Five tips to solidify your month end accounting close to create accurate Financial Statements

When you go to Starbucks and order the same coffee you ordered the last time you were there, do you expect it to taste different?  When you check your bank account online, do you expect to see an accurate balance of your account?  If you ordered some laundry detergent online and it says it will be shipped in 2 days because you need it in 2 days, would you expect the package to arrive in 5 days?  Just as you expect your coffee to taste the same each time, or your bank balance to be correct, or your package to be delivered on time, your financial reports should also be consistent, accurate, and timely.  If you are a small business owner, making decisions about whether to hire or fire someone or to purchase new equipment has a significant impact on your business.  This means that those decisions should not be taken lightly, and you need solid financial information as quickly as possible; otherwise, making poor decisions or waiting too long to make a decision can harm the business.  That is why having a solid month end close process ensures financial data is gathered, reviewed, and reported accurately and on time.  Without this process, reports may contain errors, inconsistent categorization, or delays, making it difficult to make informed decisions.  To support effective management, focus on developing a month end close process that prioritizes accuracy, consistency, and timeliness.  A month end close is an accounting process for gathering, recording, reconciling, and analyzing the financial transactions of the business in order to prepare the monthly financial reports.

Here are five tips to help you solidify your month end accounting close:

1. Create a month end close checklist

   1. A checklist helps the team maintain consistency in the process by following the same steps every month.  It is essential to recognize that no two businesses are the same, so this checklist should be customized to the business's specific processes.  It is also important to understand that the business may change on a month-to-month basis, and the processes and items on the checklist may need to be adjusted accordingly.  But a good checklist can really standardize the month end close process and plan the tasks accordingly.  In the checklist, it would be good to break it down between tasks for pre-month-end close, month end close, and post-month end close.

      
      

2. Establish cutoff dates

   1. Cutoff dates are important to plan ahead of the month end close process because they let the accounting team and other team members of the business know when to expect the following:

      1. When the information is needed from other team members or departments, if it affects the month end close

      2. When all the data or transactions are to be recorded in the accounting system

      3. When can the last journal entries be posted for the period

      4. When will the financial reports be prepared for management

         
         

3. Begin preparations before the month ends

   1. Month end doesn't have to start after the month is over; there are steps that can be taken to start the "Pre-month end close" process.  This usually involves reviewing if the daily and weekly financial transactions entered in the accounting software are current within the month, reviewing any issues that came up during the month or was open from a prior month to see if it can resolved before month end, gather any supporting documents that are available ahead of time, start asking questions to get a better understanding of how the business performed operationally for the past month.

      
      

4. Reconcile, review, and analyze

   1. Reconciliations are key.  It is good practice to at least reconcile all balance sheet accounts, as this is usually the most common place where errors tend to occur and remain on the accounting side.  But profit and loss accounts should also be reconciled if there are large or unusual balances.

   2. Review and analyze the financial reports.  If your business has a budget or financial forecast, you can use it to compare your actual results with the forecast. If not, you can compare them to the results from the prior year or period.  What you want to look for are large variations.

   3. If you notice unusual items for the month, review supporting documents to understand the reasons behind them.

   4. Review the financial reports with management.  The financial reports only tell half the story of what's going on with the business; the other half is bridged together by what is happening with other parts of the business, such as operations, marketing, and sales.  Questions from the management team can really help figure out if the financial information is solid or not, and if it's not, then the month end close process can be revisited to see what needs to be improved.

      
      

5. Review post-month end close process

   • Follow up on any open issues or balances that carry over from the prior month and may require further review.

   • Organize all documents and notes properly in case you need to refer to them again in future months.

   • Review with the team what went well and what needs improvement.  Taking this time allows the team to avoid making repeated mistakes and to continually improve the process.

     
     

In summary, a solid month end accounting close relies on strong processes and a knowledgeable, well-organized accounting team.  By implementing and continually improving the processes that prioritize accuracy, consistency, and timeliness, businesses can generate reliable financial reports that support informed strategic decision-making.  Sticking to these best practices helps keep your financial information useful for running and growing your business.