Accountancy is the job that’s never finished. Whether you’re preparing for tax returns, presenting financial reporting data, or indeed performing month end close, there’s barely a chance to breathe.
In 2017, the average accountancy team reported that month end close takes more than 8 days.
But time spent on month-end close is time spent away from added value. You've already got a never-ending list of tasks to complete, and the closing process steals your attention from money-making business tasks and delivering strategic insights.
A clear month-end closing process improves your efficiency and reduces mistakes. We'll get into how you can develop the management of your closing process. But first, let's take a look at what the month-end close is, and the exact steps you might be taking.
What is the month-end close?
Month-end close refers to the monthly collection of financial accounting information, review, and reconciliation of records.
The most important closing period comes at the end of the financial year. But good financial tracking continues every day, week, and month.
Waiting until the end of the financial year to collate all your finances would be insane, and tax season is hard enough as it is!
So most finance teams also close the books each month, letting them check transactions, journals, and reports on a more regular basis. It also means matching both income and expenses to the physical records - checking receipts, invoices, and other documents.
Depending on your accountancy team's speed, this month-end process could take between 5 and 10 days. It’s an important part of your company’s financial system, since month-end accounting:
- Helps easily display your financial information
- Keeps your records ready in case you get audited
- Helps prevent future accounting mistakes
- Prepares you for simpler, easier tax filing
Creating a view of where your money comes and goes each month enables you to build a clear picture of your overall business spending. Month-end close highlights where spending is not particularly necessary and helps you to optimize the company’s expenditure.
But a more streamlined month-end close process leads to fewer mistakes across your entire accounting procedure. So it pays to do it right.
6 key steps for month-end accounting
There's no perfect month-end close checklist, since all companies are different. Some work with products, meaning they'll have the extra steps of tracking both inventory. Others have are service-focused, or have major petty cash and office costs to worry about.
In general, there are six key steps in the month-end accounting process for start-ups and SMEs:
- Accounts receivable
- Accounts payable
- Account reconciliation
- Fixed assets
- Plan ahead
Start by recording all income received throughout the month, whether this is through cash, invoices, loans, or other revenue. This step also involves verifying that you’ve received the correct amounts from customers and are chasing unpaid invoices.
Your finance team should make a journal entry to record each of these transactions.
In opposition to income, accounts payable is the money you spend each month on purchases and bills. You’ll be required to track how much you’ve spent and on which products or services, including via expense reports, invoice payments, and company cards.
Larger pieces of machinery, technology, and other assets are sometimes translated to cash in your ledger. This is due to the depreciation and amortization process, which means that the value of these assets drops over time. Since assets are expensive, you're allowed to spread the cost of depreciation in the form of expenses as the years go by.
Recording any change in value to these assets (including repairs or amortization) is important to keep your books steady and avoid sudden jumps in profit or loss.
Now it’s time to organize your monthly closing financial statements, such as the balance sheet, profit, and loss, revenue and expense sheets. Of course, your credits and debits should hold a net value of zero as the account balance.
Financial reports and statements are incredibly important for providing an accurate view of the company’s financial data and informing future strategies.
Finally, it’s time to think ahead to the month in hand and create a business financial plan to address key risks. If something was particularly manual this month, for example, it might be time to think about creating an automation process. 88% of companies who apply automation can complete the monthly close process within 6 days, compared to only 40% of those who don’t.
5 tips to make the month-end close more efficient
As discussed, making your accounting month end more efficient can not only give an accurate insight into the financial state of your company but also prevent future mistakes. Streamlining the process better prepares you in case of an audit, and for when tax season eventually rolls around (far too soon, might I add!).
Here’s how to make month-end close more efficient:
- Use templates and checklists
- Consolidate all transactions in one place
- Back-up your data
- Implement company cut-offs
- Automate systems
Use templates and checklists
Templates and checklists for every step in the process might sound incredibly taxing, but they can shave entire days off your month-end close process.
The key benefit to using templates within your month-end close is that they standardize operations. Creating a standard operating procedure is proven to improve the speed and accuracy of your month-end process.
One software company attributed a sign checklist as a key reason to their success in reducing month-end close from 3 weeks to just 3 days. Talk about an improvement!
It’s important to consolidate every category of transaction in one place. We’re talking expenses, revenue, and more. Spend management software with multiple user accounts lets your accountancy team verify all transactions company-wide.
You can also work with labels to categorize and visually display spending more easily.
Back up data
Let’s be honest, nobody should rely on paper these days. If you’ve not found a way to move your accounting process online, it’s time to get flexible. But even if you’re accessing digital accounting software or online programs, it’s important to back up all of your documents.
Imagine losing access to all of your data, reporting, and analysis? Occurrences like this could double the entire month-end process and will surely have a knock-on effect to other accounting processes. Back up your data using a reliable cloud-based system that can be stored securely.
Communicate company cut-off dates
Company-wide cut-offs are specific dates at the end of every month that every employee should know and respect. They signify the end of the current accounting period, and transactions after this date will be carried forward to the next month. For example, if you’re working with a freelancer who doesn't submit their invoice prior to the cut-off, they’ll typically have to wait for the next billing cycle to be paid.
Your finance team already uses these, of course. But communicating cut-offs gives them enough time to attend tasks like paying your invoice while also completing the month end close.
Automate spend management
The number one step you can take to make life significantly easier when it comes to month-end?
Automate your systems.
Did you know that you can put the responsibility of receipt collection onto your employees, rather than chasing them every month?
Automated payment reconciliation, built-in employee debit cards, and seamless approvals can all be done using the power of Spendesk. Customers say that our software saves approximately 4 days' worth of work at the end of each month.
While accountancy is never truly finished, you can save time on your month-end closing processes to increase efficiency and deliver added value. Of course, all of these tips and tricks can also be applied to year-end closing and might benefit some of your other accounting systems.
The big picture takeaway here is that closing time costs you valuable time and energy which would be better spent on strategic decision making. You have the power to create better workplace satisfaction, create savings and turn a higher profit. Fix the close process today, for good.