Accounting Monthly Close Process Challenges & Tips

The accounting monthly close process can either be a huge pain or a very helpful pleasure (when streamlined and done right). You probably never question “Why is month-end closing important?” but you probably do wonder what month-end close best practices exist to make it easier. 

We’re going to share everything there is to know about the accounting monthly close process, along with tools and must-know tips for how to make it run faster, smoother, and better for everyone involved. 

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What is the Accounting Month End Close Process?

The month end close process is a vital workflow in organizations of all sizes. It is an accounting task that consists of ensuring timely and correct financial reporting by way of reconciling accounts, adjusting entries, preparing financial statements, and conducting analysis on business performance. 

The process requires access to internal and external documentation, such as bank statements, expenses, and income, along with the balance sheet, journal entries, and intercompany trades. 

What is the Purpose of the Month End Close Process?

The goal of the month end close process is to ensure that all statements are accurately reflected so that you can trust your financial status and reporting is right. 

For public companies, the month end close process is mandatory and required for its fiscal reporting. For private companies, the process is just as important as it helps to detect fraud and maintain confidence in business decisions that are based on financial standing. 

Along with being able to make informed business decisions, the month end close process assists with tax filing, understanding the company’s overall cash flow, and reducing any accounting errors that may exist. 

What are the Steps in the Accounting Month End Close Process?

For many companies, the month-end close timeline ends up taking up a lot of time, which can be both stressful and detrimental for the business. 

However, if you can streamline the steps below, especially with the addition of finance automation software (that will run through the workflow with little to no human interaction), you can ensure you will meet all deadlines: 

1. Collect All Documentation

In order to compare all documentation (internal and external), you must first collect it. This will include income statement items, such as accounts receivable, account payable, and transaction records. 

If you’re stuck manually recording data and using spreadsheets, step one ends up taking more time than it needs to. Rather, you can leverage finance automation software to centralize all your data, connect your existing systems, and prevent the need for outdated spreadsheets entirely. 

2. Reconcile Accounts

With all your documentation ready to go, it’s time to conduct account reconciliation, or the comparing of internal and external records to ensure that they match. The ending balance of all accounts should be in accordance with each other. If not, investigate and adjust as needed. 

3. Review Fixed Assets

Now, it’s time to assess fixed assets, such as equipment and technology. At this step, you must account for depreciation and categorize it under your expenses. 

4. Create Financial Statements

Once all the data is verified, it’s time to prepare financial statements, including: balance sheet, income statement, and cash flow statement. 

5. Finalize and Report

Before calling the accounting monthly close process complete, it’s vital to review all documentation and reports. If it’s established that the data is error-free, it can be considered complete. 

What are Common Month End Close Challenges?

If you’ve been a part of the month end close process before, you know that there are common challenges that come to the surface when it’s time to close the books. For controllers, accounting teams, and CFOs alike, the month end close can be a major source of stress and a time-consuming activity. 

Common challenges include:

• Lack of communication in which team members are unsure of their role 
• Manual and time-consuming reconciliation 
• Manual data entry mistakes 
• Difficulty locating the required documentation (across computers, spreadsheets, or systems without access controls) 
• Inability to track progress- no visibility or transparency 

By implementing an easy-to-use finance automation software, you can overcome all of these challenges and more! 

Finance automation software combines all your data to provide a single source of truth by connecting your systems including legacy systems. Then, it will run through the account reconciliation process, thereby saving your team time, reducing mistakes by 85%, and improving visibility. Last but not least, the right software can be used to conduct analysis, create reports, and even provide customizable dashboards. 

What are the Benefits of Month End Close?

Tracking and confirming that all transactions within the month provides business with many benefits, including: 

1. Correct Financial Records

Mistakes happen in accounting; however, they can be costly and affect how a business operates. By conducting the month end close process on a consistent basis, accounting teams are able to spot issues and errors to remedy them in a timely manner. 

2. Time Savings

By organizing financial reports on a monthly basis, companies can forgo stacking up an immense amount of data and information to go through when it comes time to file taxes annually. A standardized monthly approach ends up making the end-of-the-year financial tasks easier. 

3. Process Improvement Opportunities

The financial close process helps leaders to identify areas that are ripe for improvement. With a better handle on cash flow and what areas of the business are reaping the greatest benefits, the process can assist companies in making smart moves to grow. 

4. Decision Making Capabilities

Importantly, having access to accurate financial information in real-time aids in better decision making capabilities. Leaders can trust the data that they have and understand the company’s financial status, which of course impacts every decision that gets made. 

What are Month End Close Best Practices?

Having a well-laid out process and plan for each month’s close will relieve a lot of pressure from your team. Moreover, here are some of the most tried and true best practices and recommendations to streamline the accounting monthly close process and enhance efficiency: 

1. Focus on Accuracy: While speed is important because there are deadlines to meet, accuracy should always be considered paramount. Closing the books can be naturally time-consuming, which is why it pays to implement finance automation software. By doing so, you can have both accuracy and speed, without having to make any sacrifices along the way.
   
   
2. Leverage Technology: Technology exists to augment human capabilities, thereby freeing your team’s time up to focus on value-add responsibilities that require human thought. With finance automation software that has reconciliation capabilities, you can automate the entire month end close process while saving time and reducing errors. 

3. Communicate Clearly: Many different departments are involved in creating and storing the data required for the month end close process. That’s why everyone should be made aware of when it’s taking place and any deadlines. By communicating clearly, it makes collaboration more possible as everyone will be on the same page.
   
   
4. Adjust as Needed: Should you realize any opportunities for improvement throughout the process, don’t be afraid to make adjustments and try something new. 

What is a Month End Close Checklist?

A month end close checklist is the list of tasks that have to be taken care of before closing the books. It’s advantageous to have a checklist at your fingertips so that nothing gets missed. 

Here’s a look at a month end close checklist for once you’ve created your schedule:

• Record sales - income, revenue, and accounts receivable 
• Record expenses - supplier and vendor statements, accounts payable 
• Record petty cash 
• Record invoices and payments
• Record assets and liabilities
• Count inventory 
• Reconcile accounts
• Reconcile payroll 
• Reconcile income
• Review and prepare financial statements 

Closing Thoughts

As you are aware, there are a lot of steps involved in completing the accounting monthly close process. Having a clear and standardized process that is easily repeatable will make the workflow smoother for everyone. 

To fully maximize productivity and efficiency, consider leveraging financial automation software that will execute the month end close tasks automatically. In turn, your finance and accounting team will have more time to spend on high-value tasks like providing greater insights to the business and can forget worrying about making costly manual mistakes.