How to Improve Month-End Closing Process: Best Practices & Actionable Strategies
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How to Improve Month-End ClosiStreamlining Month-End Close
The month-end closing process is a critically important part of financial management. An optimized, efficient closing process has a significant impact on overall business performance. This guide provides practical strategies and best practices for dramatically improving and accelerating your month-end close.
Introduction to Month-End Closing
The month-end close, also referred to as end-of-period closing, is the process a business goes through at the end of each month to finalize accounts and financial statements.
Some key steps in the closing process include:
Having an effective, streamlined closing process is crucial for:
However, many businesses struggle with a disjointed, slow, and manual closing process that becomes a bottleneck to productivity and growth.
This guide covers proven strategies for optimizing your entire month-end closing workflow.
The High Costs of an Inefficient Closing Process
A disjointed closing process comes at a major cost to any organization. Bottlenecks, errors, and delays negatively impact:
Profitability
Business Operations
Growth Prospects
Regulatory Compliance
By optimizing the closing process, businesses can save thousands in audit fees, reduce overhead costs, accelerate decisions, improve investor confidence, and avoid regulatory issues.
Key Performance Indicators for an Efficient Closing Process
To optimize the closing process, businesses need to actively monitor key metrics as key performance indicators (KPIs).
KPIs to Measure Progress of Current Period Close
KPIs to Compare Across Periods
By regularly tracking these KPIs, finance teams can quantify efficiency improvements from process changes and technology investments.
Now let’s explore some impactful strategies to optimize key steps within the month-end closing process.
Creating an Effective Financial Close Calendar
The closing process is comprised of a series of interdependent tasks. Planning and scheduling these tasks is critical for an efficient close.
Best practices include:
Compile a list of all activities, owners, timing, and dependencies. Common closing tasks include account reconciliation, journal entry creation, inventory counts, and report generation.
Identify internal, external, and regulatory filing deadlines. Work backward to set a monthly close date. Build dependencies into the schedule.
Extra days between tasks allow for unexpected delays. Having closing steps finish earlier than the month-end date also provides a buffer before filings are due.
Use project management software to automatically sequence tasks as due dates change. Automated alerts notify owners when tasks become critical.
Creating a detailed closing calendar transformed chaotic closing into structured, predictable processes for many businesses.
Standardizing Financial Reports for Consistent Analysis
Monthly financial reports are critical for leadership to analyze performance and make decisions. However, compiling these reports is often manual, inconsistent, and time-consuming.
By standardizing financial reporting, the closing process becomes faster and results easier to analyze across periods.
Best Practices for Standardization Include:
Create templates for recurring reports like P&L statements, balance sheets, cash flow reports, and ratio analysis.
Use accounting software to auto-populate templates with current period data. Configure reports to run at the click of a button.
Establish organization, labeling conventions, usage of highlighting/colors, and layouts that become familiar to users over time.
Combine data from multiple systems like accounting software, CRM, inventory management, etc. into centralized dashboards.
While standardizing reports involves an initial effort, this time is quickly recouped thanks to faster closes in future months and better visibility for decision-makers.
Reconciling Bank Accounts and Credit Cards
Reconciling cash and bank balances is one of the most time-consuming closing tasks. These balances also have some of the highest risks for errors, fraud, or misstatements.
Here are three best practices for accurately and rapidly reconciling accounts:
Rather than leaving reconciliation to the end-of-month, reconcile daily activity and balances. This makes the process fast and prevents large discrepancies.
Use accounting automation software that fetches bank statements and auto-matches transactions with recorded activity. This saves hours of manual work.
Assign a specific finance team member with ownership over each account reconciliation. This accountability ensures that critical tasks never slip through the cracks.
Reconciling all cash and bank accounts early in the closing process minimizes risks and compresses workload as deadlines approach.
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Inventory Valuation Impacts Profitability
Updating inventory valuation is vital for accurately stating COGS and net income on financial statements during closing.
Inventory can be valued in multiple ways:
Values inventory at the costs of the oldest units first. Closely matches current replacement costs.
Values inventory based on the most recent costs paid first. Minimizes taxable income for some businesses.
Calculates average cost per unit based on units remaining after each new shipment. Minimizes extreme swings in valuations.
