Businesses that wait till the end of the year to prepare their financial reports are likely to find it a tedious and daunting task. To ease the process, most businesses prepare monthly financial statements to get an ongoing view of their financial KPIs and make the year-end process smoother.
For the month-end close, companies collect all the necessary financial information to review and reconcile their records at the end of every month. It helps keep accurate records and identify any discrepancies well before the yearly close. It also gives businesses a bird’s eye view of their financial health and makes planning easy with actionable insights.
It is important to note that the month-end close is an official process to finalize the balance sheet numbers. So, in the future, it is unlikely that any changes will need to be made to the data.
The month-end close process includes reviewing the company’s balance sheet, intercompany trades, journal entries, and other documents (like bank statements, income, and expenses) and reconciling them.
Month-end close is a systematic process of maintaining a record of the business’s financial activities. It helps in tax filing, preventing accounting errors, and getting an overall picture of the company’s cash flow scenario.
There are 5 steps to the month-end close process. These steps give a general overview of how most businesses review and reconcile their books at the end of every month.
The first step in the month-end closing process is to collect all the relevant financial information. It includes the income statement items (e.g., accounts receivable), expense records (e.g., accounts payable), and other daily transactions.
After collecting all the data, it needs to be cross-checked with receipts, bank statements, and other sources of information that the business might have.
All accounts on the balance sheet, like cash, savings, and checking, must be reconciled. It gives the business a clear idea of its cash flow.
All fixed assets that a business might have, like equipment, technology, storage, housing, vehicles, etc., need to be assessed. It is also essential to consider that these assets depreciate, and the depreciation amount needs to be categorized under expenses.
Now that you have all the information in place and have verified them, it’s time to prepare your financial statements. These include the balance sheet, income statement, and cash flow statement. Make sure the entries are recorded correctly and that there are no discrepancies between the financial statements.
The month-end closing process is critical for every business. So, a final review is always done before the closing process is completed. This review is done by the top management or someone who wasn’t involved in the closing process to get a fresh view of all the data once again. It ensures that there aren’t any mistakes in the monthly financial statements.
The accounting department often takes a lot of time to complete the month-end close process. But, business leaders want to streamline and make the process faster as the month-end close numbers act as a starting point for the plans for the upcoming months.
A survey by Ventana Research shows that 41% of businesses needed more than 6 days to complete the month-end closing process in 2022.
However, just because your peers are closing faster, you shouldn’t rush your month-end close. A better approach would be to steadily optimize your month-end process in a way that keeps errors at bay while reducing the close time.
The month-end closing process is a routine activity for every business. So, it is essential to identify and mitigate the challenges involved in completing it accurately and quickly. Let’s look at some of the common roadblocks businesses face during the month-end close and their solutions.
If the financial documents required for the month-closing process are stored in different locations, it will be cumbersome to access them quickly. So, a centralized repository is recommended to ensure the smooth collection of data.
If everyone has access to the reconciliation documents, it will be difficult to keep the work error free when changes are made in an unorganized manner. Having a system where only authorized employees are allowed to access the documents is essential.
The month-end closing process is complicated and might vary for every business. So, if the employees are not given adequate training, they may find it challenging to carry out the process efficiently.
If multiple teams are involved in the monthly closing process, then keeping track of the status of tasks is going to be a significant pain point. HighRadius Automation Accounting solution gives real-time visibility into the different financial tasks and ensures activities that involve multiple stakeholders don’t get slowed down.
Here are some best practices to follow during the month-end closing process:
Month-end closing is among the most critical accounting processes for every business. So, doing it in a hurry and making mistakes won’t help, especially if you plan to refer to these statements for your year-end close. Accurate monthly financial reports help you improve transparency and track KPIs correctly.
Since month-end closing is a routine activity, every time you encounter a roadblock or problem, note it down and try to address it effectively. For example, if collecting data takes more time than planned, try to keep everything organized throughout the month. You could also look at investing in automation solutions that support data aggregation and segmentation.
Even though you must not sacrifice quality for speed, you must also plan ahead to meet your financial reporting deadlines. If you are required to complete the closing process within a week, and you know that the timeline is unrealistic, then communicate it beforehand. Sticking to the same schedule for releasing financial statements every month can help you better organize your team’s time and activities.
Automation is the key to reducing the time and effort required for the month-end closing process. From collecting data to reconciling accounts, automation can speed up the workflows drastically. It also helps reduce errors and makes sharing of the financial statements easier.
It is crucial to have a month-end closing process checklist since you need to aggregate data from multiple places to create and review the financial statements. Here are some records that you need to double-check:
Download our monthly close checklist template to fast-track your business’s month-end closing process.
One of the main challenges in month-end closing is the amount of time it takes to complete the process. Most organizations take around 5-10 working days to complete the month-end close. And businesses often find it difficult to reduce this time.
A survey shows that 40% of executives say internal levels of scrutiny are the root cause of delays in month-end close, while 35% say it’s the growing need to find and consolidate the data for financial statements.
HighRadius Autonomous Accounting can help your business make the month-end closing process faster, smoother, and error-free. Its AI-powered transaction detection system gives access to real-time data and helps spot errors. It also automates manual tasks like financial data collection and reconciliation.
Our autonomous solution also makes it possible for businesses to make their month-end closing process continuous, ensuring zero-day financial close, and up to 40% reduction in monthly-end close time.
The first step in the month-end closing process is to collect all financial information like income statements, expense reports, and other transaction details.
The month-end close activities include collecting information, reviewing them, preparing financial statements, and conducting a final review.
The month-end close process can take anywhere from 5-10 days. Using automation tools for accounting and month-end close can help considerably bring down the time.
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