Financial close pressures and performance

How long does your financial close take? How long would you like it to take? How much access do your internal business analysts have to the the financial data?

We’ve worked with a number of companies and taken their financial close down from weeks to a couple of days by using data virtualization and the Delphix appliance.  Using Delphix and data virtualization we’ve also thrown the constraints off of limited access to financial data allowing business analysts 24×7 access even in the days ramping up to quarter ends.

Problems we see

  • Analysts get locked out of financial systems near quarter closes to alleviate pressures on the financial systems
  • Businesses want to run early financial closes to determine errors early and make sure everything is correct but they don’t have the resources
  • Analysis want access to BI systems with fresh data from production financials but refreshes are too costly in terms of time, load, personnel and load on productions systems

Delphix solves this by providing fresh copies in minutes for almost no storage with a self service user interface that even analysts can use themselves.  For copies being provided to development teams, Delphix integrates masking to hide sensitive data.

Frequent access to financial production systems is often a big challenge. For FI/CO applications,  companies tell us that their desired refresh frequency is once a week in the early part of the quarter, once a day in the 3rd week, 6 times a day in the last week! How do you do that when refreshes take hours to days of effort? Or when the source financial systems of record are at peak usage late in the quarter? Still it’s even worse, if financial analysts want multiple environments to analyze financial results in parallel.

The entire problem is even more pronounced when results have to be aggregated across locations which is the case with many young rapidly growing startup companies expanding into new countries and data has to be pulled in from each local FI/CO source.
Another challenge is around early disclosure of results. Fixes for FI/CO system bugs are usually a high priority for application development teams. Say you’re in the middle of a quarter and you find a bug that would lead to misstating financial results (SOX issue). The business side of the company wants the problem fixed but they don’t want the developers to test the fix against real data because they would have early visibility into financial results. Imagine the insider trading value that would have! So they want to solve this with data masking.

Finally comparison reporting poses a challenge. Annual and quarterly reporting requires comparative analysis: this qtr vs. last qtr  – and – this yr vs. last yr etc. The internal analysts know that the street is going to look at such trends so they do the same proactively and then explain the trend during analyst calls. Once again Delphix becomes very useful in quickly spinning up these point in time environments.

Financial close means doing

  • month-end,
  • quarterly and
  • year end

closes with both external financial accounting (FI)  and internal financial and management control accounting (CO) .

External Financial (FI) Close

 

External financial close (FI) is relatively straight forward . The first step of FI close is do a trial balance close. Trial balance close involves closing accounts payable (AP) and accounts receivable (AR) and then manually perform journal entries (JE) to zero everything out.  Delphix accelerates the JE piece by allowing users to perform different types of JEs and reset the data should things don’t reconcile and need to repeat.  The reconciling process is particularly complicated when the company is multinational or when the company has different divisions.  Delphix speeds up that process and make it clean.

Internal Financial Control (CO) Close

 

Financial close also involves closing the book internally (CO).  Internal accounting is often overlooked but is actually more important for the company.  Internal accounting means all the cost centers and profit centers need to be fully allocated and reconciled.  Delphix speeds up the process by setting up multiple alternate Cost/Profit Center Hierarchies, running different cost allocation scenarios to understand exactly how the business behaves. The internal financial (CO) is fundamentally more important than FI as FI really is meant to comply to reporting and audit requirements, whereas CO actually shows the health of the business.

 

How Delphix Improves Financial Closes

Delphix addresses both external and internal accounting and speeds up the closing process by

  1. Creating multiple “play areas” for accountants to run different trial balance JEs to get to the final statements
  2. Help reconcile both FI and CO by fully allocating revenues and expenses in cost accounting and allow controllers to run various “what if” analysis to truly understand the health of the company.

One company only ran their financial close at the standard times. After Delphix they were ran their financial close frequently a to find and correct discrepancies such that at the real financial close time, the close could be accomplished in a day or two.

For example if a company has several source systems with financial information that are being rolled up into the companies general ledger (GL) then if there are any discrepancies between the source systems and the final roll up into GL then the have be reconciled.

Delphix can provide a sand box exact copy of GL and the source application data can be rolled into GL, fixed, rolled back, and tested again as many times as necessary. The provisioning of the GL clones using Delphix only takes minutes and they can be rolled back in minutes.

Screen Shot 2014-06-03 at 10.42.51 AM

 Example

For example, if there are multiple sources of revenue they have to aggregated into General Ledger. If there are discrepancies, then they have to be ironed out. Ironing out the discrepancies requires copies of the source systems, but making these copies requires time, resources and personnel and these trial environments are limited.

Screen Shot 2014-06-03 at 4.58.54 PM

 

With Delphix it only takes minutes and almost no storage to spin up copies of the source systems and to provision multiple copies for testing and reconciliation.

 

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 Summary

  • Faster financial close lets CEO, CFO, and company know exactly where they are earlier in the cycle after quarter end
  • Allows for more prep time before quarterly earnings call (e.g. time to do damage control)
  • Enables them to make business changes earlier/faster
  • If they can master the close, they can move to trial closes WITHIN the quarter
  • That will give them even more data about how they might drive material changes to operations and spending (e.g. corrective damage control)
  • For some companies (e.g. some types of insurance companies) they have to estimate revenue earnings; here the quality of data and estimate #s are VERY material to stock price and therefore company credibility/volatility.
Financial close timelines will not improve perceptions on the street; they are unlikely to be street visible. But the positive and negative business implications ARE street visible.

 

 


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