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Tips for a Successful Month-End Close

No business looks forward to the time-consuming process of closing their books at the end of each month. It’s certainly not the fun part of running a business. It can be tedious. (Though when business is doing well, it can be encouraging to see everything closing nicely in healthy shape.)

In either case, tedious or encouraging, it’s crucial to maintain efficient, accurate monthly closings that are completed with painstaking attention to detail. This helps with fiscal governance, but it also feeds helpful data to management as they form strategic decisions.

Smart Business recently conducted an interview with Jennifer Henson, as published by SBN Online. She is a senior business services associate for Sensiba San Filippo LLP, and she discusses how successful businesses are not only doing effective month-end closings, they’re turning the monthly ritual into a tangible value driver for the company.

Here is what Henson discussed with Smart Business:

Why is a streamlined month-end process important?

Month-end can be a very stressful time for finance departments. Management is often eager to get their hands on financial information that will inform their decisions. Developing an efficient, ‘streamlined,’ process for month-end will create a more relaxed environment, free up man hours and ensure that management receives accurate and timely information. 

What pitfalls can slow down the month-end process?

Even a well-designed process can become obsolete as needs change or become cumbersome over time. When data is not recorded correctly throughout the month, it creates a tremendous burden on the month-end process. Finance professionals often find themselves looking for missing expenses, searching for expenses that have been entered multiple times or correcting items that were coded or categorized incorrectly.

How can an organization simplify and improve the month-end process?

Look out for signs of stress within your month-end process. These symptoms might include monthly closings dragging longer and longer into the next month, finance professionals putting in significant overtime at the beginning of each month or general tension related to the process. Month-end problems can also be caused by a failure to define and follow effective recording procedures throughout the month. Set strong deadlines for critical tasks and monitor adherence to your procedures. Many of the symptoms that you see during month-end are actually a manifestation of ongoing problems. Analyze your month-end routine. Follow a checklist, but be able to think outside of it.

What else should business owners know about month-end?

Financial accounting, which includes the month-end process, is an important function within any business. It can either positively or negatively affect overall business performance. Business owners shouldn’t hesitate to ask for outside help when they need it. 

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Maria L. Murphy of the AICPA Store has a similar perspective as Henson. She sums things up nicely when she makes the statement that speed and accuracy during the month-end close process are necessities in business today:

Speed and accuracy are a constant challenge for those involved in the month-end close process. Many organizations are seeking information at an accelerated pace. But they also need to be able to trust the data they’re acting on. In a recent survey by software provider Adra Match, just 28% of respondents said they trust the numbers reported in the month-end close. At the same time, 90% said they are under pressure to close faster. Meanwhile, just 39% said they are satisfied with the quality of the closing process.

As you examine your month-end processes, here are a few helpful questions (from AICPA) to ask yourself as well as some tips to keep in mind for a faster, better month-end close.

What are the hurdles to your close?

There are many areas in an organization that provide information needed to close the books each reporting period. Each can have process issues that can cause delays. Management’s philosophy about financial reporting and what information management wants to see to run the business directly affect the outputs and timing of the close. To identify current and potential hurdles to a more effective close, areas to evaluate include:

  • Internal departments in addition to finance and accounting, including operations, sales, human resources, and systems.
  • External sources of necessary data, including vendor invoices, bank information, and customer and supplier information.
  • Outdated processes and systems.
  • Resistance to change.
  • Staff tenure and training, and ability to accept and implement change.

Tips for shortening the close

As mentioned by AICPA’s analysis above, Kathy Lockhart (CPA, CGMA, Vice President and Controller for national restaurant chain Noodles & Company) has shortened the close cycle in various environments. This includes Noodles & Company, whose close process changed under her leadership from almost two weeks to several days. Here are Lockhart’s tips for shortening the month-end close:

  • Break the close process into pieces. By breaking it down into little pieces, it is more manageable, easier to get started, and easier to finish. 
  • Perform a risk analysis. Identify lower-risk areas of financial statements and processes that may not need to be perfect for each close. Back out of the details to establish a tolerance level that everyone can accept. 
  • Change mindsets from looking backward to looking forward. Accountants often deal with history in periods after it happens, rather than projecting where numbers will or should be. By changing the approach, working during the month with the finance team that knows the forecast, it is possible to do a better estimation process along the way. 
  • Evaluate close areas that can be done in different time periods. Some financial statement areas can be accounted for on a quarterly basis rather than a monthly basis to save time. Areas such as bad debt allowances can be looked at in detail in the second month of each quarter rather than the third month and then reviewed at a higher level at quarter-end. 
  • Use technology. Simple applications, such as Excel, QuickBooks, Dropbox, and SharePoint, can be implemented quickly and result in more efficiency for accumulating and sharing data and for reporting. 
  • Communicate. Get the people involved in shortening the close to “own it” by suggesting changes and believing they can make a difference. Hold group staff meetings to identify areas that can change now, where training is needed, where money needs to be spent, and where change is dependent on other departments.

The bottom-line is this: the monthly close process is extremely important because it serves as the basis for decision-making by management. Without a healthy close process, the information fed to management through its financial statements, which are generated by the close, will be untrustworthy and unreliable.

Do you have the support you need to manage your small business bookkeeping? Schedule a 30-minute appointment to speak with a local small business adviser.