Steps for an Efficient Month End Close

Don’t we all love when we finish something and everything seems to be okay? 

And what about the sensation of seeing your financial records aligned as they should be? 

The only problem?

Your accounting team might not be exactly thrilled to close all your company’s books by the end of every single month. It’s necessary, yes, and they are the ones responsible for doing it, but sometimes it can feel like…well, a burden. 

To make their lives simpler, there are some practices you can implement to improve your month-end- closing process. 

Should we learn more about that?

What Is Month-End Close?

The month-end close is a standardized accounting process where you review, reconcile, and finalize your financial transactions for the month. This makes you feel confident that your financial records are accurate and complete, allowing you to prepare financial statements like the balance sheet, income statement, and cash flow statement.

See?

Really necessary

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Why Is the Month-End Close Important?

Besides what we just mentioned, some factors make month-end-close absolutely relevant. 

• Accuracy: It’s the best way to be sure that your financial records reflect the true state of your business.
• Compliance: Accurate financial records are often required to meet regulatory and audit requirements.
• Decision-Making: Financial reports generated after the close provide key insights that help management make informed decisions.

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A Quick Checklist for Month-End Process

• Reconcile Bank and Credit Card Accounts
• Post Adjusting Journal Entries
• Reconcile Accounts Payable and Receivable
• Update Fixed Asset Registers and Post Depreciation
• Prepare Intercompany Reconciliations
• Generate and Review Financial Statements
• Conduct a Final Review and Obtain Approvals
• Close the Books and Archive Financial Data

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Benefits of Month-End Close

Informed business decisions

It’s logical if you are closing your books correctly, you can gain access to accurate and reliable financial data. This empowers you to make well-informed decisions, helping to guide your business strategy and improve your overall financial success. 

Clear financial visibility

A well-done month-end close process gives you a real picture of your company's financial health. With this insight, you can easily spot areas of strength and potential challenges, allowing you to take proactive steps to manage your finances better. 

Strategic Planning 

Having reliable financial records is probably the best way to achieve effective planning. Maybe you’re interested in forecasting revenue or maybe you just want to settle goals for the future, a smooth month-end close provides the foundation you need to allocate resources efficiently and plan for growth.

Improved cash flow management

An organized financial closure helps you track cash flow more accurately, this is special important if you want your business to have the liquidity it needs to cover expenses and take advantage of investment opportunities when they arise.

Builds confidence 

Timely and precise financial reporting builds trust with investors, creditors, and, well pretty much everyone, as it demonstrates that your business is managed as it should,  which can improve relationships and even open up new funding opportunities.

Reduced accounting errors

The month-end close is your safeguard against accounting mistakes. By reviewing all transactions and reconciliations, you can catch and fix any discrepancies early, preventing issues that could affect your financial statements.

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The Month-End Process 

Review accounts

Your first task is to review and reconcile all financial accounts, including bank and credit card statements, to ensure everything matches your records. Start by comparing the statements to your general ledger to catch any discrepancies. Attention to detail is super important at this point. If something doesn’t add up you'll want to resolve it immediately to avoid inaccuracies. Don’t forget to reconcile accounts payable and receivable as well, as you probably know they play a part in your financial health as a company. 

Review journal entries

Okay so you did your part with the accounts, now it’s time to handle journal entries. This includes posting accruals, adjustments, and depreciation entries that reflect the month’s financial activities. Make sure each entry is accurate and complete before moving forward. If you want to avoid problems later, don't forget to double check that all transactions are recorded in the correct period. 

Reconcile intercompany accounts

This one is for those large businesses that operate across multiple entities.  Verify all intercompany transactions and balances, then resolve any discrepancies between entities. Once everything is aligned, confirm that intercompany eliminations are ready for consolidation, so your reports reflect an accurate financial picture.

Fixed assets and depreciation

Next, take a close look at your fixed assets. Update the asset register for any new acquisitions or disposals and calculate monthly depreciation. This step is important so you can know that your balance sheet reflects the correct value of your fixed assets. If you notice any impairments or reclassifications, make the necessary adjustments to keep your records accurate.

Financial statements

Alright so you have made all the necessary adjustments and you have 100% confidence that all your reconciliations are complete.

Is the work done for good?

