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Financial Accounting

A Checklist and Best Practices for an Energy Accounting Close

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The accounting close never stops to take a break. It doesn't need to catch its breath or hit pause to collect itself. As any battle-tested CFO will attest, you finish one close and the next one is already peering at you from around the corner, waiting to take a crack at your people and processes.

This is especially true in the energy industry, usually a sector with more moving parts than it can count. And if just one of those moving parts breaks down, you'll feel the ripple effect throughout the financial close. And beyond.

Thankfully, Embark is here to help you avoid that unpleasant scenario by injecting a massive dose of efficiency in your closings. And we're going to accomplish this with some keen insights, best practices, and a closing checklist that you can download and make your own. So on that note, let's dive right in and get started.

Energy Accounting Close Checklist

Before we get to the checklist, think about all of those moving parts we mentioned. You have people from across your operations supplying information, shiny data systems manipulating and analyzing that information, and workflow efficiencies that, theoretically, keep the whole thing focused and efficient. Unfortunately, as we said, just one hiccup across those many moving parts and you're asking for trouble.

Further, the bigger and more complex your operations get, the more room there is for missteps and outright accounting catastrophes. The energy sector perfectly encapsulates that notion, relying on disparate data sources and teams spread from horizon to horizon every month for a clean, accurate, and efficient financial close. Pretty tall order, right?

Well, it can be, at least when you approach your close without a rock-solid game plan in place. The good news, however, is that a streamlined and reliable close isn't as out of reach as it might seem, assuming you put the right pieces together.

To that point, just like most initiatives you tackle as a finance leader, whether you're upstream, midstream, or downstream, success depends on three separate but intertwined pillars – people, processes, and technology. And as you might've guessed, your financial close is no different. So let's take a look at each and see how it can improve your closing.

A Streamlined Close Starts With Your People

While the 'people' component of people, processes, and technology seems like a given, it's actually anything but. Maybe it's understandable, at least at first glance, since so many finance organizations in the energy sector are increasingly reliant on technology – an encouraging development if there ever was one. However, to state the obvious, you'll always need people to either operate or supervise technology.

The point is, people will always be essential to your accounting and finance functions, no matter how automated and streamlined day-to-day operations get. That doesn't mean it's just a matter of blindly filling your roster with anyone with a pulse, of course. Instead, for a fast, accurate close, you have to provide the right people with sufficient bandwidth to get the work done.

It Takes a Village

Let's assume you have nothing but brilliant and eager accounting superheroes across your finance organization. Does that mean your financial close will be smooth as silk and fast as lightning? Sadly, no.

Obviously, having the right people is a great place to start, but in no way solves all of your problems. Just think about the countless tasks, teams, and workflows involved in the typical closing in energy – AP, JIB, production, revenue, regulatory, to name just a few. And from there, the data those groups generate flows to your financial reporting team, who then finalizes the close.

Once again, there are a lot of areas where things can break down in that type of system. So aside from processes and technology – more on them on a bit – to inject efficiency into everything, you need to:

  • Hire enough capable people
  • Give said people effective communication tools to exchange information
  • Get buy-in from all the teams and people involved

That third bullet point is crucial since a fast and accurate close depends on all of these components working in unison. Thus, top-down buy-in is the secret sauce on the people side of the equation. Otherwise, you'll have disjointed workflows between the operations and production team, your engineers, the accountants, and everyone else involved.

Ideally, it's also helpful to have a controller/CPA mindset – not to mention someone with energy experience – overseeing the financial reporting component of the close workflow. They'll understand the full spectrum of what's happening along the information chain, not just the operational accounting processes. Granted, many companies can't afford or choose not to hire this controller-type role full-time, outsourcing is an attractive option that's both effective and cost-efficient.

Energy Accounting Close Checklist

It's a Big Technological World for Energy

Let's save processes for the end and look at technology now. As you know, the energy industry isn't lacking in software solutions for accounting or operations. In fact, a single solution can now provide specific tools that can tackle accounting, operations, and land management under a single solution.

