Professional Accounting Blog

    Accounting For Your Prosperity

    Improving Your Company’s Month End Close

    Posted by Dan Prendergast on Oct 18, 2016 8:00:00 AM

    Month End CloseManagement theory tells us that you cannot set improvement goals without first having a means to measure or quantify if your goals are being reached. Consistent with the theme of quantifying your results is the secondary goal of having the information available on a timely basis. Data that isn’t timely can quickly become useless. There may be no better example of this theory than how it relates to the production of monthly financial statements. Having the statements available as close as possible to the end of the measurement period is critical when management is attempting to assess what improvements can or should be made. 

    The easiest way to produce financial statements on a more timely basis is to examine your Company’s month end closing procedures. Improving the process can eliminate critical days, allowing your management team to have monthly results on a more timely basis.

    Listed below are some suggestions as to how that can be accomplished:

    1. Daily bank reconciliations

    The first and arguably the most important step in the month end close is to reconcile the Company’s bank accounts. Most software supports reconciling bank accounts as often as you like. Reconciling on a daily basis helps to identify and resolve non- standard transactions when the facts are still current. The more time that passes between a transaction and the reconciliation date typically holds up the process. Daily reconciliations are also highly suggested as a monitoring technique to help identify fraudulent transactions 

    2. Standard monthly journals entries to estimate accruals

    Frequently we see situations where clients spend lots of time calculating accruals and making related adjustments that end up in sum not being significant or “material”. Our preference for most accruals is to use standard entries that repeat on a monthly basis. Most accounting software supports “memorizing transactions” that automate this process for you. 

    3. Consider automating manual functions

    Lots of technology options exist for automating every segments of the accounting system. A perfect example of this is the accounts payable / cash disbursement cycle. Most banks now support using e payment systems that eliminate the antiquated process or printing and mailing cash disbursements. In addition to the banks, several well established third party accounts payable systems (bill.com, bill-sync.com) are available to help automate this time consuming process. When selecting a bill payment system it’s important to select a system that will sync the payment data with your accounting system. Automating the process can be a huge time saver as well as provide increased accuracy.

    4. Set hard dates for cut offs

    Routinely we see the month end being held up for a few late arriving accounts payable invoices. To combat the tendency to hold up the process, a hard date needs to be established for transaction cut off. If the invoices haven’t arrived by the set date (usually 3 -5 days into the following month), a decision needs to be made to either ignore the invoices or enter estimates of the amounts.

    5. Clearly define procedures & segregation of duties

    An accounting manual containing written procedures for the month end close as well as clear descriptions of the various duties goes a long way towards detailing what the month end procedures are and resolving who is responsible for what task. 

    6. Cross train accounting staff

    Leveraging the documented procedures and duties in the accounting manual will help greatly when cross training the accounting staff. The cross trained staff will help to eliminate some of the traditional staffing headaches created by vacations and sick leave.

    7. Eliminate paper wherever possible

    Eliminating paper helps tremendously with resolving approval bottlenecks. As an example, most accounting software allows for attaching scanned copies of pertinent documents (invoices, bill of lading, purchase order, etc.). Having all of these documents accessible is a great help when tracking down discrepancies. 

    While every business is different, they all share the need for timely financial information. Examining how you can improve the month end closing process should be able to help you meet the goal of having monthly financial statements available with 3 – 5 business days after the month end.

    New Call-to-action

    Topics: Small Business

    Dan Prendergast

    Written by Dan Prendergast

    Dan Prendergast is a Vice President at Meaden & Moore. He offers over two decades of experience working with closely held and entrepreneurial companies.

    Subscribe to Email Updates

    New Call-to-action
    New Call-to-action
    New Call-to-action
    New Call-to-action