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How to Create an Effective Month-Close Process

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You’ve worked hard all month processing transactions and invoicing customers, and now it’s time to produce the end result: a set of financial statements that management can rely on. Performing this month-close process is one of the most important (and most time-sensitive) functions of an accounting department, mainly involving higher-level accounting and finance personnel. With the right approach, it can be a smooth and timely process that also allows for value-adding analysis of the financial statements. Let’s explore some of the key components required for a successful month-close process.

Create a calendar and checklist

Closing the month can be daunting for an internal accounting department, but using a month-close calendar and checklist helps to properly plan, stay organized, and ultimately meet the target month-close date. Many departments aim to close each month ten to fifteen days after the end of that month. Timing varies by organization, but the information typically becomes outdated after fifteen days and doesn’t allow enough time to analyze or make proactive decisions based on the financial results.

It’s important to include any tasks that can be completed before the end of the month in your calendar. For example, manual spreadsheets or reports that take time to roll forward to the next month can be prepared in advance, allowing more breathing room to meet closing deadlines. Certain accounting tasks can also be done prior to the end of the month; record as many transactions as possible, and implement processes so most of your billing and accounts payable are done beforehand. While this isn’t always possible depending on your industry and billing cycles, it’s still important to evaluate all tasks and determine what can be done ahead of time to help with a timelier month-close.

When you finally reach the end of each month, have a timeline prepared for completing all remaining tasks (e.g. journal entries and balance sheet reconciliations) by your end goal. If there are various interdependencies in the closing process, it’s even more imperative to utilize your calendar to assign tasks and hold everyone involved accountable.

Develop flash and other ad-hoc reporting

Beyond performing as many tasks as possible before the end of the month, another way to alleviate the month-close time crunch is by stretching out the closing period. This can be done without hurting the business if proper flash reporting and other interim deliverables can be created in advance of a company (1) completing the full month-close, and (2) delivering statements to management and other key personnel. Examples of flash reporting include sales reports, job profit reports, interim payroll data, and collections trends. The key is to set up your processes so that the data in these reports is accurate and actionable, providing management with the information they need to immediately evaluate financial results without the final month-close statements. In return, management may allow a longer closing period.

Automate your processes

Accounting technology and applications have improved immensely over the past ten years, and with these improvements come new tools that enable automation to help simplify the month-close process. The tools that your organization can benefit from most will vary depending on the nature of your operations, the type of reporting requested by management, the volume of transactions, and a number of other factors, but there are countless tools out there designed to meet a variety of needs.

Build easy-to-use spreadsheets

Even with the most sophisticated accounting system and month-close applications, you’ll likely still depend on Excel spreadsheets. It’s essential to build these spreadsheets yourself so you can ensure they’re replicable each month, free of errors, and easy for a manager to review if needed. If you choose to use spreadsheets inherited from someone else, you’d have to review a number of formulas, potentially reformat the worksheet, and make a lot of manual changes that could easily be calculated using formulas if setup correctly in the first place. Take the time to build your spreadsheets correctly and you’ll be relieved you did when the month-close arrives.

Design the close to create value-added analysis

Creating value-added analysis may be one of the most important and often overlooked tasks of a successful month-close. Although closing the month results in an accurate and reliable set of financial statements, it shouldn’t end there. The process and resulting financial statements should be a mechanism for evaluating results, making informed decisions, and ultimately increasing the value and profitability of the organization. For example, your month-close package may include a Budget vs. Actuals report; what are you actually doing with that report and how is it helping your organization? The financial statements should facilitate discussions and assist management in making strategic decisions, not just highlight how much money was made. Efficiency and accuracy during the month-close are important, but the process should be built with the goal of value-added analysis in mind.

Evaluate your accounting system

One final consideration to make is whether your existing accounting system is meeting the needs of your organization. Implementing a new system is often time-intensive and expensive, especially for larger businesses. However, a new system could help automate some of the current time-consuming and manual processes. It’s recommended for accounting and finance departments to periodically analyze their accounting systems and determine whether it’s meeting the needs of their organization, or if implementing a new one should be considered. QuickBooks is a very powerful system, for one example. When used the correct way, it leads to an efficient month-close and excellent reporting. But at a certain volume, level of complexity, industry, etc. your business might outgrow it and need a different tool. So if you’re evaluating new accounting systems, keep the month-close process in mind; it’s vital to the overall accounting and finance function.

If you have any questions or need assistance with your month-close process, please contact LRZ Consulting.

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