Make a Clean Break: Tips to Simplify Your Monthly Closing Process
By Sue Bennett, Accounting Manager, The Shealy Group
When overseeing your company’s accounts and finances, the end of the month is supposed to have a period on it. That last day is the clean break between the end of one statement and the start of the next. You’ve closed the monthly books, made the shipments, received payment from your customers and paid your vendors. All dollars are accounted for.
That’s what happens in a perfect bookkeeping world. In the real world, however, closing your monthly cycle is a bit more complicated. Lagging receivables and expenses delay your closing process days into the following month, and you often end up with more question marks than periods.
So how do you make sure you can stamp that period onto the end of your monthly finances? Here are a few tips to help you make a clean monthly break.
Make timing your priority
Let everybody in the company know that timing is a priority. If any department delays closing its subledger, that will have a roll-up effect on your company’s general ledger.
Work with your company’s department heads to build a timeline for compiling and submitting timely financial data reports. If you know that you need the general ledger compiled, computed and submitted to your superiors by the third day of the following month, and you know it’s going to take two business days to turn that around, the first day of the new month should be the no-excuses deadline for department heads to close their subledgers.
Also set a succession of deadlines for yourself. For example, on the first business day of the new month, all sales invoicing must be done and all customer payments must be posted. The next business day, all inventory bills and vendor payments must be processed. If your closing process is an elephant, follow the tried-and-true business advice of eating it one bite at a time.
Create a cheat sheet
There are a lot of steps involved to ensure departmental data is accurate and accounted for, as well as compiling it into an end-of-month company-wide report. Make life easier on yourself and your team by creating a closing process cheat sheet – a checklist that helps everyone keep track of deadlines and data.
Your cheat sheet doesn’t need to be overly complicated – in fact, it’s better if it isn’t. Often a half-page checklist is sufficient, as long as everyone involved in the data-gathering process understands it and uses it.
Use cycle counts
Tracking inventory will help you accurately tabulate monthly closing data, but full inventory counts are often impractical. You simply don’t have the time to stop production lines and count every widget in the shop. But there is an easier way.
Cycle counts are the less-disruptive cousin of full-inventory counts. While they don’t account for every item in production, they give you a reasonably accurate picture of your inventory to show to management. Perform them at closing time each month to track inventory, and supplement with full inventory counts a few times a year.
Consider ERP software
Even the most technology-averse companies are using Microsoft Excel to track financial data. And it’s still an effective tool if all you need are rows and columns that show you where the money is coming from, and where it’s going.
However, as your operation grows, you might consider investing in a more sophisticated platform that allows you to manage your monthly business cycle from start to finish. Enterprise resource programs, or ERPs, enable you to manage inventory, sales and receivables from one interface, and many – if not most – are capable of being hosted in the cloud, making them readily accessible for anyone in the company, working from any location.
In the end, proper monthly closing comes down to having accurate data and open communication. Whether you employ these tips or different methods, accuracy and communication will help you finish more months with periods than with questions marks.