Closing the financial books at the end of the month can feel like running a marathon—you start strong, but by the final stretch, you’re exhausted, battling deadlines and hoping nothing slips through the cracks.
Sounds familiar?
The month-end close is one of the most crucial yet stressful tasks for any finance team, as it directly impacts the accuracy of your financial reporting and the strategic decisions your company will make.
But what if it didn’t have to be so overwhelming? Imagine an efficient, streamlined process, and less prone to error.
In this blog, we’ll walk you through practical steps and best practices to remove the chaos from your month-end close, transforming it from a dreaded task into a well-oiled operation. Let’s dive in!
Preparation
Effective month-end close starts with proactive communication, and the first step is addressing unpaid invoices to ensure your revenue data is complete and accurate.
Email About Unpaid Invoices
The first step in the month-end close process is to communicate with your team regarding any unpaid invoices. Sending an email reminder to the sales or accounts receivable team effectively addresses outstanding invoices. Make it a habit to do this a few days before the close date.
This proactive approach can help reduce discrepancies and keep your revenue data current.
Action Steps:
- Draft an email template for unpaid invoices that includes specific deadlines for follow-ups.
- You can use an accounts receivable aging report to identify overdue invoices and categorize them by aging buckets (e.g., 30, 60, 90 days).
- Assign team members to follow up on specific clients, encouraging personal outreach where necessary.
By staying ahead of unpaid invoices, you maintain clean records and reduce the likelihood of revenue discrepancies as you move through the close process.
Verify Manual Entries and Sales Pipeline Metrics
Next, double-check any manual entries you’ve made during the month. This includes validating data entered in spreadsheets or your accounting software. Accurate sales pipeline metrics are crucial for forecasting and financial reporting, so ensure that your sales team has inputted all relevant data.
This step ensures that your revenue projections align with the actual data.
Action Steps:
- Review entries in your accounting system for consistency with source documents.
- Collaborate with the sales team to ensure that all closed deals are reflected in the pipeline metrics.
- Schedule a brief meeting to discuss any discrepancies or missing data.
Organize and Gather Financial Documents
Organizing and gathering all necessary financial documents at the beginning of the month’s close will save you time and stress later on. Create a checklist of all the documents you need to collect, ensuring nothing is overlooked.
Key Documents to Gather:
- Invoices and receipts
- Bank statements
- Petty cash reports
- Payroll records
- Contracts and agreements
Action Steps:
- Create a shared folder (physical or digital) where all team members can upload necessary documents.
- Establish a deadline for document submission to streamline the gathering process.
- Assign a team member to review and confirm that all documents are collected before the close date.
Data Collection
Collect all invoices, receipts, and bank statements for the month. This includes the primary transactions and any additional documents that provide a comprehensive view of your financial activities. Accurate data collection is the foundation of the month-end close process, so give this step the attention it deserves.
Action Steps:
- Use your accounting software to generate reports that summarize incoming and outgoing transactions.
- Verify that all bank statements are reconciled against internal records to identify any discrepancies.
- Ensure that receipts for expenses incurred during the month are collected and categorized properly.
Collect Other Financial Documentation
In addition to invoices and receipts, collect other essential financial documentation, such as petty cash totals, bank account information, and total revenue reports. These documents provide critical context and support your accounting entries. Proper documentation is key for a smooth reconciliation process later.
Action Steps:
- Create a standardized template for collecting petty cash totals and other miscellaneous financial data.
- Cross-reference data collected from various sources (e.g., bank statements and internal reports) to ensure consistency.
- Organize documents systematically to facilitate easy access during reconciliation.
Reconciliation
Once you have gathered all necessary documents, it’s time to reconcile them with entries in your accounting system. This process ensures that all transactions are accurately recorded and accounted for, which is critical for producing reliable financial statements.
Action Steps:
- You can use accounting software to easily compare documents and entries to streamline the reconciliation process.
- Implement a systematic approach, such as checking off each transaction as you verify it against the documentation.
- Address discrepancies immediately to avoid delays in the closing process.
Ensure All Transactions Are Recorded
After reconciling, double-check to confirm that no transactions have been overlooked. This includes reviewing credit card statements, payroll records, and any manual entries. Ensuring that all transactions are recorded is essential for maintaining the integrity of your financial records.
