5 tips to optimize your month-end closing process
The month-end close is of utmost importance to companies because it allows for accurate financial reporting at the end of each month. But this process can be pretty unpleasant, and tends to be one of the more disliked tasks in the finance team, to put it lightly. After all, it usually involves a lot of manual data entry and can be prone to error. Add to that tedious, monotonous processes and a mountain of receipts and invoices that need to be collected and scanned. Luckily, there’s another way!
In this article, we’ll introduce you to 5 helpful tips and tools that will actively help your monthly financial accounting processes.
The month-end close is a regular process at the end of each month in which a company's financial and accounting records are reviewed and closed. During this process, revenues, expenses, profits, losses, and other financial metrics are recorded, reviewed, and prepared for reporting purposes.
The monthly financial statements allow companies to analyze their financial performance, monitor budgets, and make informed decisions for the future because they provide a clear picture of cash flow. Unlike annual financial statements, the monthly financial statements are voluntary in most cases.
As already mentioned, the month-end closing generally includes the recording, review and reconciliation of all relevant financial accounting data. However, as different as companies are, so are the requirements for a monthly closing.
This is because each company has different business activities, sizes, industries and internal systems. The type of products or services, operational requirements, inventory management, payment methods, invoicing and many other factors can affect the month-end closing process.
Nevertheless, the month-end close process for startups and SMEs can be broken down into five basic steps:
- Accounts Receivable
- Accounts Payable
- Account reconciliation
- Review of assets and liabilities
The monthly report often raises questions such as: are the expenses legitimate? Who authorized them? Where are the receipts and invoices? The more transactions you have, the more complicated and time-consuming completing the close becomes.
To remedy the situation, we’ve compiled five helpful tips for everyday financial life that will make your life easier in the future:
As with almost everything in life, good, early planning and preparation is key. So we recommend you __set a detailed schedule and individual milestones __to ensure that all necessary tasks are completed on time. What’s the deadline for all documents to be collected? Who’s responsible for the P&L statement? Who’s responsible for the cash flow statement?
Delegate all tasks and responsibilities to the appropriate team members to evenly distribute the workload - and so that everyone on the team knows what needs to be done and by when.
Regular reviews of your month-end close processes are important to identify and improve inefficient or outdated steps.
For example, if the process for submitting expense reports is not clearly defined, it can result in a variety of different formats that create additional work for the finance team. Take the time to analyze the process and identify potential bottlenecks.
Open and transparent communication is crucial for a smooth monthly closing - because all team members must always be on the same page. Create clear communication structures in the team and hold regular team meetings. Short check-ins in the morning and/or evening are usually sufficient.
For larger issues, you can use communication tools with specially set up groups or areas that strengthen collaboration and facilitate the exchange of information. All of this will help you avoid misunderstandings, clarify issues, and identify and counteract pitfalls early on.
A structured and detailed checklist can effectively organize the month-end close and ensure that no important tasks are overlooked.
To help you do this, we've created a handy month-end close checklist that you and your finance team can use as a template. This checklist provides a step-by-step guide to help you stay on top of things and make the process easier.
However, keep in mind that you should customize the checklist to meet your specific needs and requirements. After all, as mentioned earlier, each company has unique requirements for a monthly report.
Last but not least, automating routine tasks can significantly speed up month-end closing and reduce errors. Choose appropriate tools and software to help you automate recurring tasks such as invoicing or payment reconciliation. Use all the system's features to streamline the closing process - and make your finance team's daily work easier.
Learn more in the next section.
Modern finance teams increasingly rely on digital tools. Nowadays, there are also quite a few suitable digital tools to support month-end closing. Here are just a few examples:
- ERP and accounting software
- Business intelligence tools
- Workflow tools
- Project management tools
- Spend management platforms
Let’s take a closer look at spend management tools, as they simplify the lion's share of the monthly report.
A spend management tool can help you optimize month-end closing in particular because it offers many financial reporting benefits:
- Centralized data on one platform
- Real-time overview of all expenses
- Standardized process for the entire company
- Clear spending guidelines
- No manual data entry for finance teams
Modern solutions like Spendesk can take additional processes off the finance department's hands, such as searching for receipts and invoices and reconciling payments and receipts. This allows you to complete the month-end closing up to four times faster each month and focus on more important, strategic tasks from then on.