The business value of getting your month-end close process right
Month-end close is a source of stress for many growing and mid-sized accounting departments and their C-Suites. It’s a race against the clock to get the timing and useability right.
For the C-Suite, the real-time nature of the month-end close provides actionable insights into their business’ operations and financials. These insights lead to better-informed decisions about the direction of the company.
For the accounting team, the month-end close is a crucial task they must perform rapidly without errors. It also has to take place simultaneously with day-to-day accounting functions.
Because of the value and timing of month-end closing, conversations around it are often a source of friction. In this article, we look at the month-end close process and why each step impacts good business operations.Start the Conversation
Benefits of an Accurate, Relevant, and Timely Month-End Close:
When done right, the month-end close provides your company and accounting department with improved organization, decision making, and risk management.
Immediate Decision Making
The month-end close allows you to keep accurate financial records throughout the year so you can make insightful business decisions at any time, not just at the end of the year.
At a quick glance, you can get an immediate snapshot of where there are cash flow problems, operational issues, or inconsistencies within your accounting department. The month-end close confirms your business is on the right track through monthly reviews of key financial data.
The month-end close also makes your business transparent to others, instead of only having year-close data that could be months old and tell an inaccurate story. This provides great value for when you’re seeking a much-needed loan, or if there are potential buyers looking at an acquisition.
Taxes can be a headache no matter what size company you’re running. A consistent and accurate month-end close process makes tax filing and audits significantly smoother.
When it’s time for your CPA to do the year-end close and file taxes, they have all the data from your month-end closes saving them time which saves you money. The month-end close process also means you’re always prepared for an audit should one come up.
Common Challenges and How to Overcome Them
Too Many Data Sources
Many large organizations rely on spreadsheets, emails, phone calls, and in-person meetings to gather the data for their month-end close.
This causes delays as your accounting team is trying to recover the necessary information from employees, software systems, and accounts. It’s vital that, when it’s time for the month-end close to begin, you can draw all your financial data from one centralized source, such as Netsuite Fathom, Quickbooks, Salesforce.
Unfortunately, human beings are error prone. While this may be okay when you spill your coffee in the morning, you don’t want human error anywhere near your accounting system.
You can reduce human error by automating your accounts with the right software and avoid mistakes that are often made with manual entry of data.
Poor Project Management
Any area of your business is going to falter with poor project management, and your accounting department is no exception.
When performing the month-end close, you want to have systems in place that increase accountability and quality-check the collected data. You also want your accounting team to have good time management processes by setting up deadlines and goals for them to work towards.
Reports Needed for Month-End Close
When conducting your month-end close, you’ll need a few key documents to report your numbers with accuracy. We’ll give you the basics of each report here, but you can find more in-depth information on each topic on our blog.
There are three key financial statements that will give your accounting department the required financial data it needs.
- Your monthly income statement will list all of your company’s revenue and expenses for the previous month. Reviewing this document for your month-end close ensures you’re not forgetting any invoices or being overcharged for certain services.
- Your Balance Sheet indicates your financial health by using the following equation:
Total Liabilities + Owners Equity = Total Assets
When performing the month-end close, you’ll want to make sure that this equation is equal on your balance sheet to avoid any accounting errors.
- The Cash Flow Statement is similar to the income statement, except that income and expenses are recorded when a cash payment is received, instead of recorded when a service is performed.
Comparing these key documents will validate that there are no inconsistencies and that your financials have been reported accurately over the previous month.
A General Ledger is an account used to store, sort, and summarize all of a company’s transactions. You can use a General Ledger account to generate financial statements or quickly spot irregularities in your accounting records for the month-end close.
Petty Cash Totals
A Petty Cash Fund is a minor amount of cash that is kept available for your company to use for purchases that are too small to bother using a credit card or check. At the month-end close, you need to check that your receipts of items paid for with petty cash match your funds in that account.
The month-end close is a great time to check in on your inventory. You want to monitor the depreciation or appreciation of your non-liquid assets such as equipment and property. Checking the value of these assets monthly provides you with crucial information regarding the value of your company.
You also want to look at replenishable inventory during the month-end close. Take inventory of what you have in surplus, and where you need to re-stock.
Monthly Close Timing
The monthly closing process normally takes anywhere from 5-10 days. Ideally, you should start the process two weeks before the month ends to complete all tasks. By being aware of what slows accounting teams down, embracing automation, or outsourcing the month-end close, you can reduce time spent as well as close on your target date.Talk to An Expert
Best Practices for Month-End Close:
We’ve covered a lot about the month-end close. You now know what not to do, what reports to use, timing, and the benefits of doing the monthly close right. But how can you make sure it’s done right?
Focus on Quality (Especially When Starting Out)
If you follow the right processes, your month-end close will naturally speed up over time as everyone gets comfortable with their roles and responsibilities. It’s imperative that your primary goal is to do it right once, and not wrong three times. If you do it wrong, then you’re making business decisions off of incorrect data, which could be catastrophic to long term financial health.
Of course, it’s nice to get things done early and focus on other issues, but that will come with time. Making sure things are done right to start will pay off in the long term.
Build Cross-Department Relationships
Having you, or your accounting department, be aware of how the rest of the business operates will provide valuable insight when going over the monthly financial documents. With an understanding of how other departments work, you’ll be able to make more sense of the financial data they produce.
Building cross-department relationships is also great for team efficiency. Through these relationships, everyone at your company will have a better understanding of how the business runs, making it easier for them to collaborate in the future.
Bring In the Experts
Perhaps you’ve been doing a lot of the month-end close yourself, or you don’t like how much time and capacity it takes away from your accounting department.
At Signature Analytics, we review financial activity and performance for a calendar month to prepare for the monthly financial statements. This includes quality control with senior-level accountants validating the work.
If you’re interested in outsourcing the month-end close process, or any of your other accounting needs, contact us today.