by Ron Baden
Every corporate finance department is familiar with the “Last Mile of Finance” (LMOF)—that stressful period at the end of each financial quarter when accounting and finance teams engage in a high-risk, high-impact, deadline-driven process to prepare financial statements and disclosures.
The main tasks of the LMOF—collecting the data, consolidating it, creating reports, and adding disclosure notes and xBRL tags—are often complex and error-prone, which causes delays, long hours and headaches for everyone.
Too often, finance teams stumble on the very first step, collecting data, because of too many disparate systems, which make retrieving data a labor-intensive process. Even companies with a central ERP system often have other legacy systems—silos of important data sitting in different departments, divisions and branch offices.
Extracting that data manually means employees are inputting the data into hundreds of Excel spreadsheets, which inevitably creates errors, delays, and can lead to a CFO’s worst nightmare: restatements of prior results.
Most CFOs today are looking for ways to improve and speed up the LMOF processes, and many are under pressure to re-engineer it entirely. Monthly reporting is the main area finance executives think could use process improvement, followed by budget and forecasting, a recent Workiva survey has revealed. Cash flow management was also an area of concern. However, investing in technology, which could address these and other concerns, is not a priority for almost half of respondents.
There’s a significant difference between the leaders and laggards when it comes to executing the LMOF. Those that succeed reap significant rewards. A recent study by APQC found that top performers average 15 to 19 days to complete the LMOF after producing consolidated results internally, while the bottom-quartile took more than twice as long. There’s also a significant resourcing difference. For example, a $5 billion top-performing organization averages about six full-time employees to get the job done, while a similarly-sized laggard can require dozens of employees in the process. Companies upgrading their disclosure process to best-in-class can achieve meaningful benefits quickly, with the Financial Executives Research Foundation noting that 78 percent see process improvement gains, and 54 percent cut four or more days from their process.
What is their secret? First, here’s a quick refresher of the many challenges inherent in the LMOF.
Data collection includes identifying and obtaining the financial results from multiple general ledger and ERP systems, and often includes collecting operational statistics from other systems such as HR and CRM applications. The data may be in multiple locations, in different divisions, and different countries and is often in different currencies. During the collection process, the data must be validated and mapped to the corporate chart of accounts with completeness and accuracy. And this must all be done quickly at the end of each month and quarter.
Consolidating the data, once it’s collected, requires reconciliation of each journal entry and closing account balance, and adjusting for things such as depreciation and deferred revenues. Many companies will also have to do currency conversion, intercompany reconciliations, and multiple regulatory reporting, such as US GAAP, Canadian GAAP and IFRS. Split ownership may complicate matters. For instance, a company that owns part of another firm reports on only its portion of the firm’s earnings, or one that sells off a division during the year will report the division’s revenues for just part of the year.
The last stage, reporting and disclosure, has become more complicated as regulations increase or change, and as the variety of report formats has expanded. Different audiences require different types of reporting, and a finance department must be able to present and provide them all. Internal users, such as finance executives and line of business managers, may prefer to get their key data reported on interactive dashboards, while the board of directors expects board books for meetings, PowerPoint executive presentations and, along with investors, an annual report in both print and .pdf format with lots of narrative, charts and graphs, and usually photos as well. The SEC expects carefully formatted filings for the 10Q and 10K.
Some reports also require the addition of disclosures, background notes explaining the how or why of a number or event. They may come as footnotes, be included in the narrative, or in tables and charts. The report and disclosures must also be formatted in XBRL or the SEC’s online EDGAR database.
Obviously, all of this requires careful preparation and fact checking. The risk of errors and inconsistencies is high, and the potential repercussions of errors equally high: re-issuance of statements, loss of investor confidence, and possibly SEC fines.
Transforming the Last Mile
Every finance executive seeks ways to make the LMOF processes flow more smoothly and accurately. As many leading CFOs have discovered, real transformation requires a three-pronged approach:
- integration and centralization of data,
- automation of processes with technology, and
- adoption of 21st century financial processes.
Integration of the company’s disparate data sources is the first critical step toward an efficient LMOF. Both financial and non-financial data should be available from a central source—a single version of the truth–so that employees can spend less time manually collecting and inputting data into spreadsheets and reporting applications. That both speeds the process and greatly reduces the chance of data error. Corporate finance departments are increasingly migrating to integrated applications to achieve this. The CFO Research survey found that 41 percent of companies are using an enterprise solution – such as an integrated enterprise performance management (EPM) platform – for their budgeting, planning, forecasting and reporting processes. EPM software can import data from multiple sources, consolidate it across departmental financial systems and greatly improve the accuracy and speed with which data can be accessed, analyzed and reported.
Automation is a second requirement for a streamlined LMOF process. There are hundreds of individual tasks and requirements involved in collecting, consolidating, reporting and disclosing data. In a world of AI, IoT and cloud computing, there’s no reason why finance departments should be manually inputting data into spreadsheets to produce year end reports or manually error-checking information and hand-formatting critical financial reports. The entire LMOF process should be automated, end to end, for optimum efficiency and accuracy.
There are existing software tools that can automate most or all of the processes. Previously mentioned EPM applications can automate most, or even all, of the reporting and disclosure processes.
One way in which EPM applications automate reporting is by providing users with a set of common report templates, making it relatively simple to generate a range of reports, both in print and digital formats, as well as dashboards and presentations. That enables finance end-users to do create their own reports without constantly depending on IT to run reports for them. Automating the report formatting also helps eliminate most of the usual cutting and pasting of information from various sources and accelerates the production of these documents. EPM applications may also specialize in automating the documentation workflow and collaboration between departments, or streamlining mandated activities such as compliance or disclosure management.
The final step in LMOF transformation is one that many finance departments are already embracing – the adoption of dynamic, real-time processes in place of outdated and restrictive practices that no longer make sense in modern businesses.
A centerpiece of these outdated practices is the calendar-based annual report which is, in turn, based on outdated calendar-based budgeting and planning processes. Very little about modern business finance needs to be dependent on the calendar any more. In fact, savvy corporate executives are adopting real-time reporting, continuous forecasting, and dynamic planning that can adapt as circumstances change – without waiting for the six-month planning review.
The State of Business Analytics Survey for 2017 by InterRel Consulting discovered a trend toward faster reporting frequencies as well as more self-service reporting. The report found that more than 65 percent of companies surveyed were doing daily reporting, compared to approximately 72 percent doing monthly reporting. The typical budget cycle has shortened to three to four months, not annually, and forecasts are monthly, with 44 percent using rolling forecasts.
Leading companies are also making greater use of analysis in all aspects of their budgeting to reporting processes. Greater use of analytics not only enables smarter automation of tasks, but also gives executives better insight into internal financial trends and their probable causes.
The transformation of the LMOF is a component of an even bigger transformation that all finance departments must undergo if their companies are to survive and thrive – the transformation from “bean counters” to intelligent contributors to the growth of the company.
Data integration, process automation, and use of analytics is enabling financial professionals to devote more time to strategy and understanding complex trends, rather than inputting data into spreadsheets and tallying up the numbers. And this is giving finance more time and energy to focus on having a seat at the table versus knowing what the table costs and how far it is into its depreciation cycle.
About the Author
Ron Baden is a seasoned veteran with more than 20 years of hands-on experience in the Enterprise Performance Management space leading engineering, product management, sales, and professional services. As Chief Revenue Officer at Host Analytics, Ron ensures that the Host Analytics team is works hard to partner with finance professionals to help them and the organization achieve peak performance.