Month-End Closing Best Practices: Your Financial Management Guide

The month-end close process is a set of success-defining tasks within your finance team. It's designed to sum up all of the financial activities for that month and to document a current view of the company's financial health. This structured sequence of essential tasks not only ensures compliance with generally accepted accounting principles (GAAP); it provides you with actionable insights for effective and timely decision-making at the highest level.

While this certainly sounds like a lot of work and more than your team can handle every month, know that much of this can be streamlined and automated so that month-end reporting becomes the norm for your well-run business. What's more, Outsourced Accounting and Financial Services can help you streamline your month-end, integrate financial technologies, and even manage the whole process based on your business needs.

1. Complete Preparation Work

Collect information and make sure everything has been recorded. Because month-end closing can be a labor-intensive task, it's important to begin collecting what you can before the month ends and the rest soon after.

During this step, you can begin:

• Gathering the necessary accounts to ensure your month-end is complete. If you do this every month, this may not change month-to-month.
• Verifying that transactions are completely and accurately logged on your general ledger.
• Determining what you need to inventory.
• Reviewing any outstanding invoices to address anomalies and push for resolution of outstanding invoices before month's end where possible.
• Make sure all accrued expenses are logged.
• Making sure all revenues are logged. Don't forget to include outliers like selling some broken laptops for parts, renting out your conference room for a small business seminar, or selling some investments.

2. Reconcile Accounts

Most businesses have several accounts to and from which money is moved. These might include:

• Petty cash
• Checking/Savings
• Investment accounts
• Prepaid cards
• Employee credit cards

Once you have ensured the accuracy of these accounts, you can move on to reconciling your balance sheets.

3. Update Fixed Assets

Assets like vehicles, equipment, and property depreciate over time and are Business Valuation Factors you need to be aware of at all times. Assessing and updating that depreciation monthly gives you a more accurate representation of how your business is performing and avoids the year-end surprises of those who try to record depreciation all at once.

4. Take Inventory

Complete inventory monthly to anticipate better the cost to replace perishables, useables, and goods sold. This reduces unexpected surprise expenses and also allows you to keep a better track of shrinkage, waste, and potential employee misuse you could address sooner rather than later.

5. Prepare Financial Statements

This is a great place to implement some automation that can produce each financial statement, like your profit and loss statement and balance sheet, based on your updated and accurate general ledger and other data sources. However, it's important not to allow automation to prevent you from going through the financial statements produced. Once financial statements are produced, you need to review them thoroughly. This is where your most notable business insights come from.

Are you making money? Are you overspending in a certain category or on track to go over budget? Finding out about this sooner rather than later gives you the opportunity to act.

6. Send Financial Statements to Controller

A separate financial manager or controller should review and sign off on the financial statements. This does not require Accounting Audit Services, which some types of businesses may need annually, but it does put a fresh set of eyes on the statements and provide a level of control to reduce the risk of internal fraud, error, or omission.

7. Get Ready for Next Month’s End

Referring back to step one, this is an opportunity to look at the month-end procedures to see if anything needs improvement. Each month you can make collecting information for the next month just a little easier and faster. Those small improvements will add up.

Some potential improvements might include:

• Ensuring all income and expenses are posted in a timely manner
• Establishing a better timeline for adjusting the ledger
• Looking for new opportunities to use automation
• Improving communication channels