The Weekly Accounting Sync is Broken
Before Turbine, I took on my first role in “hard” operations - the world of moving physical goods. For most of my career, I had straddled operations and analytics, supporting execution-focused teams with better reporting, better modeling, and better forecasts to help them make decisions. This role was my first time actually being responsible for those decisions. I learned a ton about both the world of transportation and how good my previous work really was - suddenly I was the product owner and the user.
One of the most surprising parts of this transition was how closely I started working with our accounting team - the people who were responsible for managing invoices, booking inventory transfers, and recording the cost of goods sold. I had always had a friendly relationship with them, supporting them with the odd data (or Excel request), but now we were working hand-in-hand. It felt like we were slacking about one thing or another almost daily, and often had a hard time understanding exactly what each party needed out of the other. So we landed on the subject of this post: the weekly ops-accounting sync.
The Weekly Accounting Sync
The weekly ops-accounting sync is a typical standing meeting at many ecommerce companies. For me, the attendees typically included: the FP&A Manager focused on the Operations org; the Accounting Manager focused on the Operations org; the AP analyst; an Operations Analyst on my team; and myself (Director of Operations Strategy & Transportation). This was a large meeting for our company, and we treated the time preciously - each occurrence had an agenda that was shared the day before and questions were answered asynchronously whenever possible. But we always used all of the thirty-minutes, and everyone came away feeling more in the know than when they joined.
After a few occurrences of this meeting, I began to dig into why we all had so many questions about each other’s processes. A few themes emerged.
The “Month Close” process
What is the “Month Close” process?
The “Month Close” or “Month-end Close” process ensures that all financial transactions for the month are accurately recorded and accounted for. During the month close process, the
Accounting team will review and reconcile all financial transactions that took place during the calendar month. These transactions span the entire business: everything from marketing spend, to credit card transaction fees, to payroll all needed to be booked in the company’s accounting system accurately and promptly, as well as verifying that all expenses have been properly allocated to the correct accounts.
Why is the Month Close process so important?
The goal of the Month Close process is to produce accurate financial statements that reflect the company's true financial position for the month. Nailing both the accuracy and speed of the process is critical for a company’s growth.
If a company can close its books in just a few days, it unlocks two wins:
Everyone in the company can see an accurate view of the business - “what was the most profitable area”, “where were costs higher than expected”, “how is revenue trending”
The Accounting team can move on to other projects
Failing to close the books in a timely manner leads to a vicious cycle where the Accounting team is constantly playing catch up, booking transactions late, and sometimes dealing with multiple close periods at one time if those days stretch into weeks. The rest of the business also feels these effects, as they will be flying blind on the company’s financial performance until the books are officially closed.
Many companies will set benchmarks for both of these metrics as they become serious about a potential acquisition or IPO. Closing the books quickly and accurately demonstrates a level of organizational maturity and shows that potential shareholders are dealing with a well-run company.
The Month Close process and Operations
The core point of the Month Close process is to record transactions that occurred that month. Though it sounds simple, getting the timing of these transactions right is often a much more difficult task than it should be.
The Lifecycle of a Single Order
How one order can span ten calendar months (and two calendar years)
To demonstrate just how complex this process can be, let’s look at a single customer order that was placed during every ecommerce person’s favorite time of the year: Black Friday Weekend.
Say the customer placed their order on November 29th. The company’s warehouse was already running a significant backlog, so the order didn’t ship until December 15th. Then the shipping carrier was also backed up, so the customer didn’t receive their order until January 2nd (hopefully it wasn’t a Christmas gift).
This is a very normal process for a customer order to go through, and already we’ve spanned three months. Depending on how the company recognizes and books revenue, that one order could be a part of the November close, the December close, or the January close.
Now let’s back up a bit further - where did the inventory for that order come from? Let’s say the purchase order was cut in March. That purchase order was shipped in April, delivered to the warehouse in late September, but wasn’t received until October. Now we’ve added four more individual months, and our one “order placed” transaction has stretched eight months back and two months forward.
