Your business relies on a strong end-of-month close to get the financial information leaders and decision-makers need to make informed decisions moving forward. At the same time, this important accounting process is often focused on only within the last few days of the month — leaving entire stretches of weeks when procedures and reporting may be disorganized at best.
If you’re looking to improve your financial insights and organizational decision-making, one of the most effective steps you can take is to revisit and strengthen your end-of-month closing processes. From there, your entire team may be better equipped to make smart decisions while setting your business up for future growth.
The Importance of the Month-End Close
Specifically, the end of the month is an important time for many businesses because this is traditionally when accounting teams go through the process of reviewing, reconciling and finalizing all financial activity related to the business within the previous month. Once this process is complete, accounting teams generate financial statements and reports (including monthly balance sheets and income statements) that are then passed along to leadership and decision-makers.
Based on the information from these critical accounting documents, organizational leaders can then have a better idea as to the company’s overall financial health and performance. They may be able to better assess things like cash flow, profitability and expenses to make sound decisions moving forward. With all this in mind, it’s easy to see why the end of the month is such a critical time for businesses of all sizes and industries.
Why Closing Matters All Month Long
At the same time, waiting until the last few days of the month to focus on these important financial and accounting processes can also be a recipe for disaster. When businesses treat closing and financial reporting as something that only matters at the end of the month, they tend to be more rushed. This, in turn, can make teams more prone to errors with payroll, reporting and documentation.
By shifting the focus of financial reconciliation as a month-long endeavor rather than a last-minute process, businesses can reduce the risk of errors while keeping things running as smoothly as possible. Likewise, prioritizing an efficient close all month long can set business leaders up to make informed decisions at any time.
How to Strengthen Your Closing Processes
So, what are some practical steps business leaders and accounting/finance professionals can take to improve their closing processes all month long? Here are just a few ideas worth keeping in mind as you review your company’s own processes.
Focus on Internal Controls
First and foremost, consider that a strong closing process revolves around robust internal controls that are designed with the company’s needs and best interests in mind. Some examples of internal controls that should be in place within your business (if they aren’t already) include:
- Reviewing journal entries.
- Separating financial responsibilities among employees.
- Documenting all finance/accounting-related approvals.
With these kinds of controls in place from the start of the month, businesses can reduce the risk of accidental errors and mitigate fraud while improving the accuracy of their financial statements.
Standardize Every Procedure
Now is also a good time to review any and all financial reporting procedures to ensure that team members are following the same standardized procedures for each one. Ideally, these procedures should follow a specific checklist that all employees can complete in a linear, step-by-step process for consistency. In doing so, accounting and finance teams may be able to stay better organized while improving accountability — which is a win for everybody.
Reconcile Accounts Regularly
Rather than waiting until the very end of the month to reconcile business accounts, it’s generally best to check for discrepancies on a weekly or even daily basis. This includes comparing company financial records to bank statements, accounts receivable/payable and credit card statements to make sure that everything lines up. Today, accounting software even makes it easy to automate this process — so it doesn’t necessarily have to eat up more of your accounting team’s time.
With regular reconciliation, your team can operate with accurate financial information all month long while reducing the stress and hassle of a last-minute discrepancy.
Record Transactions Consistently
Last but not least, businesses should set up standardized procedures for entering and recording transactions throughout the month. This should include everything from depreciation and accrued payroll to amortization and prepaid expenses. With standard procedures in place, every member of your company’s accounting and financial team can stay on the same page no matter the time of month.
The Final Word on Month-End Closing
While most business leaders view closing as an end-of-the-month process, the reality is that it should be a focus all month long. With better closing processes in place, businesses can reduce the risk of making costly financial errors while ensuring that leaders have the most up-to-date and accurate information they need to make decisions when needed. With these best practices in place, your business can enhance its own closing processes and start reaping benefits that extend beyond the accounting team.
If you have any questions or would like additional information, please contact DMJPS.
Nicole Patty
Nicole Patty is a Supervisor at DMJPS CPAs + Advisors in the Client Accounting and Advisory Services (CAAS) Department. With over 10 years of experience, Nicole specializes in client accounting for the nonprofit, retail, construction, and manufacturing sectors, and she handles monthly bookkeeping for a variety of clients.