If you’re a small business owner who thinks the month-end closing process is a mountain of time-consuming paperwork, you’re not alone. The monthly financial closure is a necessary yet time-consuming process that few entrepreneurs like.
Yet, it does not have to be overpowering!
You can easily reach the summit and manage your funds if you have a month-end closure checklist and a bookkeeping habit. More importantly, maintaining on top of your financial data will assist you in meeting your long-term business objectives.
what is the month-end closing process?
The month-end close process entails recording, reconciling, and analyzing all business transactions and finalizing the month’s account data.
Here is the information you require for your monthly closing:
- Bank statements, which may include credit card and loan statements
- Earnings and expenses
- Accounts receivable and payable.
- Inventory and fixed assets
- Prepayments and accruals
- Financial statements
- General ledger
- Make sure to record all financial data for the month.
The accounting basis you employ will determine your month-end workflows:
Cash basis accounting: recording income and expenses as they are received or paid in cash.
Accrual basis accounting: recording income and expenses as they are incurred.
Cash basis accounting does not include balance sheet accounts such as accounts receivable and payable.
What is the significance of the month-end close process?
Small business owners have a lot on their plates with day-to-day operations, so dreading the month-end admin is natural.
But here are some of the advantages of completing your month-end close process as soon as possible:
- Identify anomalies in your accounting
- Make sound business decisions.
- Resolve any concerns in your company as soon as possible.
- Save time and money on bookkeeping catch-up.
- Have a less stressful year-end close
- Make tax filing easier.
- Keep accurate and up-to-date financial records for lenders or an IRS audit.
10 steps to completing the month-end closing process.
Now that you’ve gained some understanding of the month-end closure process, the next step is to build a checklist to help you streamline your closing activities.
To help you arrange your workflows, Countick experts make a month-end checklist which we are going to share with you.
Keep track of your income and expenses.
Ensure you’ve recorded all your incoming cash for the month and add any missing items.
These are some examples of incoming cash:
- Revenue from sales
- Additional income, such as rental income
- Debt repayments to you
- Investment income
Next, check to see if you’ve accurately invoiced all of your customers and send any outstanding invoices.
If you aren’t tracking your spending in real time, try tracking them weekly. As a result, your workload at the end of the month will be reduced. If you fall behind, get ahead of the month-end process by catching up on your backlog.
Here are some expenses you should keep track of:
- Supplier payments
- Insurance
- Utility bills
- Business travel expenses
- Payroll
- Interest on business loans
Check to see if you’ve correctly posted debit and credit entries for all transactions. Now review to ensure you’ve appropriately submitted your journal entries to your general ledger. This is the master ledger, which contains all of your company’s transaction data.
Recording transactions can take longer if you don’t have a finance team. Nonetheless, it is essential for the success of a small firm.
maintain accounts receivable and payable.
Examine your accounts receivable to determine whether your customers are paying within the agreed-upon credit term.
Small firms frequently fail to collect payments on time, which leads to poor cash flow management and bad debt. So, make sure that your consumers pay on time.
These are some measures to take:
- Generate a report on aging debtors. Accounting software makes this very simple.
- Follow up with consumers who have gone over their credit limit.
- Keep track of stuff like discounts and credit notes in case of disputes or returns.
- Identify and avoid bad debt.
- Secondly, review your accounts payable to see if you’re paying your invoices on time.
These are some measures to take:
- Generate a report on aged creditors.
- Make a note of delinquent invoices that need to be paid right away.
- Check for any errors, such as duplicate invoices.
- Avoid making duplicate payments.
- Get better credit terms in advance if you need more time to pay your suppliers.
read more on: achieving financial success in 2023
carry out bank reconciliations
Account reconciliations will help you identify errors in your financial data as well as fraudulent transactions (if any exist!).
Prepare a bank reconciliation to reconcile your bank account with your financial records. Bank reconciliations will also assist you in understanding your cash condition and avoiding overdrafts.
These are some examples of typical accounts to reconcile:
- Savings and checking accounts
- Accounts for digital payments and money transfers, such as PayPal and Payoneer
- Credit card and loan accounts
- Throughout your bank reconciliation process, follow these steps:
- Compare your bank statements’ ending balances, deposits, and withdrawals to your cash book.
Detect inconsistencies. Uncleared checks, for example, or errors in internal records and bank charges. Keep a watch out for any potentially fraudulent transactions.
Adjust your journal entries.
- Keep track of your bank reconciliation.
- Go over the petty cash fund
- The petty cash fund may appear insignificant. Accounting for every transaction, however, is critical to eliminating anomalies in your financial data.
- Here’s what you should do:
- Review your petty cash balance at the start and conclusion of each month.
- Check your receipts and deposits.
- Look into any discrepancies.
Because minor payments are easy to overlook, it is best to reconcile your petty cash fund daily or monthly. You will also be able to detect any unusual activity immediately.
If you’re short on time, try to complete your reconciliation before the month-end close process.
examine the inventory
Monitoring inventory levels regularly will help you manage your working capital more effectively. Overstocking traps money in inventories unnecessarily and risks wastage. Similarly, if you understock, you incur production losses, lost revenue, and reputational harm.
During the month-end closing procedure, follow these steps:
conduct an inventory count.
Go over your book inventory numbers and make any necessary changes.
