How to accelerate the month-end close process

How to accelerate the month-end close process

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Every small business owner understands the importance of staying organized. Executing a month-end close process will keep your financial records up-to-date and give you the momentum you need to keep moving forward.

But how much time will this take?

According to research published in Forbes, most businesses have room to dramatically improve productivity and reduce time spent on low-value tasks. That means there's likely ways to accelerate your monthly closing process, giving you more time to focus on your other priorities.

What is a month-end close?

In the month-end close, you'll account for all the transactions that occurred in the previous month.

The process will involve reviewing, recording, and reconciling business transactions so you can complete the necessary financial statements.

Ensure an accurate month-end balance

Once you conclude your month-end process, your financial records are essentially set in stone. As a result, your month-end balance will be accurate and up-to-date.

The particulars of the process can vary between businesses and accounting methods. Typically, however, it will involve:

  • Recording any un-entered invoices
  • Account reconciliations for credit or debit cards
  • An inventory count
  • Mortgage entries
  • Insurance entries
  • Comparing the budget with your actual expenses
  • Preparation of reports for managers and stakeholders
  • Closing the accounting period in the accounting software

Your company's monthly financial data form the foundation for the next month's business decisions, making this a valuable process for strategic planning.

What is the purpose of the month-end close process?

The primary goal of the month-end close process is to prepare financial statements. These provide regular insight into your company's financial data, which can help track your progress toward KPIs or identify areas that need improvement.

Benefits of the month-end close process

It's possible, of course, to wait until the end of the year to prepare your financial statements. However, doing so may be unwise for several reasons.

For one thing, small business owners may find it overwhelming to reconcile that much accounting data all at once. By preparing your financial reports monthly, you'll avoid this year-end crunch and reap the benefits of having all your crucial business data right at your fingertips.

That's because accurate monthly data feeds many other aspects of your business, including cash flow management, accounts payable, and other essential areas. Business owners who perform this process monthly stand to accomplish the following:

  • Improve the accuracy of financial records
  • Identify discrepancies between accounts
  • Make better business decisions
  • Simplify tax-filing procedures
  • Measure progress toward business goals

Delaying the process will only increase stress or force you to spend hard-earned money on a catch-up bookkeeping service.

9 steps in the closing process

You'll want to follow a series of basic steps to keep the month-end close process as simple as possible. Here's the process and how much time to allot for its completion.

1. Gather your financial documents

The most accurate month-end close process will result from the most accurate data. Make sure to gather information and documents such as:

  • Bank and loan statements
  • Credit card statements
  • Income and expense statements
  • Accounts receivable/payable
  • Inventory and fixed assets
  • General ledger
  • Accruals and prepayments
  • Monthly financial statements

Keep in mind that not every accounting team will complete the month-end close process the same way. For example, if your finance team uses cash-basis accounting, you won't rely on balance sheet accounts such as accounts receivables/payables.

2. Record monthly expenses and income

Every business should track incoming cash items like sales figures or any investment income. Additionally, companies should make it a point to monitor expenses such as:

  • Payroll
  • Utilities
  • Payments to suppliers
  • Travel expenses
  • Insurance premiums
  • Loan interest

It's also a good practice to check your general ledger to ensure you've posted your debit and credit entries appropriately.

3. Update accounts payable and accounts receivable

Start by double-checking your invoice payments to ensure you make payments on time and avoid duplicate invoices.

You can also check your income statement accounts to verify your customers are paying according to the terms set in your invoice and within their limits.

4. Reconcile your accounts

Next, reconcile your bank accounts with your recorded financial activity. This might require a review of things like:

  • Checking and savings accounts
  • Loan and credit accounts
  • Digital accounts (e.g., PayPal)

Performing monthly account reconciliations will help you spot errors and prevent minor mistakes from causing significant problems down the line.

5. Reconcile your petty cash fund

Check the balance of your petty cash fund. You'll need to reconcile deposits and receipts to ensure you've recorded all petty cash payments. Otherwise, it's easy to forget these payments, leading to discrepancies in your financial reports.

6. Review fixed assets and inventory

After reconciling your petty cash fund, you can review your company's fixed assets. Common types of fixed assets can include real estate, commercial vehicles, and equipment. But fixed assets can also extend to intellectual property like branding or product trademarks.

Similarly, a monthly inventory count will ensure your products are accounted for. This can also be useful when considering when and how to reorder additional inventory.

7. Reconcile prepaid accounts with accrued accounts

Prepaid accounts refer to expenses you pay in advance. Common prepaid expenses include insurance premiums, payroll, and equipment leases. These expenses will be amortized, meaning the total amount you pay in advance will be distributed equally throughout the accounting period in which you receive the benefits.

Accrued accounts refer to your revenue and accrued expenses. Each month, you'll need to reconcile your revenue and expense accounts to ensure accuracy.

8. Generate your financial statements

After reviewing all of your accounts, it's time to create your financial statements for the month. These statements will include:

Getting these statements in order will give you a clear picture of your company's financial health and pinpoint errors you can correct before the beginning of the following month.

9. Review and reflect

At this point, you've completed the month-end close process. Now it's time to review.

