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If you're in finance, you know the feeling: another month-end, another sprint to the finish line.
Finance professionals often find themselves in a whirlwind, and the monthly close only stirs the breeze. Twelve times a year, the same cycle returns, and it can sometimes feel like a recurring headache.
But here's the thing: you can't simply hit pause on the month-end close. While it might be time-consuming and relatively challenging, it's a cornerstone for every company. It's the bedrock for making well-informed financial decisions and ensuring that the company's operations run like a well-oiled machine.
Don't worry, though! With a good dose of proactive planning and the right systems in place, including a meticulously organised month-end close checklist, many companies have cracked the code to a smooth, reliable month-end close process. And we're here to tell you all about it.
Let's delve into the details of what a month-end close is, the common challenges it poses, and how you can streamline your process to achieve a faster and more accurate month-end close without feeling overwhelmed.
What is the month-end close process?
Month-end close, often referred to as financial close or month-end accounting, is the process of finalising your company's financial records as each month wraps up. It entails a series of tasks aimed at ensuring your financial statements provide an accurate portrayal of your company's financial health, performance and cash flow.
How long does the month-end close process usually take?
A survey in CFO Magazine reported that for the highest performing teams, the close process took 5 working days on average, while slower finance teams spent 10 days or more working on closing the books.
A drawn-out or disorganised month-end close doesn't just eat into your team's time; it also hinders their ability to inform critical decisions for the business.
Why is the month-end close so important?
It certainly pays to invest time in streamlining your close process as it can yield substantial benefits, including:
- Well-informed decision-making: Timely financial reporting empowers business owners to promptly spot trends, allocate resources, and strategise for growth.
- Transparency: Clear financial records build trust with stakeholders, including investors, customers, and regulatory bodies. It also simplifies the process of conducting accurate audits and filing taxes.
- Efficient resource allocation: When you've got a well-organised and automated close process, it opens up space for your staff to focus on more valuable tasks, like diving into comprehensive management reporting.
- Reduced stress: A well-organised month-end close reduces stress on finance teams, allowing them to focus on more value-added activities.
How to complete the month-end close process (in 10 steps)
When your finance team is up against the clock yet again, take some of the heat out of the situation by following a logical step-by-step routine that's well-understood by all involved.
Step 1: Communicate your close timetable
Agree, document and communicate your deadlines for each activity in the month-end closing process. When everyone is clear about what is expected of them and when, you have a much greater chance of running a streamlined, successful close.
Step 2: Gather data and documents
Your first task happens during the last week or so of the month. Collect any paperwork (or digital versions) and data you'll need to complete your company's accounting, including:
- Journal entries
- General ledger accounts
- Vendor invoices and payments
- Expense documents and reports
- Bank statements
- Balance sheets
- Income statements
- Financial reports
Any issues in accessing all the data you need can mean your close process is longer than it could be. Look for ways to improve data storage and retrieval to reduce unnecessary delays.
Step 3: Review your ledgers and transactions
Start by reviewing the previous month's financial close to identify any outstanding issues, discrepancies and opportunities for improvement in the current month's close.
Now, it's time to turn your attention to the current period, which means getting into the details of the transactions in the following areas:
- Accounts receivable: It's at this point that you should be chasing any outstanding payments from customers whose debts are due or overdue - good credit control is one of the most important activities for maintaining a positive cash flow position.
- Accounts payable: Make sure you have accounted for all your outgoing payments for the month. Don't forget expense claims, credit cards and loan payments as well as your trade supplies.
- Payroll: Ensure all accrued holiday is included in your figures, as well as exceptional payments to staff such as one-off bonuses, redundancy payments or other non-recurring remunerations.
- Cash: If you still deal in cash, count any that you haven't yet banked, including any foreign currency on hand. Include these balances in your accounts.
- Inventory: Although you may not undertake a physical stock check every month, you should review your inventory balances to ensure these are as accurate as possible. Small businesses are less likely to have perpetual inventory management systems, so they may need to rely on historical data to account for usual stock loss levels.
- Fixed assets: Ensure any new assets are capitalised and any disposals are removed from your fixed assets ledger. Assets may require adjustments to their book value if upgrades or significant changes have been made. Review depreciation to ensure correct net book values are recorded.
- Lease accounting: Ensure that journal entries comply with appropriate lease accounting standards (IFRS 16 or FRS 102) and that the correct amounts are expensed to the P&L or capitalised to the balance sheet for all leased fixed assets.
- Tax provisions and liabilities: Calculate tax liabilities and make provisions for VAT, income, and corporation taxes, ensuring compliance with all relevant tax regulations.