Almost, first you’ll need to generate the balance sheet, income statement, and cash flow statement. Make sure all required disclosures and notes are included before finalizing them for management or external reporting.

Final review

Before you officially close the books, you must carry out a final review. Gather your accounting team for a thorough review of reconciliations, journal entries, and financial statements. When everything is verified, obtain any necessary approvals from management to finalize the close and move on to the next month with confidence.

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Okay, now that we know the essentials of how a general month-end close works, let’s see a bit more about its challenges and ways you can make the process less of a pain for your team. 

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Common Challenges During the Month-End Close

Time constraints

Closing the books quickly is often a priority, but time constraints can lead to errors or incomplete records.

Solution:

• Establish a detailed month-end close checklist, it’s useful so no steps are missed.
• Automate repetitive tasks to reduce manual work and save time, more on this later.
• Set realistic deadlines for each stage of the close process.

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Data accuracy

Inaccurate data can lead to incorrect financial statements, which can be seriously negative if you have to make a decision related to your budget or expenses. 

Solution:

• Reconcile accounts regularly throughout the month to minimize errors.
• Implement data validation checks to ensure the accuracy of financial entries.
• Use integrated accounting software to reduce manual data entry errors.

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Communication issues

Imagine that you need to confirm important information regarding your financial records, but the person responsible takes forever to respond. How much time would be wasted? A lack of communication between departments can result in delayed or incomplete information, making it difficult to close the books on time.

Solution:

• Establish clear communication protocols for the month-end close.
• Schedule regular check-ins with key stakeholders to discuss progress and resolve issues.
• Use collaborative tools to share updates and documents in real time.

Manual processes

Manual processes 

Aren’t they behind most challenges for businesses? 

It’s nothing personal; it’s just that manual work requires the input of people like you and me, and as humans, we are prone to errors, which can slow down the month-end close process. 

Solution:

• Work with procurement software to automate as many tasks as possible such as reconciliations, journal entries, and financial reporting.
• Invest in accounting software that integrates with other financial systems.
• Continuously review and improve your processes to identify areas for automation.

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How Automation Helps Month-End Close?

Benefits of automation

• Increased efficiency: Automation reduces manual tasks, freeing up time for the kind of work that matters. 
• Improved accuracy: Automated reconciliations and data validations minimize errors.
• Real-Time insights: Accounting software provides up-to-date financial data, something that comes in handy if one needs to make a decision. 
• Better collaboration: Cloud-based solutions allow team members to collaborate and access financial data from anywhere.

What to Look For in Month-End Close Software?

Yes, closing the accounting books at the end of the month is anything but simple, there are so many points that must be checked and confirmations that need to be made, that it’s normal for your team to dread it a bit. 

The good news is that working with a software can reduce the pain. 

Automated reconciliations

Streamlines the process of reconciling bank accounts, credit cards, and other financial accounts, reducing manual effort and minimizing errors. Automated reconciliations also help identify discrepancies faster, allowing you to resolve them before they impact your financial reports.

Workflow automation

Automates repetitive tasks such as journal entries, approvals, and intercompany reconciliations. Or better said yet, automate all the tasks that make your team fear the process, By eliminating manual labor, workflow automation increases efficiency and ensures that tasks are completed accurately and on time, keeping your month-end close on track.

Real-time reporting

Real-time reporting offers visibility into your financial performance throughout the close process, so you can address issues as they arise rather than waiting until the end of the cycle. It’ll certainly save you from serious problems later on. 

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Integration capabilities

What would be the point of working with a digital program if it’s not capable of working well with your other systems? The best solution will integrate with other financial systems such as ERP, payroll, and accounts payable software so there’s data consistency across your organization. Seamless integration reduces problems handling data, and it’s a great mechanism to have financial information flow smoothly between systems, improving accuracy and reducing the risk of discrepancies.

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Best Practices for a Successful Month-End Close

Implementing best practices can help you improve the efficiency and accuracy of your month-end close. Here are some tips:

• Start Early: Begin gathering data and reconciling accounts before the end of the month to reduce last-minute work.
• Use Templates: Create standardized templates for reconciliations and financial statements to ensure consistency.
• Review Processes Regularly: Continuously review and improve your month-end close processes to identify areas for improvement.
• Invest in Training: Provide ongoing training for your accounting team to keep them updated on best practices and new technologies.

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