Examine your inventory management procedure. That is, the amount of inventory you keep, the frequency with which you order, and the price you pay.
Examine your storage strategies.
Examine fixed assets
Long-term assets such as buildings, automobiles, and equipment are fixed assets. Don’t overlook intangible assets such as brand names and trademarks.
Fixed assets are necessary to keep your firm running. So keep track of their worth and condition.
These are some actions to take for your fixed asset review:
- Keep track of all fixed asset purchases, renovations, and sales.
- Include depreciation and amortization costs.
- Keep track of additional costs, such as repairs and upkeep.
- Examine the state of your fixed assets.
- Balance your accrued and prepaid accounts.
Accrued accounts contain the following:
accrued revenue: income incurred but no cash received (yet)
Accrued expenses (accrued liabilities): expenses that have been incurred but have not yet been paid
Accounts payable solely record short-term payments to debtors. Reconciling accrued expenses will assist you in staying on top of all invoice payments and dues over the course of a year.
Prepaid expenses are those that you have paid in advance. They are an asset recognized as expenses in various accounting periods.
Change accrued and prepaid spending accounts at the end of the month to reflect any income received and expenses paid during the month.
To avoid double payments, double-check your prepaid and expense accounts.
Make careful to settle any accrued liabilities on time. You will not harm your credit reputation and will continue to have access to credit this way.
construct financial statements
It is now time to generate financial statements to assess your company’s profitability, value, and cash flow:
- Income/profit/loss statement
- Balance sheet
- Cash flow statement
- If you have accounting software, you can easily prepare these reports and save a lot of time.
Show your financial reports to a CPA once you’ve completed them. They can evaluate your data and provide insights to help you make sound business decisions.
Finally, remember to budget for your tax responsibilities to minimize cash flow problems and IRS fines. If you are unable to pay all of your taxes on time, you can work out a payment plan with the IRS. You can hire a CPA to handle your taxes or outsource it to us (at Countick!).
examine your financial records
Review your financial information before the month-end closes to avoid errors. Request that someone who did not prepare the accounts check them so that they may spot any flaws or problems you missed.
Take a look at the following reports:
Ledger general
The above-mentioned financial statements
You can’t go back and create journal entries for that month after you’ve closed your books. Hence, before you close the accounting period, double-check your financials.
helpful resources: cost effective accounting solutions for startups
Put your newfound knowledge into action straight soon
As a busy entrepreneur, it’s easy to stop reopening your books until the end of the month. But, failing to analyze your financials and take corrective action can be disastrous for a small firm.
Here are some questions to ask regarding your performance from the previous month:
What were the successes and setbacks?
Are there any difficulties that must be addressed right away? For example, suppose you’re cash-strapped and on the verge of missing a payment.
Which business and month-end processes should be altered?
How is the company performing in relation to its long-term objectives? Are you taking the proper steps?
Do you see any long-term business challenges?
Seek immediate assistance from others in your company to address any concerns, or hire someone who can. Conduct a weekly evaluation of significant items, such as cash flow issues.
how can Countick assist?
The Countick can help if you need help keeping up with your books and the month-end closing process.
We are unable to analyze your data. Yet, we can cut down on your month-end admin by taking care of your books and keeping them accurate and up to date. We will also complete your bank reconciliations. So you can put the month-end stress behind you and focus on what you love—growing your business!
If tax work is too much for you, we also provide tax preparation and filing services. Countick provides limitless year-round tax assistance to help you keep on top of your taxes.
Keeping track of your numbers and closing your books every month is critical to keeping your business on track. Planning ahead of time for the month’s conclusion can prevent last-minute stress and ensure a seamless closure procedure.
Here are some next steps to help you streamline your processes:
keep accurate records.
Good record-keeping is essential for developing a sound accounting system. You will save time catching up on your financials during the month-end procedure if your records are up to date.
You can, for example, utilize accounting software for scanning your receipts in real-time to make month-end tasks easier.
establish a deadline.
Choose a timeframe for completing your closure procedures based on your company’s and your team’s workload. Do it within five to seven days or no more than ten days.
If you rush your month-end close, you risk making mistakes. But don’t put it off any longer than necessary.
streamline your bookkeeping.
If you’re starting, Excel spreadsheets might be helpful in bookkeeping.
Yet, as your company grows, automation can save you time and money. Hence, as quickly as possible, select suitable accounting software. This allows you to automate activities like bank reconciliations and financial statements, saving you days of tedious labor.
Remember that the program outputs are dependent on your inputs. As a result, you must continue to spend time ensuring that your inputs are sound.
employ a small finance team or outsource your accounting.
When your company expands, hire a small accounting team to assist you with accounting procedures and financial reporting. Instead of performing everything yourself, you can delegate your accounting procedures and appoint responsible parties.
But, if you do not anticipate your company establishing an accounting department anytime soon, you might outsource your finance work to professionals. This lets you concentrate on your business while knowing your financial affairs are in good hands.
Locate professionals with a proven track record (like us!) to handle your financial tasks.
Reducing money on staff expenses and equipment
Spending less time managing employees
Having access to qualified specialists without the need for lengthy hiring processes
Streamline your closing procedures by using our month-end closing checklist. You may push your firm to success by studying your metrics and implementing what you’ve learned.
read further: How to find a competent tax advisor The power of double-entry bookkeeping for business owners