Accounting software can automate inventory value calculations based on the method configured. Integrating this data then accurately populates COGS and inventory balances during closing.
Identifying and Fixing Bottlenecks
While most businesses conduct a closing process every month, few continuously improve it. Identifying and fixing bottlenecks accelerates each period.
Common ways businesses pinpoint bottlenecks include:
Typical constraints that cause delays include:
Techniques to alleviate bottlenecks include:
By regularly inspecting workflows, bottlenecks become visible. Addressing just one or two major constraints each quarter results in impressive gains in efficiency over time.
Optimizing Fixed Assets Management for Month-End Close
Recording monthly or quarterly depreciation of fixed assets is a key task. Finance teams need to determine and implement the optimal depreciation methodology based on GAAP standards and asset types. Automating depreciation calculations eliminates errors.
Tangible assets should be regularly reconciled with subsidiary ledgers and general ledgers via physical inventories. Intangible assets must also be reconciled and impaired if necessary. Proper reconciliation ensures accurate financial reporting.
Purpose-built fixed asset management software solutions centralize asset data, automate depreciation, simplify reconciliation, and integrate with GL systems. This improves accuracy and efficiency.
How to Effectively Manage Month-End Journals and Entries
Well-designed approval workflows, support documentation standards, and posting guidelines are essential for timely, accurate journal entries. Establishing and enforcing best practices reduces errors and simplifies auditing.
Common journal entry errors include duplications, incorrect offsets, coding mistakes, and missing support. Automated, pre-configured journal entry templates along with review checklists minimize these errors.
Automating repetitive journal entries through account reconciliation software and ERP integration eliminates manual work and increases accuracy. Built-in error checking further optimizes journaling.
Strategies for Reducing Closing Errors
Recurring closing errors include reporting discrepancies between business units, unreconciled accounts, intra-period timing differences, and unposted or duplicate journal entries. Defining and addressing the root causes reduces future errors.
Quality control measures that optimize month-end closing include standardized policies and procedures, cross-training teams, implementing system validations, automating reconciliation, establishing approval chains for adjustments, and thorough management reviews.
Providing ongoing education for finance teams ensures they stay current with accounting regulations and closing best practices. Training also helps eliminate knowledge gaps that contribute to closing errors.
The Importance of a Well-Structured Chart of Accounts
A clear, logical, and properly segmented chart of accounts speeds up the lookup and posting of transactions during closing. It also enables accurate financial reporting by business unit, product line, region, department, and other dimensions.
Leading practices for designing a chart of accounts include structuring it to support management reporting needs, sequencing numerically by category, establishing review procedures for additions/changes, and optimizing account segmentation.
As business strategies evolve, the chart of accounts may need realignment to capture emerging data requirements. Ongoing maintenance ensures it remains focused on financial analytics priorities.
Key Takeaway
Streamlining and accelerating the month-end closing process has tremendous financial, operational, and competitive benefits for any organization.
While closing faster does require some investment of resources, the long-term dividends are well worth it.
This guide provided practical strategies and best practices in all key areas of the closing process including:
Implementing even a few of these recommendations can lead to a smoother, faster, and less painful monthly close. The finance team gets to go home earlier, leadership has faster access to results, and the business is far better positioned for growth.
Unmatched Efficiency and Visibility with Versa Cloud ERP
Optimizing the month-end closing process is a pivotal yet challenging undertaking for modern finance teams. As this comprehensive guide outlined, there are numerous high-impact areas to address - from streamlining financial reporting to automating transaction processing to improving inventory management. While process improvements deliver tangible gains, technology is arguably the most vital element for a world-class close.
A robust unified solution like Versa Cloud ERP provides integrated finance, accounting, inventory, and warehouse management capabilities on a cost-effective integrated cloud platform.
With Versa’s end-to-end workflows, real-time visibility across modules, and automation for tasks like bank reconciliation, organizations can significantly accelerate monthly close cycles while improving productivity. The solution is tailored to the needs of accounting, manufacturing, and 3PL/distribution firms.
By leveraging Versa’s modern architecture, companies can realize a single source of truth, timely insights into business performance, and the agility to support growth. To experience the benefits firsthand, schedule a free personalized demo from Versa’s experts. Discover how leading organizations of all sizes are transforming their entire business process with Versa Cloud ERP.
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