Close Faster with Centralized Accounting
When you have multiple accounting locations that forward their results to the corporate staff for consolidation, the closing process will be less efficient. The trouble is that some locations will be less efficient than others, due to different policies, procedures, training, staff availability, management skills, and so on. The result is that a few locations will always be late in forwarding their results to the headquarters staff, which delays the close.
You can avoid these issues by shutting down the local accounting operations and instead centralizing all accounting activities in one place. Doing so yields the following advantages:
- Coordination. The closing team is located in a single place, so there is tight coordination within the team. There is also no need for a workflow management system, since everyone involved in the close is likely sitting next to each other.
- Intercompany eliminations. When the entire accounting system is in one place, it is much easier to flag intercompany transactions and eliminate them as part of the consolidation process. This is a much more difficult issue when there are different accounting systems in every location, and no one tracks intercompany transactions at the local level.
- Research. If someone uncovers a problem during the closing process, it is much easier to research the issue in a centralized environment, since the closing team has on-site access to the detailed transaction, and so can research it at once.
- Software. The company only needs one accounting software package. This yields considerable benefits over a distributed solution, since everyone is trained on a single system and procedures can be tailored to that system. Though it does not relate to the closing process, a company will also likely realize cost reductions from having to pay maintenance on only one software package, as well as from only creating custom interfaces between other systems and that single accounting package.
- Standardization. It is much easier to standardize all accounting policies and procedures when there is only one accounting location. This means that you can more easily fine-tune the accounting systems to close quickly.
- Transaction factory. It is much more efficient to deal with all of a company’s credit, collection, customer billing, and accounts payable transactions in one place – essentially creating a “transaction factory” to reduce transaction costs. This approach carries the added benefit of being so efficient that those aspects of the closing process related to transactions can be completed extremely quickly.
It is a considerable chore to centralize all accounting activities. The best approach is to do so gradually and by functional area. Thus, you could centralize all supplier invoice processing activities, and perhaps then move on to the centralization of customer invoices, payroll processing, and so forth.
If your company routinely acquires other businesses, it is quite possible that any one of these acquisitions will delay your closing process for a long time to come. The reason is that the accounting staff of the acquired company may set a low priority on the closing process, and so routinely completes closing activities many days late. If this is the case, your easiest alternative is to standardize their closing processes by providing them with the company’s standard closing procedures and as much training as is needed to comply with it. However, it is also possible that they never attain the standards at which the rest of the company operates, so you may be forced to shift their accounting operations to the centralized company facility. The key point to remember is that any acquisition can severely delay your overall closing process if their accounting operations are substandard.
There are multiple discussions about the fast close in Episodes 16 through 25 of the Accounting Best Practices podcast.