Thank you! I’m getting some very intelligent “Dumb Stuff” ideas from you, and I appreciate it.

As I mentioned in a previous post, for several months I’ve been piecing together a “Stop Doing Dumb Stuff” list. I hope this list will help liberate overburdened finance and accounting managers and executives to more effectively address the new priorities and programs streaming into our departments.

Here’s a (dumb) gem several people recently sent me: The Monthly Financial Close. Why do we do it?

Publicly listed companies are required to close quarterly; most other types of entities only have to do it once a year for tax purposes. Yet, we consume large amounts of finance time each month churning out monthly financial statements. There are exceptions, of course: best-in-class companies, like Cisco, complete their monthly closing process in a matter of hours.

But even if we got the monthly close process down to the push of a button at midnight on the last day of the month, what value would it add?

I guarantee you that the operating folks would not put the coffee pot on to review those hot-off-the-press monthly financial statements. Why not? Because all that information contained in them will only confirm thousands of decisions they’ve already made. Operating managers deal in a real-time world where problems must be identified and corrected in a timely manner. Few would dream of waiting for a month-end report. Yet finance does.

The monthly close is only a reconciliation that helps finance and accounting – only it hurts us more than it helps us. We invest too much time doing it instead of providing work that would add much more value and help the operations make better decisions today and tomorrow.

Some of you will argue that the banks require monthly financials. That may be true based on existing debt covenants. But let’s consider what banks really want. First and foremost, they want to make sure that the borrower pays the loan back. The budget is just one of the things they ask for to help assess the likelihood that that repayment and associated interest payments will happen.

What’s a better way to make your banker comfortable in lending to you? Provide him with your forward-looking scenario plans. Take the time you will save by eliminating the monthly self-flagellation of budget-to-actual variance explanations and replace it with scenario planning. Show the banker a robust set of situations with varying levels of revenue and cost increases and decreases. Include what mitigating plans your organization plans to take under each scenario. Show the banker that you actually use your planning department to do planning.

Taking this step is one of the most important for finance organizations. Finance moves from looking into the rear-view mirror to see where the organization has been to through the windshield to see where it is going. The new role is to help management decide where it wants to go and how to get there. Frankly, the view in front is a lot more interesting.

Please, keep your suggestions for Dumb Stuff We Should Stop Doing rolling in: Email me anytime. ###