User Review( votes)
When I joined Expel, our monthly close was a bit of an after-thought and happened when we could make the time. By the time our financial package made it out the door, the information was stale. By shifting our focus to optimizing our monthly close, we were able to cut down our close time to three days monthly, which has significantly increased the relevancy of our financials and delivered greater clarity and insight to our leadership team.
The complexity of your financial close process may vary significantly from our organization, but the strategy below is applicable for all orgs.
Do you own your close?
For many of you, closing the books may take up a significant amount of your team’s time month-in and month-out. You close the month and come up for air; only to be pulled back into the weeds to close the next month.
I’ve found that the secret sauce to closing the books is equal parts planning and execution. The planning part is often what’s missed and deserves a spotlight.
I’d like to share six steps to help you on your way.
Understand your why
So, you want to close the books at lightning speed?! It sounds great on paper, but it’s important to understand the reason behind this goal. For my team, it was important to us to provide real time financial context for our C-suite to make even better strategic decisions. With an organization that wants to move quickly in a fast-growing space, having the financial inputs to measure our success was critical for our business. What’s your reason?
Get buy-in (from everyone)
Ok, so we (finance folk) understand our why, but does everyone else? We know that it takes a village to close the books and unless this priority is shared across the organization, your best efforts will fall short.
If you’re going to make this happen, you’re going to need some help from the rest of the org. Getting buy-in that closing the books is a critical strategic initiative for the organization is paramount to your success. Set up time with your leadership team to share your why and make sure your goals align with the broader business.
Give the people what they want!
Great, the business is “all-in”, now let’s figure out what your end goal looks like. First, understand the story that matters most to your audience. Our monthly financials are prepared for our internal management, whereas our quarterly financials go out to our investors. Our annual financials are audited and presented alongside footnotes. In this way, we can better manage the tension between accuracy and timeliness for each audience.
For monthly financials, our leadership cares most about our top five financial PKRs which include ARR, net recurring revenue, net sales efficiency, gross margin, and EBITDA (along with various leading and lagging indicators). We spend most of our time ensuring these financial areas are accurate, while leveraging estimates and analytics elsewhere in the financials to save time.
Our audience changes from a quarterly perspective. We extend our close by a few days (from three to five) to allow more time to capture actuals in lieu of accruals and expand our financial package. The secondary benefit here is increased confidence that our collective quarterly numbers are pegged closely to actual.
Let your audience dictate where you spend time on your close and where you can trim back.
Optimize for what matters
Take time to assess the materiality of the financial statement areas that are taking your team the most time and make sure time spent aligns with your objectives. For example, as a growing tech company our biggest spend is on payroll. If we can get clarity on labor costs by day 1, then we can feel confident that >80% of our expenses for the period are already captured. We are already most of the way to closing our books!
In contrast, maybe chasing down expense reports from your employees takes a lot of time for your staff but immaterially impacts your financials. This is exactly when you should be saving time by estimating!
Leverage your team and technology for what they do best
Get the most out of your team by automating the routine and shift their focus to analytics and driving insights. Take time between your Closes to understand the manual elements of the close and shave off minutes and hours where possible with technology automation. For example, make sure to manage your revenue earn out schedules, amortization, and depreciation automatically through scheduled entries in your ERP. Build out your financial statements in your ERP and package and schedule these reports to avoid time consuming financial prep. As your business grows and changes, when selecting new technology select tools that have native integrations with your ERP or have open APIs to save your team time gathering and migrating data each month.
Rinse and repeat
I believe that there’s always opportunities to improve, as well as new challenges to get ahead of – that’s why we “hotwash” at Expel. During our “hotwash” we take time to pause and reflect shortly after each monthly close to assess how we did. The whole team meets as a group and brainstorms where things went well (cheers to us!), where things went OK, and where we could improve. From there, we work together to come up with actionable strategies to move those suboptimal areas into the “good” column. Tracking against your progress helps add accountability, so that you’re not staring at the same pesky issue month after month.
All Together Now!
With this advice implemented, your Close plan should look something like this below:
- Understand your audience and your story
- Identify material financial statement areas and transaction that most impact
- Understand and optimize the dependencies that help you deliver on those FSAs
- Close the books
- Reflect and refresh
Zach is a finance leader specializing in growth-stage tech companies, and a Corporate Controller at Expel, Inc.