The Dreaded Month-End Close: How to Do it Quickly, Efficiently, & Painlessly
Due to the amount of work involved, the month end close process is never a one-day-in-a-month activity and may take even a week off every month. The month end closing process consists of collecting all financial information and statements for reconciliation and reporting at the end of each month. It’s necessary to maintain proper oversight of healthy cash flow, support informed decision-making, and allow for accurate financial planning.
Revenue Recognition and ASC 606
If your payroll expenses are not accrued for June, your profit margin will be much higher than it would be if those expenses were included in June. Next, an understatement or overstatement of expenses will directly impact your net profit and may influence subsequent decision-making based on that net profit. We saved more than $1 million on our spend in the first year and just recently identified an opportunity to save about $10,000 every month on recurring expenses with Planergy.
What Is Month-End Close in Accounting?
While conceptually simple, this process involves time-intensive work, especially in traditional setups where accounting departments rely on a mix of manual steps and Excel spreadsheets. Journal entries of recurring monthly transactions must be performed at the time of the month end close. This applies to such transactions as accrued expenses, amortization, depreciation, and loan interest. The month-end close process involves accounting teams collecting, reviewing, and conforming transactions and financial activity from the previous month. It is used to ensure accuracy and compliance while maintaining data integrity for financial planning and analytics.
- Other departments can be of use in the month end closing process, not just the finance team.
- Organize your monthly financial statements and data to ensure nothing slips through the cracks.
- You can tweak the calendar as time goes on to fit it around your schedule.
- Before we discuss the common errors people make with their month-end closing process, let’s review the benefits of having a month-end close checklist for closing out the month.
- Accurate financial reporting is the foundation of informed decision-making.
- Over the years, depending on the company size and industry the process takes about 5 to 15 days, with 41% of organizations taking more than six days for this task.
Review inventory
In most cases, organisations will report that the inefficiency stems from the starting point, namely – the collection of data from multiple systems. In most instances, there’s more than one person involved in the account close process. In fact, the tasks may be spread across regions, and with the rise of remote working, you’ll need to communicate more than ever so that everyone is looped in.
- If you have a closing date in place, work towards it by planning in advance.
- According to a survey by Ventana Research, in 2014, 58% of companies reported taking seven or more days to close their books.
- While there’s a certain level of predictability in expenses and transactional activity, each month may come with new wrinkles to account for.
- That being said, it generally takes 5 to 10 days to execute the process in its entirety.
- It’s important that when the time comes for closing, everyone knows their roles and deadlines.
They help business owners measure progress towards goals, and they’re essential for performing an accurate cash flow projection for the future and making business decisions. To start, outline all steps of the month-end process that you’ve inferred from diving into key accounts and assign a preparer and a reviewer to each. You’ll learn a lot in your first few closes, including the volume of work involved in each step, and will likely modify due dates later on. Instead of finding the process overwhelming, using templates and checklists for each step can significantly reduce the time spent on month-end accounting. Standardizing procedures enhances both speed and accuracy, as observed by a software company that reduced its month-end close from three weeks to just three days. While the year-end financial close is the most comprehensive and typical closing process, most accounting departments also complete a close for each accounting period.
Why Is Month-End Closing Important for Your Business?
- So most finance teams also close the books each month, letting them check transactions, journals, and reports on a more regular basis.
- Develop and enforce standardized accounting procedures and workflows to maintain consistency throughout the accounting period.
- Building efficient processes for every transaction throughout the month can ease the pain of the close.
- It also helps reduce errors and makes sharing of the financial statements easier.
Automated business processes not only allow standardization of operations but also ensure maintenance of records throughout the year, thereby creating an audit trail. Manual accounting tasks, when performed under time crunch and stress, can become error-prone. A human being is likely to make 10 errors in every 100 steps when performing redundant work. McKinsey showed that 45% of current paid month end closing process activities that cost an equivalent of $2 trillion in total annual wages, can potentially be automated. Furthermore, manual performance of redundant, potentially automatable tasks decreases the productivity of the company and low productivity can cost employers around USD 1.8 billion dollars annually. Accounting software can ease many of the difficulties of month end closing operations.
Step 10: Empower Your Team
- In addition, creditors, investors and analysts can assess the company’s overall performance and financial condition.
- It’s a complex business process that improves through iterations and time, but only if you establish expectations going in and review your progress coming out.
- The month end close process involves the recording, review, and reporting of the financial transactions that have happened in the period since the last close in the previous month.
- While conceptually simple, this process involves time-intensive work, especially in traditional setups where accounting departments rely on a mix of manual steps and Excel spreadsheets.
- The demands on attention and time are increased further by the need to perform regular responsibilities in addition to the close reconciliations.
But as you grow your business, automation can save you time and costly errors. That way, you can automate processes, such as bank reconciliations and financial statements, and avoid days of manual work. Also, if there is an error in the https://www.bookstime.com/ data, using the manual process will take a lot of time and effort to find the cause and fix it. This necessary time delays the release of monthly financial statements as your accounting team must spend time reviewing completed work.
