With thousands of accounting, financial planning, and ERP installations around the world, SAP knows plenty about accounting and finance. As SAP’s senior director of finance solutions, Dr. Christoph Ernst has an insider’s view of today’s F&A market and also sees what enterprise customers are asking for in the next generations of products. Lately, he’s been evangelizing for Continuous Accounting as the logical extension of process automation for F&A customers.
BLACKLINE MAGAZINE: With the F&A industry accepting automation on a greater scale, why do you think some organizations are still hesitant to move from manual accounting?
ERNST: Simply because they’re afraid to spend money. Finance is a cost center, not a profit center. Executives look at accounting and finance and think, “Hey, it’s working, so why spend the money?”
In fact, it’s kind of treading new ground, and the finance department isn’t sure how to put a business case together. So they don’t. But they don’t put a business case together for staying with the status quo either, which is the spreadsheet-based system. So they don’t have to worry about spending more money—but they also don’t realize how much money they are going to waste by not moving to an automated system.
BLACKLINE MAGAZINE: How should an F&A manager put a business case together?
ERNST: Like any business plan, you need to start with an assessment of your existing processes, and then set goals for improvement. If you want to improve the financial close, then you look at your “as is” processes and ask questions: Why are we doing this step? What value does it bring to our process? Then you look at your possible goals—reducing the number of days it takes to close, for instance.
BLACKLINE MAGAZINE: Once you’ve decided to go ahead, how do you know where to start?
ERNST: What we recommend is that you start with the low-hanging fruit, so to speak. Automating account reconciliations is an obvious choice for a first application because the payoff in time and resources can be immense. You might apply reconciliation automation to a specific project—say a new consolidation system. That way, people can see how it works in a non-critical application. Once you’ve gained confidence with a smaller project, you’ll move to a larger project. Meanwhile, you’ll be testing and benchmarking results, so you’ll start to get an idea of the benefits you can achieve.
BLACKLINE MAGAZINE: Now that you’re automating account reconciliations for some processes, how do you get from there to a Continuous Accounting model?
ERNST: Well, a few things.
Let’s say you’re looking to shorten your close cycle. And you should, because if you’re still doing a manual close, then your executives are waiting—possibly for several weeks following the month’s end—for reports that some of your competitors are already using.
Start by applying automation to those accounts that are best suited for mid-period processing—an example might be expenses, which can produce numbers on a steady basis. You can start processing as the numbers come in, without having to wait ‘til the end of the month as you would with, say, sales.
Depending on the nature of your business, look for other accounts where you can start your reconciliations or other automated processes, such as transaction matching, early in the close cycle. Then, when you get to actually processing the numbers, much of your work will already be done. And, thanks to automation, the auditors will have access to all necessary documentation; in fact, some may have their audits well underway before the end-of-period.
BLACKLINE MAGAZINE: So you’ve now accelerated your close. How do you know when you’re finished making improvements?
ERNST: For the financial close, you’re never finished. Once you’ve automated the financial close, your goal becomes continuous improvement. And this becomes possible as you analyze your processes—something you can do, now that you’re automated. You can even use analysis to compare your company’s performance to its industry peers. That way, you can continue to improve your processes as you gain experience and knowledge.