The month-end is coming up and that means it is time to close. A monthly close can be a laborious process that is dreaded by some accounting and finance departments, but it doesn't have to be that hard!
The month-end close process involves recording, reconciling, and reviewing all business transactions that occurred during the month. Things like bank statements, income & expenses, AR/AP reports, inventory values, and financial statements are all pieces of information that are needed for the monthly closing process.
Why Is The Month-End Close Important?
Closing the books on a monthly basis provides a few benefits for a business.
- Highlights issues and/or discrepancies in the business' accounts
- Set up for confident decision making
- Save time on gathering data and reports from areas of the company at the EOY
- Maintain accurate financials to accurately reflect company health
To help make the task of a monthly close more streamlined, we've gathered the following tips to help businesses and their books:
Income and Expense Records
At the start of a close process, ensure that all incoming cash and expenses have been recorded and that there is nothing outstanding. For incoming cash items, things like sales revenue, debt repayments, and investment incomes are some examples.
Expenses can range from supplier payments, office overhead, salaries, and business travel expenses.
If it takes a while for income and expenses to be recorded, a business should find out where the bottleneck is, to avoid delays on a monthly basis.
Stay On Top of AR & AP Reconciliation
A fundamental part of a financial close is reconciling all accounts within the general ledger (GL). The GL is the place where a company's transactions are posted year over year and account reconciliation is part of the accounting process that helps ensure the transactions are recorded accurately.
Reviewing the accounts receivable (AR) ensures that customers are paying their debts within the allotted credit terms. Not collecting money on time will result in poor cash flow for the business and portray poor company financial health.
Next would be reviewing the accounts payables (AP). This is the opposite of AR meaning that it is money that the business should be paying out on invoices, on time. Running a report using an ERP system like NetSuite can highlight any overdue payments that need to be made. It will also assist with avoiding duplicate payments.
Having all of the required incoming money accounted for and paying invoices on time will set the books up with an accurate amount of cash that the company has to work with, moving forward.
Review Inventory Data
For businesses that provide a service or manufacture goods, there is often inventory involved. Knowing the accurate inventory numbers and values will help a business manage its working capital efficiently.
Overstocking can lead to money being held up unnecessarily and being short on stock will lead to production delays, business losses, missed revenue, and a bad rapport with clients.
During a monthly close, take a full inventory count and update the number on the books. Utilizing an automation system can assist with keeping accurate inventory levels to reduce the time this task will take, thus getting the data to the accounting and finance teams quicker and speeding up the close process altogether.
Prepare Basic Financial Reports
- Income statement
- Balance Sheet
- Cash Flow Statement
Any accounting software can quickly generate these reports and having those capabilities avoid a lot of manual, time-consuming work. With these accounts generated automatically, it ensures that there is a level of accuracy in the reports to assist with decision making and goal setting for the business.
Divide and Conquer Monthly Close Tasks
To start a successful monthly financial close, the steps required should be clearly listed with their required deadlines. The list should also indicate who within the company is responsible for the completion of these steps tasks and they should be held accountable for seeing them through to the end.
This is one of the easiest ways that a company can position itself for a streamlined financial close that does not take too much time out of everyone's schedule at the end of every month.
Having a tool like NetSuite offers capabilities that give companies the tools they need to accelerate the financial close process and make it feasible to do on a monthly basis. For more information on how NetSuite can help your company, or if you are interested in AccountingDepartment.com's client accounting services to help satisfy your accounting needs, reach out today.