Action Steps:
- Conduct a detailed review of all transactions, focusing on any unusual or high-value items.
- Encourage team members to report any unrecorded transactions they may have overlooked.
- Implement regular internal audits throughout the month to catch discrepancies before the close.
Reconcile Cash, Checking, and Savings Accounts
Ensure that your cash, checking, and savings accounts are reconciled as well. This verification process can help you identify any discrepancies or errors that need to be corrected. Accurate cash reconciliation is crucial for maintaining liquidity and financial stability.
Action Steps:
- Use bank reconciliation software to automate this process, if possible.
- Create a reconciliation worksheet that outlines each account’s balance and any outstanding items.
- Review any discrepancies with the relevant team members to ensure all transactions are accounted for.
Accrual Estimation
Accurately estimating month-end accruals is essential for financial reporting. Review your accruals to ensure they reflect the actual liabilities incurred during the month. Accrual accounting allows for a more accurate picture of your company’s financial position.
Action Steps:
- Use historical data to help predict accrual amounts for regular expenses like utilities, payroll, and taxes.
- Document any assumptions made during accrual estimation for transparency and reference in future months.
- Communicate with department heads to identify any potential accruals that may have been overlooked.
Account for Prepaid Expenses
Don’t forget to account for prepaid expenses, which are expenses paid in advance for services or goods to be received in future periods. These items can affect your financial statements if not accurately reported. Understanding how to handle these will improve the accuracy of your financial statements.
Action Steps:
- Review contracts and agreements to identify any prepaid expenses.
- Allocate these expenses to the appropriate periods in your financial records.
- Regularly review prepaid expenses to ensure they are being recognized in the correct accounting periods.
Review and Adjustments
Examine all accounts for any discrepancies or unusual items that may need attention. This careful review will help identify errors or misstatements that could affect your financial reporting. Addressing these issues proactively can save time and reduce errors in your financial statements.
Action Steps:
- Perform variance analysis comparing current month results with prior periods to identify unusual fluctuations.
- Schedule meetings with department heads to discuss any unusual items in their respective accounts.
- Implement a formal review process to ensure all accounts are scrutinized thoroughly.
Make Adjustments for Errors
During your review, be prepared to make necessary adjustments for any errors you discover. This may involve correcting entries or accounting for accruals and deferrals that were not initially recorded. Prompt adjustments help maintain the accuracy of your financial statements.
Action Steps:
- Document all adjustments made, including the rationale for each change.
- Ensure that adjustments are reflected in the appropriate accounting period to avoid future discrepancies.
- Review your adjustment process regularly to identify any patterns or common errors.
Perform Flux Analysis
Conduct a flux analysis to identify any anomalies in your financial data. This analysis helps highlight significant changes in your accounts that may require further investigation. You can make more informed financial decisions by understanding the reasons behind fluctuations.
Action Steps:
- Set thresholds for what constitutes a significant variance to flag for further investigation.
- Review historical data to understand normal fluctuations and identify unusual trends.
- Communicate findings from your flux analysis to key stakeholders to keep them informed.
Fixed Assets
You need to document any changes in fixed asset value, including asset purchases, disposals, or impairments. This is crucial for accurately reflecting the company’s net worth and for tax reporting purposes.
Action Steps:
- Implement a fixed asset tracking system to monitor acquisitions and disposals.
- Schedule regular reviews of fixed assets to ensure all changes are recorded accurately.
- Maintain detailed documentation for any changes in asset values, including supporting documents like purchase agreements or sales contracts.
Assess and Account for Depreciation
Accounting for depreciation on your fixed assets is part of your month-end close process. This ensures that your balance sheet accurately reflects the current value of your assets. Understanding the appropriate depreciation methods and schedules is essential for accurate financial reporting.
Action Steps:
- Choose a depreciation method (e.g., straight-line or declining balance) that aligns with your accounting policies.
- Document and communicate the chosen method to ensure consistency in reporting.
- Schedule regular reviews of your depreciation calculations to ensure they remain accurate.
Financial Reporting
Once all data has been gathered, reconciled, and adjusted, it’s time to generate your financial statements. Key financial statements include the balance sheet, income statement, and cash flow statement. These documents are critical for providing stakeholders with an accurate view of the company’s financial position.
