The Complete Guide to a Faster Month-End Closing Process

Is month-end closing an unhappy topic for your finance team? The complexity of closing can make the end of every month feel stressful, especially if your financial data isn’t well organized. If closing the books is a constant cycle where the next month's close begins before the previous month is put to bed, this article is for you.

Today we’ll discuss the processes and challenges of wrapping up the books. We’ll share information on organizing your close for better and faster results as well as vital steps regarding closing activities. We’ll cover:

What is the month-end close process?
Why is the month-end close process important?
How long should the month-end close process take?
What are the challenges in the month-end close process?
What are the steps in the month-end close process?
How does software make the month-end close process easier?

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What is the month-end close process?

Month-end close is the process of finalizing the books and recording all financial activity at the conclusion of every month. It’s a check-and-balance process where reported cash levels, transactions, and budgets are scrutinized to ensure accuracy.

Month-end close is one of the primary functions of a finance team. Still, the closing process requires input from various stakeholders to verify everything is accounted for and recorded accurately.

Why is the month-end close process important?

The closing process forms the basis of all monthly financial reporting. Data from the close is compiled into financial statements that serve executive-level decision-making, board discussions, lender determinations, and more. Among the many reasons to strive for accurate financials, a strong month-end close provides the following benefits:

Accurate records: A strong closing process with a check-and-balance system ensures all transactions and budgeting are recorded accurately to minimize discrepancies in the books. It reduces errors that may arise from manual processes or overlooked entries.

Going through the process of closing each month's accounts provides more visibility into what has happened in the past month. This is useful for future forecasting or budgeting purposes, as well as helping to identify performance trends that may go unnoticed without such a comprehensive review.

Trouble-free audits: A strong month-end closing process is invaluable when preparing for an audit. When all data has been reviewed and reported accurately, it produces accurate financial reports free of errors and discrepancies. This can help lead to a successful audit since the auditor can confirm the records' accuracy. It also limits time-consuming follow-up requests from the auditor.

More accurate financial statements: An effective month-end close process improves the accuracy of financial statements by ensuring all transactions are documented correctly. It also verifies data gets double-checked for accuracy. This enables more accurate financial reports and more reliable decision-making.

Reduced risk: Strong closing practices reduce the chance of errors and false information. They allow teams to detect and correct errors before they become more serious issues. A well-crafted and well-documented closing process prompts teams to flag unusual transactions or activities that could point to fraud or misappropriation of funds.

Better cash-flow planning: Having a clear end-of-the-month process helps organizations plan their cash flow more accurately, identify what expenditures need to be made, and anticipate their cash needs to make better business decisions. Knowing the exact cash spent in a given month makes it easier to budget for future months and avoid surprises.

An effective closing process ensures that sales transactions are recorded accurately and on time, which allows businesses to better understand their current cash flow position. This helps leaders make more informed decisions.

Access to funding opportunities: Comprehensive and accurate monthly close practices make it easier for organizations to obtain funding. To acquire loans or financing, businesses must present their financial statements in an organized and understandable way. With an effective month-end closing process, financial records accurately reflect a company's monthly performance. It also helps them demonstrate cash flow management and liquidity, two attractive traits for potential investors or lenders.

How long does it take to complete the month-end close process?

The average time to close varies from organization to organization. The process for high-performing teams may take 5 days, whereas the lowest quartile of respondents reported 10 days or more, according to reporting from CFO Magazine.

Preparation plays a role in the speed and accuracy of the month-end close. Clear visibility and process automation give top-tier finance departments the tools to close quickly. Poor organization and coordination cause month-end close drag out — potentially for weeks. Protracted close procedures trap teams in a perpetual cycle of struggling to close the books in one month while falling behind in preparing for the upcoming close.

What challenges do teams face during the month-end closing process?

Month-end close is a large, cumbersome process that requires input from many stakeholders. The size and gravity of the task present many challenges for finance teams. Without centralized access to comprehensive financial data, teams often miss deadlines, work with incomplete data, or make inaccurate assumptions about their financial position.