Look over your general ledger, as well as the financial statements you prepared in the previous step. This information can be invaluable in your decision-making processes, so take a moment to think about things such as:

  • Your progress toward your business goals or KPIs
  • Any mistakes that need to be addressed before the next month
  • Adjustments to your inventory or procurement process

For example, if you're noticing that you're having an issue with your company cash flow, you may need to adopt new payment policies for your invoicing procedures. Alternatively, you might institute electronic payments to encourage a quick turnaround for your accounts receivable payments.

How to close accounts payable in your month-end close

Your accounts payable closing process is part of the larger accounting procedure outlined above. However, most businesses will need to devote additional time to reviewing their accounts payable balances.

Start by reviewing your accounts payable records to confirm payments made to lenders, payroll, and suppliers. Reconcile the money you owe to these entities with the money you're actually paying. Doing so will help you stay current with your monthly debts and avoid penalties for late payments.

Electronic accounting systems and other business tools make this easy. They also protect your business from fraud thanks to security protocols such as three-way matching.

How long does a month-end close take?

Admittedly, the month-end close process can be time-consuming. That said, the most recent data shows that business owners are finding ways to improve the efficiency of their accounting procedures.

According to APQC’s General Accounting and Reporting Open Standards Benchmarking survey, the median number of days an organization needs to close out the books is 6.4.

Relying on a digital accounting system will make the process much faster since all your financial information will be centralized and at your fingertips. And the best accounting software can even improve your month-end close process by highlighting duplicate entries and eliminating data entry errors, making the process smoother.

Is a month-end close hard?

Unless you have your own accounting department, you'll have to conduct your month-end closing process on your own. But that's actually all the more reason to make a month-end close process a regular habit.

After all, without a finance team, you'll also be responsible for your year-end closing process and tax filing. A month-end process will be much easier than waiting until the end of the year.

Luckily, modern software and accounting tools make the process much more straightforward. With better access to your financial information, you'll find it much easier to review your data and reconcile your accounts before beginning the next month.

The month-end close checklist

Another way to simplify the month-end closing process is with a month-end checklist.

What is a month-end close checklist?

A month-end close checklist helps you stay on top of the financial information needed to complete the month-end closing process. You or your accounting team can use this checklist to gather your company's financial data so you're ready to complete all the processes outlined above.

What to include on your checklist

Your checklist doesn't have to be completed in any particular order. But your month-end close process will require you to keep track of data like:

  • Your petty cash balance
  • Depreciation to fixed assets or inventory
  • Credits to your accounts payable/receivables
  • Data from intercompany accounts
  • Balance of expense accounts
  • Accrued payroll and benefits
  • Interest payments for bank loans
  • Expenses

If your business is large enough, you can delegate many of these items to multiple members of your finance and accounting teams to save time and improve efficiency.

For example, a month-end close process flowchart can help you manage your data and ensure that the month-end closing process is completed smoothly and accurately.

Factors slowing down your month-end close

1. Disorganization

If your accounting procedures are disorganized, everything can take longer than it should. If you don’t know whether expenses have been approved, you’ll waste time contacting different departments to approve every line item. 

2. Chasing down receipts

Receipts are often necessary for monthly closing, but tracking down each receipt can take excessive time and effort. Or worse—the receipt you need might have been thrown away weeks ago. Accounting teams might have to waste precious time reaching  out to people to find out the purpose of various expenses so they can be categorized. 

3. Outdated processes

If you’re still entering expenses manually, you’re spending more time on expense reports than you really need to. And if you use multiple software programs that aren’t integrated with each other, you might be stuck transferring information by hand. 

4. Creating everything from scratch

You don’t have to do everything yourself—there are plenty of free business templates online that you can use to save a little time.

How can I improve my month-end close process?

Given the laborious and time-consuming nature of the month-end close process, many business owners find themselves wondering if there’s any way to streamline it.

The good news is that there are things you can do to expedite your month-end close. Here are some helpful general guidelines to follow.

1. Hire an accounting team

If you don't have an accounting department, consider outsourcing. Online firms can connect you to accounting teams that can assist with your monthly closing process and even help you with catch-up bookkeeping, tax filing, and more.

2. Give yourself a deadline

Establishing an exact closing date can provide some much-needed motivation for you or your team. A good closing date might be five to seven days after the end of the month. That way, you stay focused on your goals without rushing through the month-end closing process.

3. Maintain good records

Your month-end closing process will go much more smoothly if you maintain accurate records. Balance sheets, account statements, bank statements, and other data can help you reconcile your accounts quickly and accurately.

4. Automate your accounting process

Automating your accounting and bookkeeping procedures will empower you to reconcile your accounts and avoid costly errors automatically.

The most advanced tools will also offer additional features to assist with invoice payments and other integral tasks––like auditing your expense reports––keeping your business operating at peak efficiency from month to month.

Streamline your most important processes with BILL

Customers were able to reduce their monthly close from 10 days to just 1 with BILL.

BILL can simplify your approvals and payment processes while providing real-time financial data. And thanks to three-way matching, your company will be protected from the danger of financial fraud.

Learn more about BILL's accounts payable software and discover how it can help your business thrive.

The information provided on this page does not, and is not intended to constitute legal or financial advice and is for general informational purposes only. The content is provided "as-is"; no representations are made that the content is error free.