- Reserves and allowances: Create reserves for potential losses or contingencies and make provisions for any bad debt. Assess potential risks to the company's financial health.
Step 4: Reconcile accounts
This step involves reconciling various accounts, such as bank accounts, accounts receivable, and accounts payable.
- Check that the total amounts on supporting documents, such as sales and purchase invoices, match general ledger (GL) accounts.
- Identify and resolve any discrepancies to ensure accuracy.
- If you have intercompany accounting transactions, ensure that both sides of the transaction are accurately recorded in the correct ledgers, at the correct amount, so that group accounting books are balanced.
- Reconciliation may involve currency conversion and exchange rate adjustments.
Step 5: Fine-tune your accounts with accruals and prepayments
Recognise revenues and expenses that might not yet be reflected in the financial records. Accruals and prepayments ensure transactions are recorded in the correct period, irrespective of when cash changes hands. For SMEs operating across European borders, this step is crucial for accurately capturing cross-border transactions at the correct exchange rate.
Step 6: Make final adjustments with journal entries
Record any final adjustments, corrections, or reclassifications using journal entries. Document the reasoning behind each entry for future reference. Journal entries may be required to correct postings to the GL that have not been accurately coded. If you are operating in multiple jurisdictions, ensuring compliance with regional accounting standards while making these entries is essential.
Step 7: Craft your financial statements
Generate your financial statements - the P&L statement, balance sheet, and cash flow statement. These statements provide a snapshot of your company's financial position and performance - vital for decision-making and demonstrating financial health.
Step 8: Conduct a final review and get sign-off
Thoroughly review the financial statements and supporting documentation. Seek approvals from relevant stakeholders, such as senior management or the CFO. This step ensures accuracy and transparency in reporting.
Step 9: Complete post-close entries
Closing entries prepare your company for the next period by clearing out balances in certain accounts that should not transfer over to the next period. Clearing the balances in revenue, expense and dividends accounts means you can compare performance across periods and these accounts are ready to accumulate balances in the next period. Revenue and expense accounts for the period are to be transferred to the income summary, which is then transferred to retained earnings on the balance sheet.
Step 10: File all relevant documents
Organise and store all month-end close documentation in a well-defined filing system. Proper documentation is not only essential for audit purposes but also for historical reference and should be filed digitally if possible. Keep records for at least seven years for tax purposes. Any documents that are no longer required should be securely destroyed.
Common month-end close challenges (and how to solve them)
The month-end close process often comes with its fair share of challenges, especially for small businesses with limited resources. Here are some common stumbling blocks that you might encounter during the process — with a practical fix under each one.
Challenge #1: Manual work and errors
One prevalent challenge revolves around manual work, where the pressure of meeting deadlines collides with the need for accurate data entry. The manual route, though sometimes necessary, can introduce errors into your financial records, causing potential headaches down the line.
How to fix it: Upgrade your tech stack
Modern technology steps in where manual processes fall short.
Automated systems can free your team from hours of tedious work. Integrated tools create seamless data flow, waving off discrepancies and errors. Built-in checks and balances slash non-compliance risks and potential penalties.
Embracing automated processes, collaborative and integrated tools, along with next-gen data analytics, can unlock doors to heightened efficiency and accuracy. Particularly for smaller finance teams grappling with limited resources, this transition can lead the way to a precise month-end close.
Ready to take action? Explore our in-depth guide, "How to build a modern finance tech stack," to dive into the nuances of creating a tech stack tailored to your business needs.
Challenge #2: Scattered and disconnected data
Wrangling data has its hurdles. Having financial data scattered across various software systems and spreadsheets can lead to inefficiencies and delays in compiling necessary information.
How to fix it: Create integrated data flows
The same tech upgrades that eliminate manual errors also solve data fragmentation.
Start by mapping where your financial data currently lives — accounting software, bank accounts, payment processors, and expense management tools. Then identify integration opportunities. Most modern accounting platforms offer APIs or direct connections to other financial tools.
Look for solutions that can automatically sync data between systems. For international businesses, this might mean connecting your multi-currency account directly to your accounting software, so transactions flow automatically without manual uploads or CSV imports.
The goal is to create one source of truth where all your financial data converges.
Challenge #3: Undefined roles and lack of process documentation
When roles aren't set, confusion steps in, bringing along double work and lots of frustration. Without smooth workflows, stress, slip-ups, and missed deadlines can tag along, taking a toll on everyone's spirits.
Similarly, think about how a lack of documented processes could add some extra chaos. Many companies, especially with small accounting teams, rely on undocumented routines, leading to last-minute scrambles, errors, and frustration.
