The month-end close, or closing the books, is one of the most critical processes in finance.
It is more than just the routine of finalizing your company’s accounts at the end of each month.
Month-end reporting produces balanced balance sheets—the best way to “comprehend the financial positioning of a business or corporation.” With consistent month-end reporting, your business will accurately reconcile its earnings compared to its outgoing expenses every month.
Along with accurate account reconciliation of your company’s earnings and spending, month-end reporting ensures that an organization complies with internal and external regulatory and financial criteria.
For example, month-end reporting provides oversight of internal finances to quickly identify anomalies, such as fraud or a favorite supplier suddenly raising its prices.
And while the process of end-of-month reporting comes with challenges, as a standard and recurring event, it should be executed with the same precision and acuity as your year-end close.
Keep reading to find out how to do just that.
Key Takeaways from the Monthly Closing Process
Modern tools and automation can streamline the monthly closing process, reducing manual work and errors. By integrating software, you free up time to analyze results and make strategic decisions rather than scrambling to tie out numbers.
The month-end close process ensures all monthly transactions are recorded correctly, giving an accurate view of financial performance and compliance each month.
A consistent monthly close process helps catch little issues or anomalies— a “blip”—before it becomes a big problem. (For example, you could spot a sudden supplier price hike or an accounting error in time to take action.)
Regular monthly closing creates an internal paper trail and audit-ready records, so your books stay accurate and ready for review. This makes quarterly and annual reporting much easier and less error-prone.
Using a standard checklist or even a month-end close process flowchart can help your team follow the same steps every period, ensuring no task is missed.
Complete Your Month-End Close Process in 4 Steps
No matter the size of the enterprise, creating a month-end reporting process will set a standard for your Financial Planning & Analysis (FP&A) team and all the departments responsible for reporting each month.
Step 1: Align Daily/Weekly Reports With Month-End Reports
A best practice is to tie your day-to-day tracking into your month-end close. If your departments create daily or weekly reports to monitor their activities and goals, make sure those reports use a format that matches or feeds into the month-end reporting.
This alignment means there won’t be any big surprises when it’s time to close the month.
Additionally, ensure your financial statements and records are checked regularly during the month for errors.
Catching and correcting errors continuously saves time when preparing the month-end reports.
Step 2: Prepare All Month (Don’t Wait Until The Last Day)
Clearing the calendar for a few days to properly dedicate the time needed to conduct these reports is well worth it.
A few days before the end of the month, make a checklist of everything that needs to be ready for the report. This includes:
- Departments that need to send you reports.
- The activities needed to be temporarily paused at a specific time.
- The employees who are required to be informed (for example, payroll).
Top CFOs also recommend assigning a risk level to each report category or department to identify potential errors. This lets you know which reports are likely to have the most errors versus which will have the least.
Step 3: Allocate Time and Anticipate Errors
A large part of putting together month-end reports involves going over all of the materials for that accounting period and ensuring no bookkeeping errors are present.
This is the most time-consuming step of the entire reporting process, as it can involve multiple departments and employees, and errors can often be easy to miss.
During this step, keep in mind that closing the books isn’t a race—accuracy is more important than speed.
Everything needs to be done manually if you are not using accounting software solutions like Datarails, which offer automatic, real-time consolidation that eliminates errors.
In short, anticipate that some discrepancies or “blips” might arise and give yourself the buffer to find and fix them.
Step 4: Calculate and Analyze
Once the data is deemed accurate and reliable, a company’s financial team or executive team can use formulas and charts to calculate the following:
- Balance
- Expenses
- Interest
- Revenues
- Salaries
Prepare the financial statements for the period, including the income statement, balance sheet, and cash flow statement.
Take a close look at these reports and compare them to prior months.
Analyze the information to understand what happened: Did revenue grow or drop? Were there expense spikes? By reviewing the results, we can explain variances and plan any actions for the next month.
If everything checks out, you can officially close the period’s books and confidently report the results.
Here’s another article we think you’ll like next: 8 Fundamental Steps in the Accounting Cycle.
FAQs: The Month-End Close Process
How long does a monthly closing process usually take?
It depends on the size and complexity of your business, but typically, a monthly closing process should be completed within one to two weeks after the month’s end. Organizations aim to close the books in around five to seven business days.
In a 2022 survey from Ventana Research, 53% of companies report completing their month-end close process within six days.
The goal is to close quickly and accurately so that management has timely financial insights.
What are the benefits of month-end reporting?
Quarterly and annual reporting is less time-consuming, more convenient, and less costly.
However, you miss two critical benefits when delaying reporting.
The key responsibility of a business’s Financial Planning & Analysis (FP&A) function is to produce management reports, which help leaders stay apprised of all the information they need to make business decisions.
While management reports draw on various data points and key performance indicators (KPIs), the most consistently delivered management report is the month-end report because of the very real benefits that come along with it, including blip identification and seasonality and forecasting.
“Blip” Identification: Think back to the example at the beginning of this article when your favorite supplier suddenly raised its prices. What if you only realized this after the damage was done to your bottom line?
Imagine now that because of your month-end reporting, you notice that one month’s profits were down, but that same month’s sales were steady (when comparing one month to another).
Immediately, you can identify a supplier that has recently and suddenly raised its prices. This would have allowed you to act instantly to rectify the situation (or “blip”) before it could affect your business long term.
Bottom line: Because the data for month-end reporting is being compared to factual evidence and supporting schedules, it helps highlight major discrepancies between the general ledger and reality, and all before you would even find yourself in an audit.
Seasonality and Forecasting: Seasonality is something that no business has control over. Deviations in customer behavior drive seasonality, and the only way to anticipate and plan for it is by month-end reporting.
What companies can do is analyze and understand the trends they find in their month-end reporting and use that data to forecast and plan.
Some businesses, like retail, have strong months in December and January, while others see their profits explode in the summer months, like a large ice cream distributor.
Understanding whether or not seasonality impacts your business will benefit your business’s forecasting and stability.
What are the challenges of month-end reporting?
While month-end reporting provides several key insights for business leaders, preparing these reports takes time and involves challenges that can be easily overcome.
Here are two examples:
- Inaccurate data: Things like deadlines are essential, but receiving correct data is paramount over anything else in this instance. FP&A best practice is to have 10 days after month’s end to finish reporting. If needed, use that time to ensure the data you collect for your month-end report is accurate.
- No defined processes: While you cannot start the report before the month is over, you can take specific measures to increase efficiency. Additionally, make it a routine to clear the calendar for a few days and dedicate the time required to conduct these reports properly.
Level Up Your Month-End Close Process with Datarails
Datarails allows you to augment the tools your teams are already using (i.e., Excel spreadsheets) and includes built-in features for groupware collaboration. This way, you can enjoy the benefits and flexibility Excel offers while boosting problem-solving and error detection in the everyday workflow.
Datarails also ensures everyone involved is working on a “Single Version of Truth,” the latest and most updated version, at all times. Drive productivity and collaboration in your organization while maximizing data integrity every step of the way.
In fact Datarails has a pre-built solution specifically for month end close which you can read more about here. So if you and your team are ready to take the next steps to level up your month-end reporting goals, request a free demo to find out more.
