With a month-end closing checklist and a bookkeeping habit, you can scale the summit with ease and manage your finances well. More importantly, staying on top of your financial data will help you achieve your long-term business goals.
The month end close process involves recording, reconciling, and reviewing all business transactions and finalizing the account data for the month.
Here is the information you need for your monthly closing process:
Make sure to capture all financial data for the month.
Your month-end workflows will depend on the accounting basis you use:
With cash basis accounting, you won't have balance sheet accounts, such as accounts receivables and accounts payables. To learn more, see our guide on Cash Basis Accounting vs. Accrual Accounting.
Small business owners have their plate full with daily business operations, so it's normal to dread the month-end admin.
But here are some of the benefits of finalizing your month end close process without delay:
Now that you've got some knowledge under your belt about the month end close process, the next step is to create a checklist to streamline your closing procedures.
Here's our month-end close checklist to help you organize your workflows.
Check if you've recorded all your incoming cash during the month and capture any missing items.
Here are some incoming cash items to review:
Next, review if you've invoiced all your customers accurately and send any missing invoices.
If you're not recording your expenses in real-time, attempt to record them weekly. That way, you can minimize your workload at the end of the month. If you fall behind, catch up on your backlog ahead of the month end process.
Here are some expenses you should record:
Check if you've posted debit and credit entries accurately for all the transactions. Next, review if you've posted your journal entries correctly into your general ledger. This is the master ledger with all your business transaction data.
If you don't have a finance team, recording transactions can take time. But it is critical for small business success.
Review your accounts receivable to see if your customers are paying within the agreed credit term.
Small businesses often struggle to collect money on time, resulting in poor cash flow management and bad debt. So make sure your customers are paying without delay.
Here are a few steps to follow:
Next, review your accounts payable to check if you're making invoice payments on time.
Here are a few steps to follow:
If you need more time to pay your suppliers, negotiate better credit terms in advance.
With account reconciliations, you'll spot mistakes in your financial data and fraudulent transactions (if any!).
Prepare a bank reconciliation to reconcile your bank account with your financial records. Bank reconciliations will also help you understand your cash situation and not overdraw your account.
Here are the typical accounts to reconcile:
Follow these steps in your bank reconciliation process:
Suggested reading: Bank Reconciliations: Everything You Need to Know
The petty cash fund may not seem important. But accounting for every transaction is key to avoiding discrepancies in your financial data.
Here's what to do:
Ideally, reconcile your petty cash fund daily or weekly because small payments are easy to miss. That way, you can also spot any suspicious activities without delay.
If you're fighting for time, aim to catch up with your reconciliation ahead of the month end close process.
Routinely monitoring inventory levels will help you manage your working capital efficiently. If you overstock, you'll trap money unnecessarily in inventory and risk wastage. Likewise, if you understock, you'll risk production losses, missed revenue, and reputational damage.
Follow these steps during the month-end close process:
To learn more about managing inventory, see our guide on Inventory Management for Small Business.
Your fixed assets include long-term assets such as buildings, motor vehicles, and equipment. Don't forget the intangible assets like brand names and trademarks.
Fixed assets are important to continue your business operations. So make sure to track their value and condition.
Here are a few steps for your fixed asset review:
Accrued accounts include:
Your accounts payable only captures short-term payables to creditors. Reconciling accrued expenses will help you stay on top of all invoice payments and dues within a year.
Prepaid expenses are what you've paid ahead of time. They are an asset you'll recognize as expenses in different accounting periods.
At the end of the month:
Make sure to pay any accrued liabilities when they're due. That way, you won't damage your credit reputation and will continue to have access to credit.
Now it's time to prepare financial statements to review the profitability, value, and cash flow of your business:
If you have accounting software, you can generate these reports easily and avoid a ton of manual work.
Once you've prepared your financial reports, show them to a CPA. They can analyze your numbers and give you insights to make good business decisions.
One more thing: remember to plan for your tax obligations to avoid cash flow issues and IRS penalties. If you can't pay all your taxes on time, you can negotiate a payment plan with the IRS. A CPA can handle your tax work, or you can outsource it to us (At Accracy!).
Suggested reading:
To avoid mistakes, review your financial information before the month-end close. Ask someone who didn't prepare the accounts to review them so they'll find errors or problems you didn't notice.
Review the following reports:
Once you close your books, you can't go back and create journal entries for that month. So make sure your financials are accurate before closing the accounting period.
As a busy entrepreneur, it is tempting to avoid reopening your books until the next month-end. But not analyzing your financials and taking corrective action can be catastrophic for a small business.
Here are some questions to ask about your previous month's performance:
Get help from others in your business to address any issues right away, or hire someone who can help. Make time to review any critical matters, such as cash flow issues, weekly.
Learn more: How to Read (and Analyze) Financial Statements
How Accracy can help
If you're struggling to keep up with your books and the month-end close process, you can outsource your bookkeeping to Bench.
We can't analyze your numbers. But we can reduce your month-end admin by taking care of your books and making them accurate and up-to-date. We'll also do your bank reconciliations. So you can leave behind the month-end stress and focus on what you love—growing your business!
If tax work is overwhelming, we offer tax preparation and tax filing services as well. With Accracy, you'll get unlimited year-round tax support to stay on top of your taxes.
Staying on top of your numbers and closing your books every month is important to keep your business on the right track. By preparing ahead for the month-end, you'll avoid the last-minute rush and have a smooth closing process.
Here are some next steps to streamline your workflows:
Proper record-keeping is key to creating a good accounting system. With up-to-date records, you will save time catching up with your financials during the month-end process.
For example, you can use accounting software and scan your receipts in real-time to make your month-end a breeze.
Create a deadline to complete your closing procedures, depending on your business and your team's workload. Ideally, do it within five to seven days, or 10 days at most.
Don't rush your month-end close; otherwise, you risk making mistakes. But don't delay it for any longer than necessary.
If you're just starting, you can use Excel spreadsheets for bookkeeping. Here is a bookkeeping template to help you get started.
But as you grow your business, automation can save you time and costly errors. So choose a good accounting software as soon as you can. That way, you can automate processes, such as bank reconciliations and financial statements, and avoid days of manual work.
One thing to remember: the software outputs depend on your inputs. So you must still spend time making sure your inputs are solid.
As you grow, hire a small accounting team to help you with the accounting procedures and financial reporting. That way, you can delegate your accounting procedures and appoint responsible parties instead of doing it all by yourself.
But if you don't see your business having an accounting department soon, you can outsource your finance work to professionals. This way, you can focus on your business, knowing your financial matters are in good hands.
Find professionals with solid track records (like us!) to handle your finance work.
You'll find yourself:
Use our month end closing checklist to streamline your closing procedures. By analyzing your numbers and implementing learnings, you can drive your business to success.
We are offering free 1 Month Basic Bookkeeping to all new customers so you can experience Accracy's seemless and professional services.
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