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Most companies take five to ten days to complete the month-end close process. However, without best practices and the latest automation tools, it can take two to three weeks.
This is because month-end closing activities include the collection, analysis, adjustment and reconciliation of financial transactions, account balances, and data from different systems. Furthermore, many reconciliation automation tools are not optimized for large datasets.
For many companies, by the time they finish the reporting for the previous month, it’s almost time to begin the whole tedious cycle again. Financial teams need to free themselves of this vicious cycle. They can do this with a streamlined month-end close checklist.
Introduction to Month-End Accounting
In theory, the month-end close is a fairly straightforward process: there is the organization, reconciliation, and reporting of the company’s financial activities over the fiscal period.
However, as teams grow and workforces become more scattered, the closing period becomes more hectic, stressful and time consuming.
Waiting till the end of the year to prepare financial reports is a recipe for tedium and overwork. That’s why most companies prepare monthly financial statements in order to gain a view of their financial KPI’s and make the year-end process easier.
The Importance of Closing Each Month
The month-end close tells companies what profits have been made and what targets have been met, which can influence critical decisions. Such decisions can include bonuses, leasing new offices, creating new roles, and more. On the flipside, inaccuracies in closing can lead to disaster.
Here’s a summary of the importance of month end closing activities:
Gives accurate & current financial records
Streamlines audits & tax returns
Facilitates informed & timely decision making
Underlines areas for improvement in business operations
Month-End Closing Process Challenges
It is crucial to identify and mitigate the challenges commonly faced in the closing process. Here are some of the common roadblocks, and some solutions:
Errors in spreadsheets & other manual records – Only authorized employees should be granted access to these records
Cumbersome status tracking due to multiple teams involved in closing process – Use technology that offers real-time visibility to financial tasks
Data stored in different locations – Use a centralized data repository
Insufficient closing process knowledge – Provide employees with adequate training
Items Needed for Month-End Close
Every company is unique, and what works in Fortune 500 companies may not work for small businesses. That being said, in general, you will require the following items to perform the month-end closing process.
Total fixed assets
Bank account information
Income & expense account
Petty cash total
Bear in mind that your specific procedures and time taken may vary depending on your accounting methods, industry, available technology, and so on.
For instance, if you use a powerful reconciliation automation tool such as CrushErrors, your process will be a lot smoother. Of course, you can also hire reconciliation services to save yourself time.
Month-End Closing Checklist
Creating an airtight month-end close checklist makes sure that your financial team gets accurate data quickly and can make more informed decisions. The checklist will help you minimize redundancies and errors and help you keep track of information.
1. Make a Closing Schedule
There’s a lot financial teams have to deal with every month. They shouldn’t waste valuable time and effort in memorizing a bunch of dates.
Hence, to prevent inefficiencies and delays, they should maintain a calendar (ideally a central one) of all relevant and important deadlines, as well as prioritize each task according to due dates and urgency.
Oh, and setting up reminders and popups never hurt anybody.
2. Reconcile AR, AP, Expenses & Supplier Invoices
Depending on how your company has managed its expenses, this step can be relatively easy, or terribly time consuming.
Check all invoices that are due and have gone out. See what has not been paid, and check whether what has been paid was the correct amount.
Reconcile each transaction in the bank accounts with its matching expense invoice, bill or receipt.
Any outstanding debt should be identified and settled as soon as possible.
3. Review the Budget & Make Adjustments
Budget accuracy is essential for all businesses. The month-end closing is the ideal time to keep tabs on it.
Since all budgeting is basically a projection, reviewing it regularly means budgets can be redistributed or spent in other areas. Furthermore, you need to raise red flags if any department is over-spending.
4. Prepare Financial Reports
For the closing period, the business ledger and financial statements such as the balance sheet and profit & loss statement are the big deliverables.
With these reports, executives can remain informed on business performance and make major decisions for the coming fiscal period.
5. Review Fixed & Liquid Assets & Do an Inventory Count
You should identify and list all current liquid and fixed assets, and check if there have been any new transactions or purchases related to these assets.
Document loans that have been taken out & their payment progression.
You may not do this every month, but it is worth including on your month-end close checklist – especially if your business owns many assets that quickly depreciate.
Review fixed assets & account for depreciation as a cost.
Perform an inventory count to know the value that is left.
By recording changes and spreading out depreciation costs through the year, you can avoid sudden profit losses.
6. Record Petty Cash
Not all businesses have petty cash reserves. Depending on your business’ setup, you should tally the totals accurately when counting cash and reconciling petty cash transactions.
With this month-end close checklist, you will be able to better streamline your closing activities. Of course, the month-end closing activities will always be somewhat tedious and time-consuming.
That’s why, to make it easier for your accounting department, hire NextGen Accounting. We offer bank reconciliation services, credit card reconciliation services, financial reporting, audit and anti-fraud assurance and consulting services.
To give you the most accurate and fastest reconciliation, we use our patented software CrushErrors, which we specifically created for huge amounts of data that other reconciliation software cannot easily manage. You can also obtain CrushErrors as a product if you’d rather conduct reconciliations in-house.