These issues present the most significant challenges for finance teams during the close process:

Missed deadlines

When the month-end close process is not well-organized, everything takes longer. Missing data and poor coordination between departments lead to missed deadlines, incomplete closing tasks, and gaps in data and reporting. These conditions disrupt the finance team’s workflow and increase the risk of errors in reporting. With proper organization, data collection and accounting reconciliation activities improve, allowing teams to close the books quickly and accurately.

Poor data visibility

Poorly organized, low-visibility data makes it impossible to determine if the month’s financial information is accurate and complete. This can lead to incorrect reporting on financial statements. Reports that contain errors or missing details jeopardize the integrity of the company’s books. With so many decisions and assumptions riding on the precondition of accurate financial reporting, it’s imperative that teams create total visibility in their data.

Inaccurate forecasting

Data visibility also negatively impacts bank reconciliation, bookkeeping, cash flow management, and financial forecasting. This leads to decision-making based on incomplete info, causing misspending or incorrect reporting. All these conditions have negative long-term impacts on the company’s financial health and stability.

Inconsistent accounting standards

Reconciliation relies on consistency in departmental data and practices. Without a unified set of standards, discrepancies between departments go undetected until teams are mid-close. This results in difficult and time-consuming corrections and additional reporting to research issues, adding to the complexity of the closing process.

Steps to complete the month-end close process

A consistent, repeatable month-end close process is key to successfully closing the books each month. Establish a standard procedure to ensure accuracy in financial reporting and reduce errors caused by inconsistent accounting standards or manual calculations.

A well-designed month-end close process that remains consistent allows the accounting department to become familiar with its requirements (which data needs to be gathered, which reports need to be run, and so on) and become more efficient in their finance role. Streamlining the process also means teams can address any issues early in the closing process rather than waiting until after all data has been posted. This saves considerable time and money in the long run.

Collect data and documents

Before you begin, ensure you have the most recent and accurate data to compile the financial reports. This list of documents provides the comprehensive data needed to successfully close the books:

Bank statements
Financial reports
Balance sheets
Income statements
General ledger accounts
Journal entries
Ledger control accounts
Vendor invoices and payments
Expense documents and reports

Reconcile data against records

Review current financial documents for accuracy and reconcile them against existing records. Check that the total amounts mentioned in the documents match general ledger (GL) accounts and ensure there are no other discrepancies. It’s important to review fixed assets such as equipment and property to ensure proper statements and balance sheet recording. Verify that all asset information is accurate and up-to-date, including depreciation amounts and acquisition costs.

Examine fixed assets

Analyzing and reconciling fixed asset activity is essential for reporting accuracy when performing the month-end close. Fixed assets such as buildings, equipment, and vehicles enter service at different points in the month and fiscal year. For this reason, check for additions or disposals of assets during the month and ensure that the appropriate changes are reflected in the balance sheets and income statements. Calculate depreciation values associated with these assets and verify that accurate information is entered into the ledger control and general ledger accounts. Then review any expense documents or reports related to asset purchases during the month to ensure proper accounting.

Consult with team members

Early in your monthly process, set aside time to confer with the reporting team on any potential issues within the data. This practice uncovers discrepancies in the asset register, depreciation calculations, and ledger entries that may have been missed during the initial analysis.

Draft financial statements

Once the research and documentation have been reviewed, the team is ready to craft monthly financial statements. Every financial statement should be constructed carefully and with an eye for accuracy. Vital information such as cost of goods sold, net income, and depreciation must all be included for the financial statements to properly reflect business operations. Furthermore, any adjustments made during the course of the month should also be applied accordingly.

Review statements with the team

Once the data has been compiled, it’s essential to review reports with the entire team for accuracy and completeness. This step is key in ensuring that the financial statements are consistent and can be relied upon. All team members should take turns independently reviewing each statement during this process. Pay particular attention to data such as cost of goods sold, net income, and depreciation. Once everyone is satisfied that the statements are complete and accurate, they can be formally submitted.

5 Month-end close best practices

Every process benefits from regular updates and improvements. Large-scale and repetitive tasks like month-end closing are crucial to implementing best practices. When building or improving your month-end process, consider incorporating the following standards and activities to make the process faster and easier for everyone.

