Continuous closing: Get more value out of your financial statements, more often
Financial statements contain vital information needed to uncover new opportunities and make purchasing and tax decisions. They also provide insight into day-to-day operations and the effectiveness of your strategic plans. So why are they only prepared yearly, quarterly or monthly?
In today’s fast-paced (and unpredictable) environment, month-old information is old news. You can't make solid strategic decisions based on outdated financial statements.
Many organizations are pivoting toward weekly or daily financial statements to gain agility and leverage the timeliness of their data. Most accounting systems keep track of financial data in real time, so it makes sense to put the information directly to use.
Here’s what continuous closing looks like in practice — and how to make the transition:
Ditch “how it’s always been done”
Companies that rely on monthly, quarterly or yearly financials typically do so out of habit. Even though they prepare financial information periodically, they use it much more frequently — weekly, if not daily.
If you’re thinking about moving to a daily or weekly schedule for preparing financial statements, start small and specific. Pick an aspect of the business, like sales activity or cash flow, and match it to your decision-making needs.
For example, a daily financial statement would show the prior day’s sales activity. A weekly financial statement might show ebbs and flows of spending, such as payroll dates or vendor payments. Monthly, you may want to look at sales targets.
Each statement is part of a holistic view of your business. Use this information to help you plan — and adjust — your fiscal-year goals. With more frequent financial statements, you can address issues immediately versus waiting for a quarterly or annual report.
Plan for tax liabilities
Taxes are handled at the end of the year, but you should look at tax data frequently to avoid any surprises. If you know how much you expect to pay, you can set money aside or map out capital purchases. If your tax liability is going to increase, quarterly reports give you time to mitigate the effects.
By understanding your tax liability quarterly, you can schedule purchases for optimal timeframes or delay purchases if you anticipate having more income in a future quarter.
Report financial statements efficiently
Does preparing financial statements frequently sound like too much work? What if you don’t have a full-time accounting team? The answer is automation. Using technology, you can generate useful financial statements without wasting time. Automation can also help you grow and scale financial reporting alongside your business.
With the right budgeting tools, your financial statements can run automatically on whatever schedule you set: weekly, monthly or quarterly. Extra “free time” can be focused on planning or forecasting for the business.
People commonly resist change. One of the barriers is fear that automation will lead to job redundancies.
Reassure staff that technology is about highlighting efficiencies and taking mundane, time-consuming work off their hands. With efficient financial reporting, employees can be redeployed to more meaningful work.
The COVID-19 pandemic has opened a lot of minds to new possibilities and ways of working. People who thought their work couldn’t be done remotely are realizing that it can be. Use recent, practical examples to illustrate how things can be done differently and more efficiently. Continuous closing can support company growth, even in turbulent times.
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