Measuring the Quality and Efficiency of a Close
Speed and accuracy are both essential to a strong month-end — and the best accounting teams know how to measure the quality of each. The key to improvement is a thoughtful approach where teams create benchmarks and goals that help them track the efficiency of their close process over time.
Michael Litwin, Controller of OpenStore, believes you should start with accuracy. He says, “Oftentimes, you can't measure both until you're really up and running.” And for him, accuracy is crucial because it’s how your business is doing. Once you’ve nailed accuracy, you can move on to how to make the close more efficient.
Litwin also encourages teams to continually track and measure their close. “It's an ongoing process,” he says. “I've never had two closes in a row that were exactly the same. You can almost always find one thing you can improve upon or make a little different to try to catch something you missed last time.”
Building a Culture of Accountability and Accuracy
Accounting teams ensure the integrity of a company’s financial statements. As Litwin sees it, “Even if something is not necessarily financial, almost everything turns into a dollar sign at the end of the day. And anything that turns into a dollar sign is what needs to come through accounting.”
This type of accountability builds trust — within the organization, with stakeholders, with vendors, and with anyone who is affected by the business. Accountability begins with delivering statements free of errors. The month-end close is a time to assess accuracy.
A culture of accountability
Accountability begins with setting expectations and making sure leadership is role modeling. “Accounting teams are built like a pyramid, where the information has to go up. And the accountability should as well,” Litwin says. “What I always tell my team is if you made a mistake, but I'm willing to post a journal entry or approve it or let you send out the analysis via email — that's on me as much as it's on you.”
Ownership depends on the environment and what the business is trying to do. For example, an early-stage startup may be looking for directional numbers and not focusing as much on being audit ready. An IPO-ready company may bring in a team to scrub the books and go through audits. The key is helping accounting team members get the correct line data into the hands of the people who are decision-makers. And this starts with understanding what operationally impactful information is important to the organization at the time.
Accountability is also built when team members understand how or what tasks are linked, and safety nets — like workflows and checklists — should be put into place. Checklists should feel collaborative, not micromanaging. It also helps when you spread the culture throughout the organization.
Build relationships beyond the accounting team so you further ensure accuracy by avoiding a myopic view. If the business as a whole understands the importance of accounting, it further builds a strong culture. Litwin also reviews with his team and then beyond each month. He says, “We do a finance review, talk about it, and then it goes to the operating team, which is basically the functional heads of each department. And then it also goes to the board each month.” He makes sure everyone is aware of what is happening financially for the company to solidify involvement all around.
Understanding business goals is crucial for accuracy. You’re focusing on what’s important. “Being plugged into what the business is doing, what the priorities are, where to expect the money to go or come in from just makes us that much more effective,” Litwin says.
Accuracy also depends on identifying things that make the close more efficient. Litwin talks about how essential expected versus actual can be. Variances can signal something you need to pay attention to. Pinpointing these trouble areas lets you improve line items to create a tighter closing checklist.
He also says, “You want to make sure you're really checking every box and covering every base. Essentially, every single task someone has to do, put on the checklist. It's easier to check a box and have it remind you than try to remember all these minute tasks that you're responsible for.” This helps ensure accuracy.
Increasing Efficiency: Getting Your Accounting Up to Speed
Efficiency starts with optimizing for the business. If you’re able to give better, more accurate, and quicker data to the business, they can use it to make highly-strategic decisions.
Litwin used the example of Black Friday to show the benefits of speedier accounting. He talks about how data can let retail companies pivot strategies based on the numbers coming in on Friday. An accounting team’s ability to provide those numbers quickly lets an organization adjust to better meet their revenue goals — which, in his example, was helping the marketing team market Cyber Monday more aggressively due to Friday’s performance.
If you already know your company’s priorities, you can work to get everyone involved in becoming more efficient and get everyone on the same page for a faster close. Let stakeholders know how everyone benefits. For example, let them know, when we get this on time, here’s how we can help you.
Using systems and tech stacks to improve speed, efficiency, and accuracy
Checklists, workflows, and tech can improve the speed of your close while optimizing accuracy. For example, a good, user-friendly ERP is vital. Be open to adding in platforms and tools that automate, centralize your data, segment levels of review, or lets you easily see what’s happening throughout your month-end close.
Create workflows around your tools, so everyone on the team understands their roles and how to use them. Anything that can speed up your ability to provide data to the business faster is worth implementing.
Understanding the Metrics Around Accuracy and Efficiency
It can be difficult to identify what metrics are important or even how to interpret them. However, a few that you can try are:
- Percent of close tasks completed on time
- Percent of reconciliations that are in
- Percent of accountsthat tie to the GL
- Number of entries that happen after close
- Manual adjustments posted each period
- Materiality and variance analysis and quality explanations
- Accruals and the accuracy of estimates
Some examples of accuracy benchmarks are if a new initiative is working out or if a department is pulling its weight or underperforming. In essence, the best way to get metrics is through the efficiency of your headcount.
Determine your KPIs through the type of growth, what your business’s priorities/goals are, and what things affect accuracy and efficiency. For example: how doing the P&L over the balance sheet can have repercussions where you lose things.
Moreover, make sure to report your metrics to stakeholders in a compelling way. Both to keep them involved in improving accounting and to share the progress you’ve made.
When you make it a goal to improve the accuracy and speed of the month-end close, get everyone on board early. Set expectations and invite stakeholders to participate. Litwin says, “One of the nice things about accounting is it's all after the fact. So you can plan for it pretty well. You should know what’s coming and never be caught off guard by something.” Metrics are another tool accounting teams can use to improve not only accountability but also the speed and accuracy of a month-end close.