Set a closing timeline

A closing goal is critical for the process to flow smoothly and finish on schedule. Take time to plan the sequence of closing tasks (or use our handy checklist below). Then assign responsibilities and determine deadlines for each step to help the team effectively manage the process. Developing this structure before you start makes it harder for tasks to fall through the cracks.

Systematize your close

Creating a documented system is vital to streamlining the month-end close process. Documenting the process helps teams create uniformity, identify errors, and operate with an effective workflow for monthly, repeatable success. Establishing a series of steps and assigning roles for different closing tasks sets expectations and provides clarity throughout the process. It also allows team members to pick up tasks quickly if someone is unavailable or out of the office.

Start with housekeeping items

Proper preparation is another important factor in ensuring the close process is conducted quickly and accurately. One of the first steps in a systematized close process should be tying up the month’s loose ends. When preparing to close, contact department heads to check on budget adherence, unexpected expenditures, anticipated last-minute sales, and more. Verify anticipated vendor payments to ensure receivables will arrive on time. Email your stakeholders for any pertinent information needed to contextualize the close process. Taking these easy steps in advance saves finance teams hours of research and corrections.

Use automation

Manual accounting procedures are expensive and may be rife with errors. Automation provides a number of advantages for the monthly closing process. Automated systems enable more accurate tracking of invoices and receivables, faster reconciliations, and more efficient communication with vendors and stakeholders. Automation also enables finance teams to review accounts ad hoc, speeding up the close process and reducing errors. Automation ensures data is consistent across departments and compliant with regulations. All these benefits result in improved accuracy, increased efficiency, and enhanced cost savings for organizations.

Perform month-end close in 10 easy steps

Use the following checklist to create a repeatable, easy-to-track month-end closing process:

1. Start prep

Contact vendors to check on outstanding invoices
Talk to department heads about potential budget discrepancies
Check with sales on last-minute deals flowing into the business

2. Review cash accounts

Look for issues between the ledger and your bank statements, resolve discrepancies, and record cash in transit
Organize your reconciliation data for later reports
Review and record petty cash to maintain accuracy in smaller transactions

3. Reconcile accounts payable (AP) and accounts receivable (AR)

4. Review fixed assets

Note any new or regular liabilities and holdings:

Plant equipment
Leases and mortgages
Hardware and software
Office equipment
Furniture

5. Record accruals

Record accrual adjustments before closing the month
Review future accrual activity to ensure spending is on track
Review prepaid expense accounts such as insurance, wages, tax, lease payments, and advance payments

6. Perform compliance reviews

Review revenue recognition in compliance with Rule ASC 606

7. Begin preliminary financial reporting

Start building financial reports and review them with your finance team

8. Perform flux analysis

Examine fluxes for the previous accounting period, quarter, year, etc., and record meaningful flux data to discuss during financial report preparation

9. Review inventory

Count and record inventory of supplies on hand

10. Review, prepare, and distribute reports

Perform a final review with the accounting team and tie up loose ends before preparing the final documentation for the month’s end
Build and review completed reports once more before delivery and consider versioning financial statements to provide the proper information and level of detail for different audiences
Distribute financial reports to relevant stakeholders

How Order.co makes month-end closing smoother

Software systems make it easier to perform financial-close activities by centralizing and organizing processing, payments, and reporting. Spend efficiency software like Order.co eliminates manual processing for hundreds of monthly invoices, streamlines the payment process to one bill with consolidated billing, and provides teams the visibility to optimize close activities using real-time information. It also streamlines procurement reporting for the current month or the previous month. Using Order.co, companies can update their financials with automated, accurate information, thanks to:

Automated three-way matching to ensure the accuracy of every invoice and delivery and enable automatic reconciliation
Integration with Quickbooks accounting software to centralize data, reduce redundancy, and ensure the books are always up to date
Automatic GL coding and AP automation to reduce manual processing and coding errors

To save time and energy in every month-end closing process, schedule a demo of Order.co.

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