Challenge #4: Month-end fire drills and last-minute crunches
When everything gets pushed to the final few days of the month, your team ends up in panic mode — rushing through critical tasks that deserve careful attention.
How to fix it: Consider continuous accounting
Continuous accounting distributes the workload throughout the month instead of cramming everything into a few stressful days.
This means daily journal entries and reconciliations, translating to a perpetually updated general ledger. The benefits are twofold: real-time financial insights and a lighter load during the 'hard close.'
Start small. Pick one or two routine tasks — like expense categorisation or bank reconciliations — and move them to a daily or weekly cadence. As your team gets comfortable, gradually expand to more activities. This approach aligns financial operations with the pace of business, allowing for informed decisions at any point in the month.
Challenge #5: Continuous improvement gaps
When you're constantly firefighting and grappling with inefficient processes and systems, it can easily become demoralising when month-end close rolls around again just after you've put the last one to bed. Although you might feel like you don't have time to reflect on what went well and what didn't, the only way to make things better is to actively carve out time to review what happened.
How to fix it: Build in regular improvement reviews
Schedule a 30-minute post-close retrospective with your team within a week of completing each month-end. Ask three simple questions:
- What worked well?
- What caused delays?
- Where did we hit snags?
Document the answers and assign owners for improvement initiatives. Maybe you need better vendor invoice tracking. Perhaps certain reconciliations consistently take longer than expected. Or maybe team members need additional training on specific software features.
Don't try to run before you can walk — it's better to make small incremental improvements while hitting deadlines each month than to try to make big changes which lead to issues with the accuracy or timeliness of your accounting close.
A simple month-end close checklist (with 17 action items)
Want to take the chaos out of your month-end close? We've distilled everything we've covered into a straightforward checklist that'll keep your team on track and your deadlines met.
Here's the thing:
If you're dealing with multiple currencies and cross-border transactions, your month-end just got more complicated. But it doesn't have to become a headache. Smart businesses use forward contracts to lock in rates ahead of time, hold funds in the currencies they actually use, and track international payments with real-time visibility.
Think of this as your month-end roadmap — each step builds on the last, and missing one can throw off your entire timeline.
Pre-close preparation
- Communicate your close timetable and deadlines to all team members
- Gather all necessary data and documents (invoices, bank statements, expense reports, payment confirmations)
- Review previous month's close for outstanding issues and improvement opportunities
Review and verify your accounts
- Review accounts receivable and chase any outstanding payments from customers whose debts are due or overdue
- Review accounts payable and verify all outgoing payments for the month, including expense claims, credit cards and loan payments
- Review payroll, inventory, and cash balances — including any foreign currency on hand that hasn't been banked yet
- Review fixed assets and lease accounting for any new capitalisations, disposals, depreciation adjustments, or compliance issues
- Reconcile all accounts and resolve any discrepancies between supporting documents and general ledger balances
- Verify that intercompany transactions are recorded correctly in both entities at the correct amounts and exchange rates
Record and document final adjustments
- Calculate tax liabilities and create provisions for VAT, income, and corporation taxes
- Create reserves for potential losses or contingencies and make provisions for any bad debt
- Record accruals and prepayments to ensure transactions hit the correct period — especially for cross-border deals with varying settlement times
- Make final adjustments through journal entries with proper documentation
Final review and wrap-up
- Generate your financial statements (P&L, balance sheet, cash flow statement)
- Conduct a thorough review and secure sign-offs from relevant stakeholders
- Complete post-close entries to prepare accounts for the next period
- File all documentation in your organised system for audit and reference purposes
Of course, this checklist isn't meant to be rigid — adjust it based on your company's specific needs and complexity. The key is having a consistent process that everyone understands and follows, especially when managing multiple currencies and international transactions.
The bottom line
In a world where finance teams are called upon to break free from their traditional number-crunching roles and rise as strategic business partners, it becomes essential to uncover ways to supercharge their efficiency in routine tasks like closing the books to free up time for more value-added work. By planning ahead, setting clear workflows, and embracing technology to automate and reduce manual work, you can unlock remarkable benefits for your business.
Is your company dealing with currency transactions? At iBanFirst, we're well aware that this can add an extra layer of complexity to your accounting processes. This is why our users can:
- Connect iBanFirst to their accounting and treasury software for a streamlined experience
- Keep track of all their iBanFirst account balances on a single dashboard
- Synchronise their bank accounts to the iBanFirst platform to get the full picture of your financial health
- Export full account and fee statements in one click in multiple file formats
Keen to learn more? Feel free to talk to our experts.
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