How to Make Tradeoffs Between Speed and Accuracy
The ultimate goal for any accounting team is to achieve both speed and accuracy in their month-end close. Speed allows businesses to make quicker, well-informed decisions, while accuracy builds trust among stakeholders.
Most decisions on how to optimize your close process come down to the tradeoffs you’re willing to make between speed and accuracy. The best controllers recognize this and make tradeoffs depending on the risk and strategic value of different financial data. For example, a controller might say, I am willing to make more estimates regarding our expenses to close faster, but I'm unwilling to do so with revenue.
While attaining speed and accuracy is your objective, it’s essential to know how to find the balance as you build toward an effective and efficient month-end close.
The benefits of closing the books faster each month
The overall benefit of accounting is to provide information about what a company is doing well and where there are issues. The month-end close is critical as it serves as the process of ensuring that the financial data stakeholders need is fully prepared, accurate, and controlled. With this data, business leaders can take action to improve or fix anything. This may mean bottlenecks in the closing process or identifying information that is most important to the business.
When you close faster, you can share decision-making data sets that deliver financial insights and forecasts. It also lets the accounting team gather KPIs to further streamline workflows.
Edwine Alphonse, Financial Controller of Ramp, sees a faster close benefit accounting teams by letting them focus on other things. She says, “If I spent the full month closing, it would become the sole focus of my work. I wouldn’t have time to build processes, create controls, mentor my team, or focus on audits.”
Alphonse has reduced her close time by investing in systems that provide her with information faster while continuing to allow her to implement controls. She has solutions that let her track and monitor where she is in the closing process and how much time the team is spending on tasks. She looks for what adds value and what eats up time unnecessarily. She also communicates with stakeholders, letting them know what they need to do to close the books faster.
In Alphonse’s experience, it takes a consistent assessment of the close process, implementing helpful solutions and automations, and involving the accounting team and stakeholders in the effort to speed up the timeline to close faster.
How accuracy is critical
Not only is accuracy critical for establishing trust, but it’s also about having a more complete picture that generates the data required for informed business decisions. Accuracy in your month-end close helps with speed and efficiency in the long run. As an example, Alphonse says, “Accuracy decreases the number of material adjustments that you have to do after the close.”
When you achieve the right level of detail and accuracy, you can identify issues and fix processes. You’re more prepared for audits. And others can come into your process and understand what’s happening. All of this cuts down the time it takes to close.
Accounting teams can increase and ensure accuracy by staying up-to-date during the month (as opposed to doing all the work during the month-end close) — in other words, by keeping things current. You’re also more accurate when you’ve identified your revenue streams and can generate financial reports that are meaningful to your company. Accuracy is achieved through optimized workflows, tech solutions, and automations, as well as having an organized system for gathering and storing information.
The benefits of accuracy are far-reaching. Businesses that are able to maintain financial accuracy create stability by making well-informed decisions.
Finding the balance between speed and accuracy
Speed and accuracy begin with operational prioritization. It’s assessing what you truly need and knowing why you need it. Alphonse says, “I ask the company to communicate their top priorities to me.. Where should the main focus of our reporting be? What will require the greatest degree of accuracy?” She looks to things like cash, important accounts, and the nature of the business in general to further find what’s important.
Beyond prioritization, there are several steps you can take to ensure both speed and accuracy:
Monitor the time tasks take
How long is it taking for specific tasks, especially those that are immaterial? Are there bottlenecks or ways you can streamline? Find out if it’s a breakdown in communication or if a task should be completed sooner or later in your close process.
Determine the level of detail necessary
When you are generating data that helps an organization operate, you have to look at how you categorize and sanitize. Furthermore, there are entries purely for accounting and audits, while others are business drivers. The right level of detail becomes important. Too little, and it might affect accuracy. Too much and it might slow your close. As you continue to assess your month-end close, you can make improvements to the level of detail. The balance is not overdoing it but making sure people’s questions are answered — it’s giving visibility that provides the knowledge that the business needs.
Look at how to get information faster
A culture of accountability and transparency is key to getting the information you need for an accurate and speedier month-end close. It’s essential to convey the importance of what information is needed and share when it’s needed and why. Alphonse likes to provide the ROI of accounting to show the value of specific data. She also explains how it can impact them or help them do their jobs better. In essence, she is creating expectations that allow the company to financially function better and get everyone on board to make it happen.
Find what signals inaccurate accounting
A great indicator of inaccurate accounting is manual adjustments after the close. But there are other KPIs that can signify a need to improve a workflow or fix an issue. For example, if you’re expected versus actual is way off, constant irregularities, or you’re outside your materiality threshold. With consistent assessment, you can begin to determine what indicates problems in your accounting and fix them.
Implement technology solutions
Technology solutions help accounting teams gather and organize data, centralize it, and automate parts of the close process. It gives team leaders a way to track and monitor, and store all pertinent information in an organized and accessible way. When Alphonse started with Ramp, she was vocal about the necessity of technology for today’s accounting teams. She said, “We can save time and make the process more efficient.” She sees it as a necessary investment.
The close process never ends, but you can streamline it by finding balance through tradeoffs between speed and accuracy. This leaves room for you to focus on other important things while also benefiting the company by prioritizing the information they need to make operational decisions.