The reality is, this is a “simple” order. A customer may have purchased multiple products that have been on the company’s books for years. There may have been marketing spend attributed to the customer over several weeks or months, inching them towards a purchase. And after all of that, the customer could still reach out to customer support a few weeks after their purchase, and decide to return the product.
How Operations can help Accounting
Accounting teams are the ones responsible for actually booking all of these transactions, but they are rarely the ones with visibility into how or why they’re happening. It’s critical for Operations teams to help their Accounting partners with access to data and communications so that everyone is working off the same set of information.
Operations teams often have access to different data sources than their Accounting counterparts, like realtime inventory or receiving reports from their warehouse or up-to-date tracking information on large shipments. These data points can help Accounting teams close the books more quickly and ensure that they won’t have to make any adjustments after the fact (for example, rebooking revenue for an order that had actually shipped already).
Operations teams also have much stronger lines of communication with external partners. They see production updates from vendors, notices of customs delays from their freight broker, and conversations about the receiving schedule with their warehouses. Accounting teams are rarely included in these conversations, and often have to seek out specific email threads or partner updates to understand why certain transactions occurred at the time that they did.
“Business Context”: Why the weekly sync is rarely enough
The Weekly Accounting Sync attempts to solve a core problem that Operations and Accounting teams face: they have extremely different jobs. With these different jobs come different tools, different terms, and different focuses - often for the same processes.
Three-Way Match: One process, two workflows
The Three-Way Match process is a perfect example of these differences. As we covered in a previous post, Three-Way Match straddles Operations and Accounting. Operations teams need to work with suppliers, purchase orders, warehouses, and receipts. Accounting teams need to understand how those two transactions reconcile with invoices as well.
Operations teams handle these workflows in supply chain visibility tools or warehouse portals, while Accounting teams are working in bookkeeping software. They are fundamentally the same process but seen as separate workflows for most companies.
Modeling Operations Costs
Operations costs are often modeled in a way that may be unintuitive for people who have not worked in the physical operations space in the past. For example, in transportation alone a shipment may be charged based on its actual weight (e.g., small parcel packages sent via USPS), its dimensional weight (calculated by multiplying the length, width, and height of the package - e.g., particularly bulky but light packages), the number of pallets (e.g., a truckload), or its actual cubic volume (e.g., a partial container load).
Each one of these rates have a time and a place to use them, and its easy for team members outside of Operations to get confused about which one to use. This can lead to differences in reporting and erroneous spikes in metrics like cost per shipment.
The financial impact of Operations
Companies regularly have meaningful structural changes to their operations that impact costs. New warehouses, shipping partners, or product launches can have real impacts to costs, and Accounting teams rarely have the background to understand the purpose of these changes.
For example, say your CFO has decided that it makes financial sense to extend your holiday shipping cutoff by offering free two-day shipping for an extra week to ensure that customers get their order by Christmas. Come January, your Accounting team will likely see a bill from your express shipping carrier that’s much larger than usual, and shipping cost per order will look extremely high. Without visibility into these sorts of changes, Accounting teams will spend additional time checking their data and flagging them to their partners (or they’ll simply assume that they’re correct).
The path to a better Weekly Sync
The core reason that the Weekly Accounting Sync exists is a lack of fluency between Operations and Accounting teams. At Turbine, we believe that this split is artificial - inventory and financials, operations and accounting, are two sides of the same coin. Operations and Accounting teams can and should be working in the same tool - it just hadn’t existed.
At Turbine, we’re building financial software for companies with physical inventory. We want to address these problems by building a product that serves everyone - not just one set of users.
If your Weekly Sync never feels like it’s addressing the root of the problem we’d love to chat. Sign up for our waitlist or drop us a note at hello@helloturbine.com, and take a step towards eliminating your Weekly Accounting Sync.
