By Jean Cunningham, President, Jean Cunningham Consulting
After 10 years of lean accounting consulting, I continue to think holding an improvement event focused on ‘closing the books’ is a great entry point for those in the accounting function. The activities associated with closing the books each month touches on nearly every process in the company and certainly is an opportunity to free up capacity in the accounting department.
In its purest sense, there should not be any need to ‘close’ the books. (OK, don’t let me lose you here…) Instead, institute an ability to look at results based on transactions properly and timely entered throughout the month. For instance, ability to see the invoices created due to shipment of goods or delivery of services in real-time. Or, the obligation of wages due from time worked. Or, the levels of inventory due to stock increases and decreases. However, to reach this utopia is not always realistic. But, it would be much more realistic and valuable to the company than what most accounting departments publish today.
Let me offer a few benefits of starting the lean journey in accounting with ‘closing the books’:
- Detailed maps of the sequence of work used to make waste reduction adjustments within the accounting processes
- Increase or decrease the frequency of review. Daily review for daily transactions, and quarterly review for quarterly transactions. Match the work to the actual flows
- Use set-up reduction to move work out of the closing time window
- Identify causes and sources of correcting entries which is a window upstream for the need for process improvement across the organization
- Simplify accounting terminology so that users of the statements better understand the meaning of the reports
- Simplify the accounting for inventory and other GAAP-based requirements to meet, not exceed requirements
- Listen to the voice of the customer, the users of the closing information. Find out what additional information would be helpful and what information is no longer helpful.
The outcome of ‘close the books’ improvement (kaizen) events will result in immediate reduction of lead time, immediate capacity creations, and a view of what is possible over the longer term. By starting with ‘close the books’, the accounting team will have a new respect for the importance and value of their time and energy as they start to be consultants to the overall organization.
Jean Cunningham is President of Jean Cunningham Consulting and former CFO of two manufacturing companies. She is co-author of Real Numbers: Management Accounting in a Lean Organization, as well as other books.
Side note: NWIRC will host a Lean Accounting course with instructor, Jean Cunningham, on October 24th in Erie. See more information here.