By Mike Sbrocco, Director of Finance/Controller, Junxure
When it comes to close processes, it’s fair to say that the monthly close is important, the quarter close is more important, and the year-end close is the most important of all.
The year-end close is a critical stage of the overall accounting and reporting process for both private and public companies. It sets the stage for the financial reporting, auditing, and taxes. The stakes could not be any higher, the pressure is on to get things right, and time is of the essence!
Once the books have been closed and the financials have been reported, any changes that need to be made to the financials generally result in having to restate them. Although the complexity of this can vary, depending on whether the company is private or public, having to restate your financials is a time-consuming and costly endeavor and something to be avoided. That’s why getting the year-end close right—ensuring as much accuracy as possible—is absolutely crucial.
Starting Off on the Right Foot
A smooth, accurate, and timely year-end close not only allows your to end the year on a good note, it also allows organizations to start the new year off on the right foot, providing a terrific starting point for the January close and a clean slate for the new year. However, if the year-end close is problematic and inefficient, then it can put you behind the eight ball going into the new year.
For example, having to spend time going back over old financials to find and correct errors means there is less time to devote to the new numbers going forward into January. Then the AP department ends up in a crunch at the end of the month. It is no exaggeration to say this can have a domino effect that permeates the close process throughout the year.
An Effective Close Process Starts Early
It makes sense to begin the year-end close process in November to ensure that things are buttoned up, all journal entries are in order, and all account recs are up to date. Starting early rather than waiting until the last minute makes things easier when closing in December.
Avoiding Common Problems
As with any process in finance, the year-end close has its share of challenges. One issue that comes up at a lot of companies is that employees take vacations around holiday time. This can impact the year-end close process and cause important tasks or steps to fall between the cracks—and it’s vital that very little (if anything) falls through the cracks when it comes to the year-end close!
Plan for this ahead of time by requiring that finance and accounting staff put in for vacation time as early as possible. Once you know who will be absent and when, you can either make sure staff completes tasks early or assign some key work to other employees.
Another way to avoid problems is to set up a system whereby all work associated with the year-end close is checked and then double-checked.
Finally, take stock of all tasks that have been put off throughout the course of the year and make sure they are done. For example, tasks such as investigating variances, updating schedules, and checking account recs may have been put on the back burner, and must be tackled and completed prior to year-end.
Advice for AP
To make the year-end close go as smoothly as possible, take the following steps:
- Create a detailed plan. Put the plan on a “close calendar” with timelines and deadlines for task completion. Share the plan and calendar with all staff in finance and accounting so everyone is literally on the same page.
- Make sure time-off requests are submitted and approved well in advance. That way you will avoid being short staffed. Also make sure all staff submit their key data and portions of financial reports before they leave for holiday vacations.
- Ask employees to be proactive with their areas and identify any potential roadblocks. The last thing AP needs is to find out at the last minute that there is missing information or some other obstacle that will prevent the close from being completed timely.
- Communicate the plan with everyone involved. As with most management processes, communication is the key to the success of the year-end close process. Communicate effectively throughout the year-end close to ensure that everyone and everything stays on track.