Month-end close: how to master this essential accounting process

For accountants, the process of keeping accurate financial records continues year in, year out. But to ensure that they are on the right track, it’s important to put down markers at consistent intervals and verify that the books are indeed balanced. This is why the month-end close process is so crucial.

As the name suggests, the month-end close process allows accounting teams to round off and review the month’s financial activities, ensuring that financial statements are accurate and compliant. It also allows them to start the next month with a clean slate.

In this article, we’ll explain everything you need to know about the month-end close process, including the steps you need to take to ensure accurate and compliant financial statements, the major challenges associated with the month-end close, and some tips to help you overcome them.

Key steps in the month-end close

To ensure consistency and accuracy each month-end close, it’s important to take a methodical approach that’s easily repeatable. While the exact steps you take will depend on the type of business and the products or services you sell, here are some key steps to follow.

1. Prepare for the process

Before you move on to the actual accounting work, take some time to lay the groundwork. Setting calendar notifications and deadlines, breaking the process down into smaller tasks, and assigning work at this early stage will ensure a smoother, less stressful month-end close.

2. Consolidate financial data

Next, you need to record and gather all relevant financial data in preparation for the month-end close. You’ll need the following: 

• All records relating to revenue, including sales, incoming, and accounts receivable
• All records relating to expenses, accounts payable, payroll, etc.

To make this process smoother, make sure that all your accounting data is consolidated in a single platform rather than spread across multiple systems.

3. Reconcile accounts

Once you have all the financial data you need, it’s time to get busy with account reconciliation. This is perhaps the most important step, as it ensures that your financial records match the reality of your financial activities. 

You’ll need to perform bank reconciliations to ensure that the company’s financial transactions reflect its bank statements. You’ll also need to verify balances for accounts receivable, accounts payable, and other balance sheet accounts.

4. Adjust entries

Once accounts have been reconciled, you’ll need to make any necessary adjustments for things like accrued expenses, prepaid expenses, depreciation of assets, and so on. Doing this monthly will help ensure that your financial statements reflect the true financial position of the company — and avoid big jumps in profit or loss.

5. Create and review financial statements

With financial data for the month recorded and all accounts reconciled, you can now go ahead and prepare your balance sheet, income statement, and cash flow statement. Be sure to check for any errors and inconsistencies in the statements. It’s also important to back up your data and ensure best practices around document management.

Common challenges in the month-end close

Despite its regular occurrence, the month-end close is often fraught with challenges. In this section, we’ll explore some of the biggest hurdles to a smooth process — and strategies you can employ to mitigate them.

Inconsistent data 

Accurate and consistent financial data is central to all accounting processes, especially the month-end close. If there are any discrepancies in your financial records, you’ll need to identify and fix them, which can be a time-consuming and complicated process, potentially leading to delays.

Solution: improve data integration, ensuring that data is shared seamlessly across your accounting software. Leveraging the right tech will also help avoid manual data entry, which is the most likely cause of inaccurate data.

Time management issues

Because the month-end close has a hard deadline, accountants are often under pressure to complete the process on time, often while juggling multiple other tasks. This inevitably leads to rushed work, which significantly increases the risk of error or oversight.

Solution: get organized. Ensure that all responsibilities are defined, and all tasks are assigned, well before the process starts. You can also utilize project management software to help manage the process and provide better visibility into progress and deadlines. 

Software limitations

In today’s digital world, an accounting team is only as good as the software it uses. If your team is saddled with outdated and disjointed software, they’ll struggle to complete the month-end close (or any accounting process for that matter) effectively. Instead of letting the tech do the heavy lifting, they will spend disproportionate amounts of time performing repetitive manual tasks, increasing the likelihood of error.

Solution: invest in modern accounting software. Choose accounting and practice management platforms that offer task and workflow automation freeing your team up to focus on more high-value work. Leverage time-tracking software to gain a better understanding of productivity and identify areas for improvement.

Regulatory compliance 

Ensuring compliance with the latest regulations is essential for any accounting practice. But with rules and standards subject to change, the risk of non-compliance — and the reputational and financial damage associated with it — is high. 

Solution: ensure that your team stays up to date with the latest rules and regulations, and provide regular training where necessary. You can also invest in accounting software that has compliance features built in, with regular updates that align functionality with the latest regulatory requirements.

Poor internal communication

In larger accounting practices, the month-end close will likely be a team effort, with tasks split across multiple accountants. Poor communication within and across teams can lead to all manner of issues, including siloed data and confusion about processes and responsibilities. This increases the likelihood of time management issues and mistakes.

Solution: foster a culture of clear and transparent communication. Leverage practice management platforms that have internal communication tools and project management capabilities to ensure that team members understand who’s working on what and when.

Tips for streamlining the month-end close

While we’ve already touched on some strategies for mitigating common challenges, let’s explore in more detail some tips you can implement to streamline the month-end close and ensure a successful and stress-free process. 

Ensure effective training 

Training is essential for a smooth and hassle-free month-end close — even for experienced accountants. Once you’ve settled on a tried-and-tested process, make sure the entire team understands the steps involved, the systems and tools you use, and the timeline for completing tasks. 

Alternatively, you can boost your team’s expertise with online courses, ensuring that they have the necessary accounting certifications to take on the month-end close with confidence.

Systematize the process

Your month-end process should happen the same way regardless of the accountants working on it. To achieve this, you need to document the process and make sure everyone on your team understands where to find this information. 

Leverage the right software

Choosing the right software is up there with the most important decisions you can make as an accounting firm. Virtually every process you need to complete involves technology, and the month-end close is no different. How effectively and accurately you can complete it hinges on the software you use. 

With so many accounting tools available, it can be difficult to know where to start. We recommend choosing software that: 

• Automates accounting tasks and workflows
• Centralizes data and processes
• Promotes better team collaboration and communication
• Replaces multiple apps (and software licenses) with just one
• Is easy to use

TaxDome ticks all of these boxes. As a comprehensive practice management platform, it becomes the operating system for your practice, providing a central hub for task management, team collaboration, workflow automation, document management, and more. 

Use templates

Templates are an excellent way to work faster and ensure standardization across processes. You can leverage templates for financial reporting and reconciliation, while using a month-end checklist will help ensure that every box is ticked. You can make your own templates, but the best approach is to utilize software that includes ready-made templates that you can adapt and customize yourself. 

TaxDome, for example, features a template library, where you can find a wealth of templates created by industry experts, spanning everything from entire workflows to emails, tasks, invoices, and more. 

Perform regular reviews

Take the time to review your month-end process at regular intervals, such as every quarter. Look closely at what’s working well, what isn’t, and areas where you could make the process faster, simpler, or more efficient. If you decide to make any changes to the process, be sure to communicate them clearly to the team and provide any necessary training to implement them.

In summary

The month-end close is one of the most important accounting processes, but it can also be one of the most challenging. By implementing the tips and tricks we’ve highlighted in this article, you’ll be well on your way to delivering a smooth and hassle-free month-end close. 

If you’d like to see how TaxDome could help you achieve this by providing a central platform for managing your teams, clients, and workflows, request a demo today!