By Jean Cunningham, Executive Chair, Lean Enterprise Institute
After more than 20 years of lean accounting learning and event facilitation, 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 monthly activities associated with closing the books touches on nearly every process in the company and without question is an opportunity to reduce waste and free up capacity in the accounting department.
In its purest sense, there should not be any need to “close” the books. (Hang on. Don’t let me lose you here.) Instead, institute the ability to look at results based on timely transactions correctly entered throughout the month. For instance, the 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. Sadly, this utopian vision is not a reality today. But it would be much timelier and more valuable to the company than what accounting departments publish today. With mature lean process waste reduction and more robust AI ERP systems in the future, maybe someday.
You can start heading towards your accounting utopia, by starting your lean journey with closing the books. Below are some benefits you can readily achieve.
1. Create detailed process maps of the sequence of work that your team can use to make waste reduction adjustments within the accounting processes.
2. Increase or decrease the frequency of review. Daily review for daily transactions. Quarterly review for quarterly transactions. Match the work to the actual flows.
3. Use set-up reduction to move work out of the closing time window.
4. Identify and eliminate causes of correcting entries. This is a view upstream showing the need for process improvement across the organization.
5. Simplify accounting statement terminology so that users can better understand the meaning of the reports making them more useful.
6. Simplify the accounting for inventory and other GAAP-based requirements to meet but not exceed requirements.
7. Listen to the voice of your customer, the actual users of the closing information. Find out what additional information would be helpful and what information is never used.
You will be shocked by the waste discovered. The outcome of your close the books improvement (kaizen) event will result in an immediate reduction of lead time, immediately available new capacity, and a view of the high value gains 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 move beyond transactions and start to be consultants to the overall organization.
Jean Cunningham is the Executive Chair and interim CEO of the Lean Enterprise Institute. Formerly, she was President of Jean Cunningham Consulting and CFO of two manufacturing companies. She is co-author of Real Numbers: Management Accounting in a Lean Organization and The Value Add Accountant, as well as other books.