Due to a variety of external factors, businesses must now turn to innovative and agile ways of working if they are to prosper. Tough economic conditions, such as recessions, have created a need for greater financial performance and enhanced efficiency.
Technological breakthroughs have also ensured more must be done to stay ahead of competitors.
To keep up with the times, finance teams must be bold, while maintaining an openness to progressive accounting philosophies. One such accounting trend is known as continuous accounting.
But what does it consist of, how does it differ from traditional accounting methods, and how easy is it to adopt?
In this article, we discuss what continuous accounting is, the benefits it brings about, how to implement it within your finance team, and what the future holds.
What is continuous accounting?
The continuous accounting approach is one that embraces the use of technology to improve transparency, access to data, the value of that data, and how easily that information can be used in tangible ways. Technology enhances accounting processes, giving businesses financial data that is both accurate and current.
The continuous accounting model is so impactful that it can repaint how the finance function is perceived within the organisation. Finance employees become far more dynamic and strategic when using this method.
The month-end routine becomes a thing of the past, as it is absorbed into daily operations. As a result, fixed financial processes become far more fluid and aligned with the processes of other departments.
The stress and pressure associated with month-end evaporates, leading to a more energised and happier workforce. It's never been more important for finance managers to give actionable insights to the board. Yet many businesses are still using outdated tactics, drawing insights from static and historic data.
With real time accounting, the finance team become indispensable members of the company. It’s this modern accounting approach that allows them to make the biggest contribution. By carrying out bookkeeping on an ongoing basis, the limitations of previous models are eradicated.
In the past, businesses completed a monthly bank reconciliation, ensuring there were long stretches of time in which the records didn’t match the truth. This reconciliation would be done manually too, which isn’t the case when using Cloud-based accounting solutions.
Manual data matching can be extremely repetitive and time-consuming for employees. It’s also impractical for businesses looking to survive in the current climate. Companies must be optimally efficient to overcome turbulent economic conditions.
Integrated systems help with maintaining consistency across the board, by automating transactional processes. With accounting software records can be updated in real time. As a result, there is quick and accurate bookkeeping, with transparency around cash flow and profitability, all of which are a part of the continuous accounting ethos.
What is continuous close in accounting?
Continuous close is synonymous with continuous accounting. Simply knowing this can be advantageous, as they are both terms that will arise when researching the latest financial trends.
The purpose of continuous close is to ensure the books are always represented accurately, regardless of whether it’s the end of the reporting period. Rather than only updating the general ledger once a month, this is amended at every opportunity, with reports being generated whenever they’re needed too.
Continuous close is an incredibly helpful strategy for finance leaders looking to streamline their accounting processes. Businesses can do mini closes as often as possible, gaining a snapshot of financial health in that moment.
The finance team may still choose to do a more official close at the end of the month. However, this won’t be anywhere near as strenuous, as the hard work will have been done continuously over the weeks.
With continuous close, they can take remedial action as soon as performance declines, rather than having a more significant realisation at the end of the reporting period. There’s a still a way to go before this philosophy becomes fully mainstream, but it is growing in popularity due to the associated benefits.
What are the benefits of continuous accounting?
Keep up with competitors
Many business departments have adopted new systems to automate their processes, optimise their resources, and ultimately reduce costs. Finance teams still using legacy systems are perhaps best positioned to benefit from continuous accounting and the related technologies. It gives them the capacity to think outside the box and seek constant improvement, thus keeping up with the competition.
Accurate financial data
Previously, financial reports gave leaders an overview of the past, rather than demonstrating the here and now. With the continuous approach, data relating to present income / expenditure can be viewed on demand. Even when the data is flawed, this can at least be rectified in good time with regular reviews, rather than waiting until it causes issues.
Functional finance team
A finance team's ability to function as a strategic force is dependent on instant access to real time financial data. Rather than being reactive (in terms of internal performance and external events), CFOs can use data to recommend proactive measures to the CEO. And finance employees can give precise advice to other departments upon request, instead of sporadically providing best guesses.
Boost agility
By monitoring accounts daily, the finance team can help the business to hit targets quicker, by suggesting changes that are informed by up-to-the-minute numbers. It also boosts agility, as threats can be responded to quickly (such as tightening spend to counteract an economic downturn).
Gain time
Rather than manually consolidating data, finance teams can spend more time searching for patterns and forecasting financial performance. With a typical month-end, daily financial processes come to a halt, and finance professionals are essentially off limits to other departments. With continuous accounting, this unnecessary downtime is eradicated. They have increased time for guiding others and researching industry trends.