Now, we're not here to exalt any particular vendor over another. However, we will say that this sort of combination tool – assuming it's effective in each category – does address an issue that has plagued finance organizations in energy for years – disparate, disconnected systems.

Traditionally, companies have taken a piecemeal approach to their tech stacks, cherry-picking the best vendors for specific needs. The result is a collection of individual solutions that might be fantastic at what they're designed to accomplish, but don't necessarily play well with each other. And that's problematic.

Whether you're using one of the newer, well-rounded solutions or a more typical stack of different software from different vendors, information must flow well across them. Any bottlenecks or siloes across the data flow can cut a closing off at the knees. Therefore, no matter how you choose to approach your technology, you must ensure the systems can speak with each other. Otherwise, you're staring at a mountain of manual processes, something that doesn't jibe with a fast and accurate close.

Also, when it comes to choosing the software you'll use in the closing process, it's pretty much impossible to go overboard on due diligence. In other words, caveat emptor reigns supreme, so don't take anything at face value, no matter how incredible a demo might appear. Instead, ask for references from a vendor and talk to other people that use the solutions on your shortlist. Diligence can save an awful lot of accounting heartache and anxiety down the road. But in the meantime, our handy dandy blog on the topic could be a lifesaver.

A Quick Word on Technology and Manual Processes

Whatever your tech stack looks like, there's an excellent chance manual processes still have their claws in your closing in some way. Obviously, Excel will always have a time and place in an accounting function, including your close. So for any spreadsheets still requiring manual upkeep, be sure you have the appropriate review processes in place to eliminate errors that can grind a close to a halt.

To that point, depending on the number and magnitude of your manual processes, data analytics and automation tools could be a real lifesaver for your closing. Yes, that's an entirely different topic that we've spoken on at great length in the past, but we'd be remiss if we didn't mention how automating tedious, repetitive, but essential tasks can streamline your financial close significantly while also vastly improving accuracy.

An Efficient Close Hinges on Reliable Processes

Finally, we come to the meat of our discussion – processes. Because closing without proper processes in place is a classic case of inviting trouble to the close party. And while there are any number of individual processes to integrate into your financial close, we're going to focus on a specific one that's especially effective and, not coincidentally, extremely relevant to this discussion. You guessed it – a checklist.

As you know, accounting isn't haphazard or unrehearsed. It's a well-planned, organized, repetitive endeavor that thrives on consistency and timeliness. All of the adjectives from the previous sentence are particularly true for your financial close – it grimaces at the unforeseen and any hint of surprise.

And since there are so many parties involved in the typical close – especially in energy – you need to establish the who, what, where, and when driving every step and task behind your close. Thankfully, a checklist like the one we're providing is a simple yet powerful tool in keeping everything on track.

Building a Closing Checklist or Template

If you prefer to create your own checklist rather than use ours, you're not going to hurt our feelings. However, choosing that path requires a specific approach and sequence of action, a potentially daunting task if you've never built a close checklist or template before. Therefore, to give you a head start, we have some checklist-building insights to share:

  • Begin by discussing the project with your executive team, explaining why a close checklist is so essential, as well as the value it brings to the organization
  • Go through your financial statements line-by-line, taking the time to understand how the information flows into those accounts
  • Use the information from the previous step to develop your checklist, assigning specific, firm deadlines – from the board, PE- backing firm, management, etc. – and ownership for each of the items, and then work backwards from there on game planning how to meet those targets
  • Develop separate checklists for particularly complex areas – including but not limited to JIB, revenue, or even account controls you’re trying to comply with – ensuring they flow into or are covered by the main closing checklist you're building
  • Leave sufficient time for review, changes, and corrections, especially when you're booking accruals
  • Be consistent with your checklist, sending it out every month even though it's essentially the same information each time

Once you get into a routine, the checklist simply becomes a part of your operations. So whether you use our list or develop your own, take full advantage of the efficiencies it can bring to your closing process. You already have enough variables to deal in the energy industry without adding slow, unreliable closing numbers to the mix.

Free Resource

Energy Accounting Close Checklist

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