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Virtual Close: Not So Fast

Companies once assumed they'd be able to close their books in a day, but that goal has proved surprisingly elusive.

Real Time in No Time?

Not far from Veba Oel in Dusseldorf, a fast-close project at Henkel took a giant step forward when managers at the $13 billion maker of toiletries, home-care products, and industrial goods began using Web-based software for intercompany reconciliations. “Having Web-enabled software for intercompany reconciliations is a great way to let managers anywhere in the company see their receivables against the liabilities of their partners within Henkel,” says Matthias Schmidt, the company’s vice president of financial planning and controlling as well as the fast-close project leader. “The software — combined with tougher guidelines in terms of what the 280 reporting units are allowed to book and when — has really reduced the obstacles that were slowing down our closing process.”

But technology is transforming much more than reconciliations. As part of a wider global IT initiative, the company has been rolling out a groupwide database and financial system that — in the words of CFO Jochen Krautter — “will give us seamless, real-time virtual management.”

Although there’s still more work to be done before the implementation is complete, the company is already reaping rewards. First, the new technology has been helping Henkel bulk up management and statutory reports with additional disclosure, including more-detailed segment information. Second, automation tools have allowed the company to accelerate the consolidation of its financial figures so that they can be released to the public at record speed.

With the company’s auditors signing off on the 2001 accounts by February 14 this year, Henkel made its financials available to shareholders 45 working days after year-end — 10 days faster than in 2001. The aim is to sign off on the books by January 31 of next year.

Keith Brown, finance director at Gerber Foods, a £450 million ($700 million) U.K. drinks supplier, is hoping he can soon say the same. This summer his staff waved good-bye to the trusty spreadsheets that had long been used for consolidation and reporting, and moved to Web-based consolidation and reporting software. “Spreadsheets are fine if you want to use them alongside a good application for ad hoc analysis,” says Brown. “But once a company reaches a certain scale — like we have after a recent acquisition — they just become too cumbersome to be the sole tool for closing the books.”

And as with Henkel’s Schmidt, a big selling point for Brown is having software that’s Web based. “At first, the fact that the software was Web-based didn’t impress me much,” he confesses. “For me, other things like a good database were more important.” But now, as he prepares to launch the fast-close project in Germany, he’s sold. As he sees it, providing managers with access to a central database via Web browsers on their PCs is one of the best ways to guarantee that “you have only one version of the truth lying around.”

There is some good news: the KPMG survey found that while the average time to close the books has declined only 1 day, the median has dropped from 10 days to 7, and audit sign-off has dropped from 16 days to 10 (both average and median). Companies, that is, seem to be able to produce numbers faster, but are taking longer to release them, perhaps prompted by concerns over their accuracy. As they grow more comfortable with the technology and processes behind the numbers, and as they feel more heat from regulators and the public to report results in a more timely manner, they will likely trim days from all facets of the process. But at this point, the ability to close the books within a day is virtually unheard of, and seems likely to be a standard for which few companies aim.

Janet Kersnar is editor-in-chief of CFO Europe.


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