Case Study

Case Study

Manufacturing Company Provides Owner with Transparency in its Operations by Dramatically Reducing Time to Close Books

Client Situation

A medium-sized manufacturing company, previously purchased by a private equity firm, had a closing process that was badly broken. The financials were not being produced until 25-35 days past the close, and as of July, the audit for the previous calendar year was still not complete and would ultimately include multiple material weaknesses and significant deficiencies. Account reconciliations were performed only for use in the annual audit. The owner was therefore not getting timely and reliable insight into operations and achievement of strategic goals.

Solution

The company brought in a consultant who was experienced in closing processes, now a E78 team member, to rectify this situation. The consultant quickly surmised that the problems were so pervasive that a continuous improvement approach would have the best chance of achieving results in a reasonable time frame.

He started by producing a closing checklist that posted in the hallway. Expected vs. actual completion dates were tracked for each key process. He reviewed delays caused by non-conformances in inventory, payroll, accounts payable, and billing and worked with the finance and accounting staff to isolate root causes. He implemented corrective actions for each root cause, and within 3 to 4 months, the close process had been shortened by 8 to 10 days.

Once the processes were stabilized and operating within a shorter and less variable timeline, he could start to identify areas where better quality standards for information handoffs could take more time out of the schedule. Simple process improvement iterations over the course of the next couple of months reduced the closing time by another five days, so it was now down to approximately 10 days.

In the last phase, the consultant introduced major workflow automation software. This included a labor time collection and reporting system, expense management software to automate expense data collection, and systems to integrate data between the accounting system and the billing system to improve accuracy and take out redundant data entry.

Results

At about 12 months from the start of the process, the final financial statements were being produced in six to seven days, an 80 percent improvement. This allowed enough time each month to complete the account reconciliations and perform the variance analysis that allowed the quality of the company’s financial data and financial reports to meet the standards of the private equity owner. The audit for the following year was completed in under 60 days with no material weaknesses or significant deficiencies.

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