Greater employee wellbeing
A manageable workload for each individual helps to ensure they don’t experience burnout, leading to improved health and wellbeing. Rather than doing a month's worth of work in a few days (as happens with traditional month-end), they can complete it in a more organic and steady manner. They’re more likely to stay with a company that embraces a forward-thinking approach, leading to fewer recruitment costs too.
How to implement continuous accounting
Break down tasks into smaller chunks
Moving away from the traditional month-end provides an opportunity to assess which activities would have occurred within this rushed reporting period. These can then be broken down into more manageable tasks and dispersed across whole month. By rearranging the month, the schedule can have a less intense structure. It can also be less static, with tasks being brought forward or moved back depending on their urgency.
Restructure responsibilities
With a new structure comes a new set of responsibilities and amended timings. Duties can be distributed more appropriately, with expertise and workload taken into consideration to minimise stress. Employees should be made aware of any new daily accountabilities that arise due to the redistribution of month-end activities.
A shift in mindset
For continuous accounting to be effective, employees must buy into this strategy. This attitude will stem from the culture and best practices encouraged within the finance function. Leaders must be committed to rooting out old tactics and implementing the new way of working. This can be achieved though the training they provide and the priorities they emphasise. It shouldn’t be difficult to get employees onboard, as it makes their lives easier and enables them to perform better.
Use systems that integrate
It is important that all digital solutions used within the finance function integrate with one another. Data integrity will be compromised if systems don’t communicate, and the benefits of continuous close will be negated. The financial picture may be incomplete if all data isn’t synchronised. If, however, your accounting software automatically integrates with your bank account, transactions will be accurately reflected on both sides.
Embrace automation and Cloud technology
Integrated systems enable automation. But this automated updating of financial data will only happen intermittently if the systems aren’t Cloud-based. Cloud technology makes it possible for updates to be made at any time and from any place. The remote accessibility provided by Cloud-based accounting software ensures key metrics can be viewed at any time, which is a core aspect of continuous accounting.
Communicate changes to wider business
If there’s a new strategy within the finance function, this should be communicated to other departments, as it will likely impact collaboration and relationships. It’s beneficial if the wider business has awareness around the typical month-end being replaced, as it means they’ll now be able to call upon finance employees during this time. The finance team will be able to get involved with more cross-departmental projects.
Is continuous accounting the future of finance?
As technology has progressed, traditional accounting processes have been gradually phased out. Just like the technology itself, methods must evolve if better results are to be attained. Manual data-entry and report-building have become less viable for businesses trying to navigate tumultuous times.
Efficiency is now a must. However, it’s not efficient for staff to use all their energy during month-end. Employees, as a resource, aren’t being used to their full potential with this approach.
Due to its transformative impact, continuous accounting is a trend that is here to stay in the finance world. It gives CFOs a more present picture, allowing them to attend board meetings with the confidence they can provide real time insights (that have a tangible effect on the business’s direction).
A daily accounting close is no longer a pipe dream for forward-thinking finance leaders. The economic climate has made it a necessity, but technology has made it possible too. With the right tools and good data, any team can now carry out a successful daily close.
Continuous accounting has been possible for some time, but more people are now realising its benefits. In the near-term future, it will become the norm (rather than being seen as something out of the ordinary). Before long, the likes of infrequent analysis, manual data-entry, and rigorous reporting will become things of the past. The future certainly appears to be agile and continuous.
What is a continuous accounting system?
Cloud technology also represents the future of accounting. It’s this technology that makes continuous accounting a viable option. At Advanced, we provide a Cloud-based accounting solution called Advanced Financials.
This software facilitates continuous reporting, with over 1,000 customisable reports that can be generated instantly. With dashboards fuelled by your data, it’s easy to grasp a snapshot of your financial health.
All financial processes become interlinked, with functionality for accounts payable / receivable, bank reconciliation, sales invoicing, credit management, and much more. This leads to automation, cohesion, and one financial truth.
The software’s Cloud nature ensures data is current, as it can be updated regardless of time or place. High-quality data means powerful insights can be drawn from any analysis. The remote accessibility ensures it’s never difficult to see the data you need, which is essential when striving to continuously assess proceedings.
Are you ready to embrace the philosophy of continuous accounting? If so, be sure to read more about our Cloud-based accounting software, Advanced Financials.