(CFO.com, BusinessFinanceMag.com, IndustryWeek.com, CIO.com)

Although there are many ways IT can support other parts of the business, most IT managers don''t think about enabling a Virtual Close. This is unfortunate because a Virtual Close can have a significant positive impact on an organization''s performance. Learn what a Virtual Close is and why this is important for the IT department in this article.

What is a Virtual Close?
A Virtual Close (also called "instant close") is a financial process where month-end or period-end accounting activities can be done almost instantaneously and reporting produced immediately afterwards. Most companies take nine days to close financial books and publish reports. To achieve a Virtual Close, all business transactions relating to finance (e.g. inventory, billing, payables) must be posted in real time, which usually requires new technology and/or improvements to existing technologies.

Why is a Virtual Close Important to an IT Manager?
The most boring and frustrating thing that employees in the finance department do is the month-end process. Solving that problem would make the CFO your best friend. If you propose starting on the path towards a virtual close, the CFO will believe you understand his or her needs and are trying to help satisfy them.

How This Saves Money
A Virtual Close reduces the amount of time your finance department spends posting transactions and increases the amount of time they spend analyzing the business to find ways to make more money. Cisco reduced their finance department''s expense as a percent of revenue from 2 to 1.3 percent because of their Virtual Close. A Virtual Close also gives key decision makers important information more quickly so that they can make better decisions.

Action Plan - CFO
Here are the steps your CFO should take to move his or her organization towards a virtual close:

1. Eliminate details from the closing process like allocating costs and assigning bills to different cost centers. Any activity that doesn''t change total company costs adds very little value to the financial analysis process, and is a candidate to be eliminated.

2. Don''t close the books more than once. Companies often run several closes to make different rounds of financial postings. Making these postings before month-end can save a lot of time during month-end.

3. Reduce the number of legal entities your company reports on. Financial postings between different companies you own are difficult to reconcile, and are sometimes unnecessary.

4. Don''t allow repostings below a certain dollar value (e.g. $500). Although the natural tendency of accountants is to try to make the figures perfectly accurate, there is very little value-added in trying to make reports precise to the penny.

5. Remember that a virtual close is a backward-looking reporting tool, and not a forward-looking predictor. Human judgment is still essential to predicting the future.

Action Plan - CIO
Follow these steps to prepare your IT department for a Virtual Close:

1. Implement a Sunset Clause for all reports produced by the IT department. In other words, if no one appears to be using certain reports and doesn''t say they want to keep them, you automatically stop producing them at a point in time. This way, users take ownership of reports and cancel ones they no longer use, saving the IT department valuable time.

2. Migrate to one accounting system for your entire company. Make sure it integrates every business process that has financial impact (e.g. billing, accounts receivable, inventory, purchasing, receiving).

3. Automate financial consolidation processes. If you have several different accounting systems or legal entities you need to consolidate, you need to automate how these figures are combined at month-end. Enterprise Resource Planning (ERP) systems often contain automated consolidation tools.

4. Produce reports that decision makers can use to validate key metrics before month-end such as orders, revenues, and costs. It''s also a good idea to link these reports to a financial data warehouse so that decision-makers can do ad-hoc analysis.

5. Be prepared for the entire process of building a Virtual Closing system to take years. Cisco''s CEO John Chambers says it took his company eight years to get every system ready.

Bottom Line
If your company makes or changes plans frequently, you need to report information quickly, frequently, and accurately. The best way to achieve this is through a Virtual Close. However, don''t get caught up in the false security of believing your real-time financial reporting systems will save your company from disaster - Cisco believed their systems could, and that mistake cost them a $2 billion inventory write-down.

Want to Know More?
CFO.com has an excellent list of "Five Technology Issues in Adopting a Virtual Close" as well as an article about adopting a virtual close from the CFO''s perspective.

BusinessFinanceMag.com has an article about "The Reality of Real-Time Reporting."

IndustryWeek.com has an article titled "The Book On The One-Day Close."

CIO.com has an excellent article about "What Went Wrong at Cisco" and how their Virtual Close systems misguided managers.