Month End Closing: Process, Checklist, Challenges, Solutions

If you’re running a store, you wouldn’t wait to perform inventory once at the end of the year because it’s constantly in flux. The same can be said about your business’ finances, hence why the month end closing process is exactly that – monthly. While the month-end closing checklist can feel like a lot to manage every couple of weeks, automation solutions can help to ease the burden and speed up the month-end close timeline.

Here, we will cover what you need to know about month-end closing accounting and see how a solution like SolveXia can alleviate the load for your team.

Coming Up

1. What is Month-End Close?

2. What are the Steps in the Month-End Close?

3. Why is Month End Close Important?

4. How Long Does the Month End Close Take?

5. What are the Challenges of Month End Close?

6. What are Best Practices for Month End Close?

7. What is Included in the Month End Close Checklist?

8. How Automation Helps Month End Close?

9. The Bottom Line

What is Month-End Close?

The month end closing process consists of a review of the company’s balance sheet, journal entries, internal and external documents, and account reconciliation. The month-end close is necessary to create accurate financial statements so that businesses have a clear picture of their financial standing to make informed decisions.

Each month, performing this process helps to lead up to the fiscal year’s end, in which regulatory reporting takes place. By doing so, the year-end closing process becomes easier as you already have all your documents and records neatly in place.

More so, by streamlining your month-end closing activities with the help of an automation solution, you’re able to focus your time on strategic and value-added tasks rather than repetitive and manual data entry and cross-checking.

What are the Steps in the Month-End Close?

While each business has its nuances when it comes to the month-end closing, the necessary steps are universal. They just may vary in the time it takes to complete (depending on whether or not you have automation solutions available to help).

The steps are as follows:

1. Document Collection

The process begins with data collection. This requires that a person (or system) handles pulling together all relevant financial information, with items like the income statement, expense records, a list of transactions, and the like. If there’s no centralised data solution to combine all your systems or spreadsheets, this step can be unnecessarily time-consuming.

2. Data Reconciliation

With all the data in hand, it’s time to cross-check and perform account reconciliation to verify accuracy. Account reconciliation compares internal documents with external statements to ensure each line item matches up.

3. Assess and Add Fixed Assets

For any fixed assets that the business may have, such as storage, technology, equipment, etc., it’s pertinent to assign its depreciation and categorise that amount under business expenses.

4. Financial Statement Creation

With all data accurately in place, financial statements can be created and prepared. These statements span: balance sheet, income statement, and cash flow statement. With these records reflected, stakeholders and leaders have a solid understanding of the business’ financial standing.

5. Final Review

Before the books are closed, a final review should take place to ensure everything looks right. A fresh set of eyes is recommended at this stage.

Why is Month End Close Important?

Any decision you make in business depends on your financial situation ultimately. That’s why the month end close process is so crucial to perform consistently and without errors. It’s what makes the creation and understanding of financial statements possible.

Additionally, for publicly-traded companies, financial statements and regulatory reporting have to remain in compliance with laws and regulations. There’s really no way around the process, so it’s best to streamline it and utilise financial automation software to make it easier on your team.

How Long Does the Month End Close Take?

In 2022, Ventana Research found that the month end closing process took businesses an average of six plus days to close their books. That’s more than a working week spent on a single process. For businesses with a high volume of transactions and multiple payment processors to reconcile, the time spent is more likely to be even longer.

With a reconciliation tool like SolveXia, you can maximise your team’s productivity by up to 98%, thereby reducing the time it takes to otherwise manually perform essential financial processes.

Rather than having your team sift through data manually and collect it across departments, systems and desktops, SolveXia will connect to all your systems and centralise all your crucial data. Then, the system will automatically perform transaction matching for account reconciliation, streamline approval processes, and generate reports. It even provides detailed audit trails.

What are the Challenges of Month End Close?

Although the month end closing process becomes a repetitive routine, it is still laden with its fair share of pain points. This is especially true when it is performed manually.

Common pitfalls of the process include:

1. Decentralised Data

Perhaps one of the most time-consuming aspects of the entire process is pulling together all the necessary parts to start the work itself. Financial documents exist in different locations and systems, both from internal and external sources. Thus, a centralised system like SolveXia can solve more than half the challenges of the month end closing process.

2. Status and Visibility

Since the month end closing moves through multiple steps, and is more likely than not to include different responsible parties, it can get hard to manage from a high-level. That is, without an automation solution at hand. With an automation solution deployed, visibility is made easy as the system tracks every step of the process and can alert the responsible party should an action item be needed.

3. Lack of Knowledge and Training

It’s best practice to standardise the month-end closing process across offices and regions. However, if employees aren’t adequately trained or in constant communication with one another, this goal can go awry. With SolveXia, the system is designed to execute the process in the same way every time, so standardisation is ensured.

What are Best Practices for Month End Close?

With whatever software you choose to implement, there are best practices that can help you perform your month end closing process at its highest level.

Here’s a look at what you can keep in mind moving forward:

1. Quality is the Priority

You may want to go fast to get the process done in time for deadlines, but nothing matters more than accuracy and quality. From reducing compliance risk to having an accurate reflection of your business’ financial standing, quality should be the ultimate goal always.

2. Set Deadlines

In order to ensure quality without rushing and missing deadlines, have a plan in place with a communicated deadline that’s firm. Review how long it takes you to currently complete the month-end closing activities, and work backwards with a few days as a buffer in place in case of hurdles or issues that may arise.

3. Leverage Technology

Technology and automation solutions like SolveXia are designed to help your team function at its highest potential! Make use of these tools that can reduce errors, automate repetitive tasks, and provide the much-desired increased visibility and standardisation into the process.

What is Included in the Month End Close Checklist?

To cover all your tracks and the necessary steps that are part of the month-end close, here’s a checklist that you can keep handy. It makes it easy to either review each month and/or to set up an automated process that will cover each task for you.

• Review and confirm all transactions in the accounting period

           - Payroll

           - Accounts payable

           - Recurring bills

           - Accounts receivable

           - Expense reports

           - Credit card charges

           - Debit card charges

           - Petty cash account

• Post Closing Entries

           - Review revenue recognition from designated schedules

           - Verify accuracy of posted entries

           - Post amortisation and depreciation schedules where necessary

• Review and Close Sub-Ledgers

• Complete all Account Reconciliations

• ‍Review and Run Reports

           - Budget vs. Actual

           - Profit & Loss Variance

How Automation Helps Month End Close?

As we’ve peppered throughout this post, automation solutions remove the pain points of this recurring month-end close process. Along with streamlining, automating, and expediting your process, automation solutions also reduce key person dependencies and prevent bottlenecks from occurring.

Since the account close process passes through different desks and hands, it has the potential to get stuck or delayed on the account of a single person missing their action item or sign-off. This risk is resolved when you implement a solution like SolveXia as the system runs the process for you.

If there’s any need for human involvement or sign-off, alerts and notifications let said person know that it’s their time to take action so that the process doesn’t get stuck or hold up any deadlines.

Ultimately with automation, manual processes are removed, errors are dramatically reduced, and finance can focus more of their time on value add tasks providing deeper insights ot the business for better decision making.

The Bottom Line

Month end closing doesn’t have to be a drag. Since it’s a required process in the business and one that happens so frequently, it’s of high priority to optimise. With the help of automation software like SolveXia, optimising the process is as simple as deploying a no-code system that provides out-of-the-box solutions with drag-and-drop design capabilities.

Ready to get started digitising your necessary financial business processes? Request a demo to see how easy it is to get going!