Action Steps:
- Use accounting software to automate financial statement generation, reducing manual errors.
- Ensure that financial statements are generated according to the appropriate accounting standards (e.g., GAAP, IFRS).
- Schedule a review of generated statements with the finance team to ensure accuracy.
Review Statements for Accuracy
Before distributing financial statements, conduct a thorough review to ensure they are accurate and complete. This step helps catch any lingering errors and ensures all necessary adjustments are made.
Action Steps:
- Cross-check financial statements against source documents to verify accuracy.
- Review calculations for accuracy and consistency.
- Ensure that all financial statements are formatted correctly for presentation to stakeholders.
Prepare Notes and Disclosures
Along with your financial statements, prepare any necessary notes and disclosures to provide additional context. These disclosures can include accounting policies, assumptions, and explanations for significant variances.
Action Steps:
- Draft disclosures that comply with accounting standards and provide transparency.
- Collaborate with relevant teams to gather necessary information for disclosures.
- Ensure that disclosures are reviewed and approved before finalizing financial statements.
Communication
Once your financial statements and accompanying disclosures are ready, distribute them to stakeholders. This includes the finance team, executive management, and, if necessary, external parties like auditors or investors.
Action Steps:
- Create a distribution list for stakeholders who need to receive financial statements.
- Provide clear instructions for accessing and reviewing the documents.
- Schedule a follow-up meeting to discuss the financial results and address any questions.
Discuss Financial Results with Leadership
Conduct a meeting with leadership to review the financial results. This meeting provides an opportunity to highlight key performance metrics, address any concerns, and discuss strategies for improvement.
Action Steps:
- Prepare a presentation summarizing key financial highlights and performance metrics.
- Encourage an open dialogue during the meeting to address any concerns or questions from leadership.
- Document key takeaways and action items from the discussion for follow-up.
Post-Close Review
After the month-end close is completed, conduct a post-mortem review of the process. This reflection allows your team to evaluate what worked well, what didn’t, and where improvements can be made for the next month.
Action Steps:
- Schedule a meeting with the finance team to discuss the close process and gather feedback.
- Document any challenges encountered during the close and brainstorm improvement solutions.
- Establish action items to address issues identified during the post-mortem review.
Identify Opportunities for Improvement
Use insights gained from the post-mortem review to identify opportunities for improving the month-end close process. Implementing changes based on this feedback can help streamline future closes and improve overall efficiency.
Action Steps:
- Prioritize areas for improvement based on feedback from the team.
- Develop a plan for implementing changes, including assigning responsibilities and setting timelines.
- Monitor progress and assess the impact of implemented changes during future closes.
Technology and Automation
Utilizing accounting software can significantly streamline the month-end close process. Modern accounting systems provide automation features that reduce manual tasks and help ensure accuracy. Take advantage of these tools to optimize your financial operations.
Action Steps:
- Research and select accounting software that aligns with your organization’s needs.
- Train your team on how to utilize the software effectively to enhance their productivity.
- Regularly review software updates and features to improve your processes continuously.
Automate Routine Tasks
Identify routine tasks within the month-end close process that can be automated. This might include invoice processing, data entry, or report generation. Automation helps reduce the risk of human error and saves time.
Action Steps:
- Map out tasks that are repetitive and can be automated.
- Implement automation tools or features within your accounting software to streamline these tasks.
- Monitor the effectiveness of automation and adjust as necessary for optimal results.
End Note
A successful month-end close process is all about preparation, accuracy, and teamwork. By following a structured approach—sending timely reminders for unpaid invoices, gathering and reconciling your data, and utilizing automation tools like Bunker—you can transform the close process from a daunting task into a streamlined, efficient operation.
Prioritizing accuracy over speed ensures that your financial statements are reliable, supporting better business decision-making. Additionally, continuously reviewing and improving the process helps you catch potential bottlenecks before they become issues.
Are you tired of stressful, last-minute month-end closes? Take control today by incorporating these best practices into your process. Whether you’re automating tasks, improving communication, or refining your reconciliation efforts, each step will bring you closer to a smoother, more efficient close.
