Almost everything in the year 2020 has been – and will continue to be – about changes and abnormalities.
As a financial professional, count on that trend being a powerful force as you start to plan and execute the annual year-end closing process for your business.
Expect changes – in many cases dramatic – to your company’s balance sheets, income statements, revenues, expenses and cash flows.
In this blog we’ll show you how to plow through this atypical annual process by understanding what changes will be most important to track, understand and overcome.
We’ll share insights on how to intelligently navigate your way through this year’s unprecedented year-end closing process. That includes using the power of accounts payable (AP) automation software to help make your year-end process faster and easier.
Changes You Should Expect
Entire Process Could Be Done Remotely – for First Time Ever
For the first time ever, it’s entirely possible your company will plan, strategize, execute and finalize your year-end closing program completely online with all people involved working remotely.
With this in mind, create a customized plan, based on all the financial changes this year, for how to do this whole process with everyone working from their home offices.
A great starting point for this plan would be to resolve how you will be interacting with external auditors who will review your closing documentation and overall process.
Ask yourself these questions: Will they, too, be working remotely? If you can’t meet with them face to face, how will you still be able to communicate online with them effectively, and how will they give you feedback on your year-end closing process and results if all of this has to be done on conferencing calls?
Changes in Technologies and Applications
If there is ever a time to make sure your year-end closing team knows how to use technologies to get this task done, now is the time.
It will also be important that your IT team and employees understand and know how to keep their data secure from cyber criminals, take advantage of cloud computing and understand better what the digital transformation of businesses is all about and how it applies now to their workdays.
All of this will be relevant for them in the remote working locations. Understanding what technologies can be used and for what purposes and benefits will be key. In an article in CFODive.com titled As the First Remote Month Ends, How Are CFOs Closing the Books?, OneStream Software CFO Bill Koefoed said if there was a case to be made for the digital transformation of finance, it’s this crisis.
“Finance has become central, and strategic, to the survival of businesses during unforeseen and challenging times,” he told the media outlet that covers the finance industry.
Fluctuating Forecasts
Whatever financial forecasts your company made at the start of this year have probably changed – in many cases drastically.
Mindful of this, your year-end closing process should be sensitive to the widespread economic uncertainty. Be careful about any assumptions you make about how your company performed financially this year relative to the forecasts.
For example, you may have expected to end the year with a net income in a specific range. But expect that range to be different this year because of the economic shutdown.
Likewise, your sales, inventory and production numbers for the year are probably going to be considerably higher or lower than your expected when the year began. Be ready to adjust to these financial discrepancies as you prepare for your closing.
Changes to Cash Flows
The numbers you see in cash flows this year are bound to be unusual. Pay close attention to cash amounts spiking up and down in irregular patterns and amounts and in some cases down to nearly zero because of rapidly falling demand for certain types of products and services.
Track the amount of cash your company actually generated – versus how much you expected to generate. Accurately calculating these fluctuating cash flow numbers will be huge in making sure your year-end process captures the true financial performance of your business.
Business Strategy Overhauls
Many companies, possibly yours, have taken the time during this crisis to re-evaluate their business strategies. No doubt some have stayed the course, but many others have decided to enter new markets, offer new and different products and services and re-positioned their companies to stand out more in the marketplace.
You will need to know how your company’s strategy has changed and, if so, how. The change in strategy will probably affect your evaluation of this year’s financial performance.
Positive Steps Financial Pros Can Take
To overcome this year’s challenges and the usual problems that arise each year, financial pros may consider using a fast closing process. In this procedure, a company does structured and periodic closing processes during which all financial facts are collected and sent to the main stakeholders in a short time frame.
Ideal for use in economic crisis situations such as now, the fast closing aims to keep the time span between business results and collection and dissemination as short as possible. Different teams within a company, ranging from accounting through consolidation to reporting, must work together to effectively collect and interpret all the financial information.
Sharing information faster helps reduce mistakes and generate more valuable and timely insights to drive better business decisions. For this process to work well, companies will often use automation to do repetitive routine tasks such as AP automation payments.
“The migration from manual routine tasks in finance, accounting and controlling to more automated finance management is an unstoppable trend,” according to an EY report titled How to Turn Fast Closure Challenges Into Opportunities for Your Business.
“If a company in 2020 needs two months to close a financial year, something is fundamentally wrong with their management processes. Fast closing should be a non-event, where a mix of automation tools and professional guidance can make a streamlined process of financial reporting.”
Use a centralized platform
Beyond fast closing processes, there are other smart moves your company can make to make this year’s year-end process run more smoothly.
It’s highly advantageous to use a centralized platform so all the closing information can be found by all team members and auditors in one place including results delivered by accounts payable automation software. The data there should be consolidated and updated often and rapidly. Don’t wait until the last minute to get this done because time pressures may cause mistakes.
Focus on net income
One of the most important numbers you will be determining in the closing process will be the net income (or net loss) your company achieved for the year. The CEO and top executives will be keenly interested in this number because it will inform them just how well the company performed after all the calculations and details have been sorted out and accounted for. It answers the central question: did we make or lose money and how much?
Make sure you focus on getting this number right in the closing process. It will be key to help your company make smarter decisions about how to operate in the coming year, what strategies might need to be tweaked or revamped and what investments should or shouldn’t be made.
Do everything earlier
There has never been a better year to get far ahead in the closing process. Gather data from vendors and suppliers sooner than you ever have. Stay abreast of all the latest expense reports and spending daily. If your company expects to miss its earnings estimate or needs to alert investors to upcoming financial changes, do it sooner.
Don’t wait and have them be surprised. Give them time to react and adjust to what’s really happening in your business, not what you forecasted.
Consider accounts payable automation software
The year-end closing process often involves monotonous, manual data entry, numerous errors that waste time, missing receipts, unidentifiable payments, a lack of access to timely data, too much complex data and inefficient or non-existent automation.
An effective way to overcome these problems is by using accounts payable automation software because it accelerates payments to vendors and suppliers compared with manual systems. The technology can also reduce mistakes and the time it takes to gain invoice approvals.
Final thoughts
In gearing up for your closing this year, focus on these two themes: change and preparation. This is a profound year of change and it will be for your closing process. Financial pros will be rewarded by taking nimble approaches and appreciating that things probably won’t go according to plan.
For your company to come out stronger in this dynamic situation, your preparation will be paramount. Get ahead of all the potential problems you might encounter.
Make early preparation, including contingency planning, your most powerful tool to deal with unprecedented change. This will make your closing process a stimulating and fascinating one this year.
Simplify and accelerate this whole process by taking advantage of AP automation software.
Embrace the changes and enjoy the new experiences.
You May Also Like: 4 Ways AP Automation Can Help Accounting Teams During Year-End Close
