Why the Month-End Close Is So Important

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Many business owners think of their books as something that can be updated on a quarterly or yearly basis.

However, this frequency is not enough to maintain accurate records, manage a company’s operations, and help your company succeed.

The best way to ensure your business has the most accurate records and showcase how well your business is doing is by closing your books monthly.

While it might seem like a lot of work for an accountant to take on each month, it can streamline the entire process by spreading out the work over more time than trying to manage an inordinate number of entries in a short time frame.

In fact, for top performers, it only takes four days a month to close their books. In today’s post, we will discuss the benefits of closing out transactions each month and how it can improve the accounting department’s efficiency.

Assists With Strategic Decision Making

The strategy behind closing your books monthly is to ensure that you have the most accurate and up-to-date information possible when the company needs to make strategic decisions.

Closing your books every month will help reduce problems in accounting, which means that your company is more likely to make sound business decisions.

Those decisions will be based on current data rather than assumptions or information that doesn’t accurately reflect your company’s current financial status.

One of the primary benefits of completing transactions each month is being able to track how much money has been made over a certain period so that future budgets can be planned accordingly.

If you are looking at reports only once every three months, it’s difficult to truly know how well your business is performing.

Earnings and cash flow can fluctuate each month depending on factors like seasonality and demand, and if you look at the reports only every quarter or year, your books will be concealing the fact that you have the cash flow or revenue concerns.

To truly know your business, you must review reports monthly.

Helps You Catch Mistakes Before They Get Worse

Another benefit of closing your books monthly is catching mistakes before they get worse. For example:

  • If a transaction is processed twice, it could cause the company to report inaccurate information to stakeholders or lenders.
  • If an invoice is paid twice, cash flow can be impaired.
  • If a bill isn’t paid correctly or timely, it could damage the relationship you have with your vendor.

It will be difficult to identify errors if a lot of time elapses between when the mistake occurred and when someone eventually noticed there was something wrong on paper.

This mistake could take hours or days for an accountant to fix, which is time that could be spent focusing on more critical tasks.

These issues can be quickly resolved by instituting monthly close protocols.

Alleviates Pressure When It’s Time to Close Out the Year

When you stay on top of your financial transactions each month, it helps to take the pressure off when it’s time to close out a year. As an accountant, you know how hectic it can be to prepare everything for the closing of the year.

However, when you are closing books monthly and updating your reports and dashboards regularly, there will be less financial wrangling at the end of the year because everything has already been sorted and organized throughout the course of 12 months.

Gives Time to Book Accruals

Having dedicated time to book accruals will help to ensure they get recorded properly. When a company is not closing its books monthly, it becomes more challenging to remember to record accruals (like the depreciation journal entry).

Without monthly accruals, you will struggle to identify payments that were never received, predict future revenues, and identify gaps in projected versus actual revenue.

Simplifies Audits and Tax Preparation

Closing your books monthly will also help your company to prepare for an audit or tax preparation. If a company is only finalizing its books on a quarterly basis, auditors and accountants are going to need more time to reconcile the numbers.

The same concept is applied when CPAs prepare their taxes. If your company can accurately track all the money coming into and out of your business throughout the year by closing its books monthly, the tax process will be faster and more organized.

Your outside CPA will appreciate this, and your fees will be lower.

Ensures the Accuracy of Your Financial Statements

And finally, closing your books every month ensures that your financial statements are accurate. Accuracy is important to all your business’s stakeholders.

As we’ve already discussed, accurate financials will help your executives and CEOs make business decisions, and they will make your audit and tax reports go that much smoother.

But accurate financials will also project you in a good light to your vendors, business partners, and especially to your lenders.

Your bank will appreciate knowing you truly care about the accounting process, making it easier to borrow funds, if needed.

Invest In Closing Your Books Monthly

Month-end closing may be a bit of a task to implement, but it’s a no-brainer from a business perspective.

If you haven’t already implemented a month-end close process, consider starting soon.

There are applications that can help make the process simpler, checklists to make sure you’re doing everything you need to do, and support for when you need it – you just have to get started.

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