of fast close approaches.
We are happy to report on our experience with NextGen Fast Close projects.