Every business has to go through financial periods, either yearly, quarterly or monthly. At the end of every period comes, what many view as, the dreaded financial close, where your accounting team closes your previous period’s books and moves on to the next period. Recently, companies have been shifting the long process of financial close into the elusive “one day financial close.” Trying to do everything in one day comes with a host of risks and challenges. One day financial closes could be a prime area for you to integrate RPA in your business’s finances. Here’s why:
What Is the One Day Financial Close?
“Financial close” is all the different financial and accounting procedures that go into closing the books on a financial period (month, quarter, year, etc). The basic point of it is to review and reduce account balances before the accounting cycle closes. The 4 basic steps of a financial close in any company are:
- Gathering data. This typically involves transferring data to a centralized ledger.
- Review. Going over the data and making sure everything is accounted for and recorded properly.
- Analysis. Running trial balances, adjusting them, reconciling debits and credits.
- Closing. Closing the books.
At the end of this process, you’ll have reset your income statement accounts to zero, essentially locking your previous financial period and separating it from your new one. The general time frame for a financial close is 3 days. Typically, data gathering happens on the first day, with reviewing and analysis taking up most of the next 2 days.
Carrying out a proper review is crucial because early stages of the financial close often rely on estimates and accruals which are usually far from accurate. Companies will tend to take extra time on their financial close because of the risk that comes with going too fast.
Closing the books is something that businesses want to do once and then dive back into their current financial period. They don’t want to have to waste time going back and forth between periods to make corrections because they took things too fast and made mistakes.
The One Day Close is Challenging
This is where the tricky “one day financial close” comes in. It’s the same as any other financial close but with the challenge of getting everything done in one day. It’s extremely risky to attempt this because numbers can be finicky. Jampacking that much into one day can easily lead to more errors than anyone would be comfortable with.
Depending on the scale of your business, things can get even worse. If you have a very large business with complex financials (multiple sources of income, different types of transactions, many locations, differing tax zones, multiple subsidiaries) you’re basically playing with fire if you’re going for a one day financial close. It’s so easy to get different credits and debits mixed up, or to confuse accounts between subsidiaries—the list of risks goes on.
Despite all the dangers of the one day close, there are huge upsides. Companies that manage to get consistent and accurate one day closes done regularly enjoy the benefits of:
- Higher value financial team
- Time and cost-saving
- Better decision making power
As with all areas in accounting, there is one challenge: human error. Accounting is commonly the most data-reliant part of any business. Accountants are always working with sets of numbers, and their job is to make sure that your money is being spent correctly. Unfortunately, humans can sometimes tend not to be particularly good at dealing with huge sets of numbers. It’s extremely easy to punch in the wrong digit in a transaction, and ruin your records.
Using RPA for Your One Day Financial Close
Of all the areas of your business, your financial close is one of the best areas to implement RPA. It’s a crucial and necessary part of having a business, but it is also extremely delicate and procedural. This is the perfect condition for making use of RPA. Tasks that are procedural, happen regularly, and are tedious to do (and vulnerable to human error!) are top choices for automation.
With the proper automation infrastructure, one day financial closes quickly become the standard to follow rather than being a risky challenge for your business. There are two major areas in which software bots perform better than humans:
- Speed and power
This is exactly what you need for your business’s finances. Bots are much better at dealing with large swaths of numbers. They don’t need to take breaks and they work at speeds that are incomparably faster than humans, especially with data as strictly structured as finance.
Bots being precise is the other big factor. Not only are they faster than humans, but they make almost no mistakes. The odds of a bot punching in the wrong number are infinitely smaller than even the most skilled human bookkeeper.
By integrating RPA into your end-of-period financial process, you’ll be reaping many benefits. Transactions will become more efficient and less time-consuming due to the decrease in human error. You’ll have more accurate profit-loss calculations. You’ll achieve the one day close easily and without worry.
Closing The Books Doesn’t Have to be a Herculean Task
But there are even more bonuses that aren’t as obvious. For one, you’ll be almost entirely avoiding that disastrous 10-day gap between closing your books and detecting a crucial mistake in them. With the precision of bots, you can have the confidence to feel that once you close your books, the job is totally done. So you’re not just saving time by making a one day financial close a consistent reality. You’re also saving all that janitorial work that is even more prevalent in human-based one day closes.
Another big upside of RPA is that you’ll be freeing up your financial team. Financial closes can be very high pressured, endless numbers, and constant reviewing is something that can cause burnout for your financial team. This is why companies will generally close their books either every year or every quarter. If they were to do them every month, they might still be discovering mistakes from the previous close while they’re starting to do the current period’s close.
So, using RPA to take care of the bulk of the work in your financial closes allows your financial team to have more room to breathe, and work on things bots can’t handle. But it also allows your business to tighten its financial periods. With RPA, you can, in theory, do one day financial closes every day. That’s not very convenient, but you can certainly move from a yearly or quarterly period to a monthly one. Depending on how your business operates, the flexibility RPA affords you can come in handy.
Finally, there comes the issue of cost. A lot of businesses are hesitant to move toward automation because they are scared of the cost that comes with it. The good thing about RPA is that most of the cost is upfront: acquiring the software and setting it up properly. Once you’ve done that, bots (especially bots used for finance) require very little maintenance and will run fine for as long as you need them. Even if the upfront cost seems high, think of all the financial benefits that come from using RPA. Think of the man-hours that were used on closing your books, but then also those that were wasted making up for the human errors later. Think of reducing the 3 day close to the 1 day. Bots will very quickly pay for themselves, especially if you use them in the long term.
Find the Right RPA System For You
At K2, we’ve partnered with industry leaders Automation Anywhere to offer RPA training for Finance Professionals. Our Mastering Bots course provides courses to help you find the best way to integrate RPA into your business.
Find out how we can help you transform financial processes of your business, including your financial closes.