The end of 2024 is fast approaching. While it presents an opportunity to assess financial performance and set the stage for the upcoming fiscal year, it also comes with challenges.
Even seemingly minor mistakes during this process can lead to costly errors and compliance risks down the line. Here’s a look at the most common pitfalls your team needs to be aware of so it can facilitate a flawless year-end close.
1. Failing to Reconcile Accounts Early
One of the most tedious processes your team will undertake is account reconciliation. With that in mind, it’s important not to wait until the final weeks to reconcile your accounts.
The later issues are discovered, the less time you’ll have to investigate and remedy any discrepancies. Holiday-related business closures can further complicate matters and put your team under a time crunch.
How to Avoid It
The good news is that avoiding reconciliation issues is relatively straightforward. You should begin reconciliations several months in advance. Most businesses can reasonably begin the process at the start of Q4 without running the risk of performing a lot of duplicate work.
Additionally, you should conduct mid-year or quarterly reviews to resolve issues early. Use automated tools that flag discrepancies as they emerge to reduce the burden on your team and make the year-end close much less chaotic.
2. Overlooking Revenue Recognition Compliance
Revenue recognition standards are complex and sometimes misunderstood. Ensure your team is up-to-date on the latest revenue recognition rules for your industry so that all revenue can be stated accurately. Misstated revenue will draw the attention of auditors and regulators.
How to Avoid It
Step one involves providing your team with targeted training so everyone understands the intricacies of revenue recognition rules. Leverage accounting software with built-in compliance features that streamline the application of relevant revenue recognition rules.
Periodic audits are some of your greatest allies in preventing oversights in revenue recognition. Conduct internal audits two to four times annually to identify gaps in compliance before the year-end close. The sooner you identify any issues, the easier it will be to fix them before your business faces major regulatory scrutiny.
3. Insufficient Documentation
Proper documentation is vital for supporting reconciliations and adjustments. As an experienced financial leader, you know firsthand that it’s better to have too much documentation than too little of it.
How to Avoid It
Periodically send out reminders to all departments involved in purchasing or acquisitions. Ensure that department heads are adhering to documentation and approval policies so that your finance team has the information they need to complete the year-end close.
You should also implement a centralized documentation system that consolidates key files and provides your finance employees with role-based access. This way, everyone can view the information they need to complete their job responsibilities without compromising information security protocols.
Cloud-based platforms represent the pinnacle of document organization and management. With the right solution, you can eliminate information silos and facilitate adequate accessibility during the year-end close process.
4. Inefficient Communication Across Departments
The year-end close often involves multiple departments, from procurement and sales to HR and IT. Poor communication between your team and other departments can lead to delays and missed deadlines. It’s therefore essential that all department heads and their team members understand the importance of the year-end close.
How to Avoid It
Step one to improving communication involves keeping relevant department leaders in the loop. You should create a detailed timeline for the close process. Specify deadlines and responsibilities for each department so that everyone knows what’s due and when.
You should be collaborating with other departments throughout the year, not just during year-end crunch time. Hold regular cross-department meetings to ensure everyone’s aware of the organization’s financial goals and obligations.
Collaborative tools, such as cloud-based document management software, can help streamline the submission process. Ideally, you want to move away from disjointed document submission and communication workflows that rely on email and individual file sharing.
5. Relying on Outdated Tech
The quality of your technology will make or break your year-end close process. Legacy systems and manual processes slow down your workflows and increase the risk of errors.
How to Avoid It
Put your team in a position to succeed by investing in modern tools and solutions. If your existing financial software isn’t cutting it, you’re likely due for an upgrade.
You’ll also need to train staff members on the new technologies so they can effectively deploy them during the year-end close. The right tools can make the difference between a timely and accurate close and a disaster process that’s marked by delays.
Set the Stage for a Successful Year-End Close
Your organization depends on you to start the new year with a clean slate. By proactively addressing these common mistakes, your finance team can streamline the year-end close and set the organization up for a successful Q1 2025.
