From the April/May 2012 issue of Treasury & Risk magazine

Financial Close Takes Longer

Companies cite the recession and regulatory changes.

While the business world spins faster and faster, the pace at which companies close their books at the end of the month or quarter has slowed, according to a recent survey by Ventana Research.

Just 49% of companies say they manage to close their books within five to six business days after the end of the month, down from 58% that closed in that time frame according to a 2007 Ventana survey. And only 38% of the companies close their books within five to six days at the end of the quarter, down from 47% in 2007.

“There’s just an awful lot of companies that are taking more than five or six business days to close their books,” says Robert Kugel, head of CFO and business research at San Ramon, Calif.-based Ventana.

The deterioration in closing times contrasts with the high portion of companies that say it’s very important to close faster, Kugel says. “Forty-one percent of companies that take more than five to six days to close say it’s very important to close faster.”

Companies are taking longer even though they’ve simplified their financial technology, with 38% of the 152 companies surveyed using a single ERP vendor, vs. 27% in 2007, and just 14% having to take information from six or more systems, down from 25% in 2007.

“On the surface, the technology infrastructure would not appear to have been an issue here,” Kugel says. “It’s going in the right direction.

So what’s the problem? About half (49%) of the companies cited the financial, economic and regulatory events of recent years, with 40% saying they have put in place more internal levels of review.

But Kugel argues that taking more time probably points to flaws in the company’s closing process.

The upside is that such processes can be revamped.

“Step No. 1 is figuring out where there are holes in the process,” he says. “Just having monthly or quarterly process reviews achieves results, figuring out what it was that caused a slip-up.”

Standardization and simplification are also important, Kugel says. “A lot of the art of closing, I think, is determining what’s important and making sure all of that’s included, and eliminating all of the unimportant things.”

 

For a look at how Eastman Chemical revamped its close, read Seeing Results with Benchmarks.

To read about Cisco’s implementation of a “virtual close,” see this 2004 profile of former Cisco CFO Dennis Powell.

For more on the Ventana report, click here.

 

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