What does your month-end financial closing process look like? Do you have a system in place or do you “wing it” and hope for the best? Are you searching for a better way of doing things next month?
It’s best to have a defined month-end close process checklist to guide you from beginning to end. With this, you never have to guess at what you should do next. And even better, you’ll face less stress as the final days of the month bear down on you.
Below, we share five simple steps you can take for a more efficient month-end close. With these month-end close best practices guiding you, it won’t be long before you realize that you’re in a much better place.
1. Record Incoming Cash
Incoming cash comes in many forms, such as invoice payments, revenue and loans. Record all funds that your company received during the month. This is also a good time to do the following:
- Review outstanding deposits
- Verify that all invoices have been sent
- Count cash on hand
Manually recording incoming cash and taking these other steps can be time consuming and stressful. It’s best to use a software application that automates these tasks. This makes for a more efficient and more accurate month-end closing process.
2. Review Accounts Payable
Depending on the size of your company and the number of monthly transactions, you may find it difficult—if not impossible—to record transactions as they come to you. But that’s no excuse for mistakes. You still need a system for organizing and maintaining accurate records.
A review of accounts payable records should include, but is not always limited to:
- Gathering all necessary records
- Determining if there are any accounts payable that have been paid
- Checking your records against accounts payable to know what has and has not been addressed
It’s easy to put this step off until the end of the month, but it’s also a costly mistake. Automation software can help you better track accounts payable throughout the month so that there’s less pressure on you as the fiscal calendar turns.
3. Reconcile Accounts
Don’t fall into the trap of assuming that you (or anyone else) didn’t make any mistakes during the month. Even the most experienced and knowledgeable financial professionals slip up now and again. This is why it’s so important to reconcile all of your accounts.
In short, this is the process of comparing your records to account statements, such as from your financial institution. If the numbers match, you’re in good shape. But if they don’t, you have some work to do. It’s time to dig deeper to pinpoint the reason for the difference.
Make the process by putting all your accounts into one of these three categories:
- Bank accounts (checking and savings)
- Bank loans or leases (such as for equipment or real estate)
- Accrued or prepaid accounts
It’s generally best to start with bank accounts, but it’s most important to implement a reconciliation system that works for you.
Note: If you neglect to reconcile accounts, a simple mistake this month can grow into a bigger problem next month.
4. Review Fixed Assets
Think of fixed assets as items that add value to your company. Examples include work vehicles, office equipment and real estate (buildings and undeveloped land). Intangible assets also fit into this category, including things such as trademarks, patents, domain names and brand names.
Fixed assets are long-term items that don’t easily convert to cash. Instead, many of these assets generate monthly expenses in the form of depreciation, repairs or amortization. For example, machinery—such as for manufacturing products—is imperative to the success of your business. It’s also valuable. However, over time, you can expect this machinery to depreciate.
During your month-end closing process, record any expenses associated with fixed assets.
5. Review All Financial Statements
This may be the last thing you do, but it requires your attention nonetheless. Start by reviewing these financial statements:
- General ledger
- Profit and loss statement
- Balance sheet
- Income statement
- Cash flow statement
A thorough review allows you to feel confident in your month-end close. It also sets you up for success the next month.
If you find any errors or areas of concern—such as overspending within a specific department—address them right away.
Is That All You Need To Do?
The steps above are a good start to any month-end close process checklist, but there may be other steps to add. Consider the following:
- Review revenue and expense accounts
- Count inventory
- Review petty cash
The more times you go through the month-end close process, the better you’ll understand what steps to take and how to work more efficiently in the future.
Are you confident in your ability to take these five steps? Do you believe they’ll improve your month-end close process?
Once you create a month-end close process checklist in Excel, you can use our financial close management software to automate tasks to save time, reduce stress and maintain accuracy.
Don’t ignore month-end close best practices any longer. A few simple steps can have a profound and positive impact on your business.