Why You Shouldn’t Neglect Your Month End Close Process

Paul | Graphite - Startup Accounting Services

Josh Leider, Head of Growth at Graphite

The month end close process is key to keeping your finances reconciled and accurate. A smooth and efficient process ensures your finances are ready to be used for managerial decision-making (the map to steer your ship) and compliance (such as taxes and reporting). 

When done right, this process provides you with financial accuracy and reporting that sets you up for future success and sustained growth. Clean financials empower you to attract investors, secure loans, or even go public. 

Unfortunately, we’ve seen many startups treat accounting as an afterthought when it should be a top priority from the beginning. Messy or inefficient month end close procedures cost your organization money and may even sabotage your opportunities with investors. 

Taking the time to standardize your month end close process reduces stress in the short term and helps you get a more reliable grasp on your financial standing, which enables you to reach your financial goals in the long term.

 

What is a Month End Close Process?

It should encompass everything needed to get your books as complete and accurate as possible for the month. 

You need to reconcile all material items on your balance sheet, and if balances are stagnant, determine why that is and if they should be moving. 

Material items on your income statement, such as revenue, payroll, and debt-equity will also need to be reconciled using third-party support within detailed workpapers. 

 

Why Is the Month End Close Process Important? 

An efficient month end close supports accurate and complete financials for monthly, quarterly and annual reoprting. Ideally, the readers of financial statements can deduce and understand the company’s financial well-being by reading the four financial statements provided by the company.

 

The Dangers of an Inefficient Process

If you don’t close your books at the end of each month, your budget sheets will be misleading, which could have negative repercussions for your organization down the line. 

For example, you could end up over- or understating your expenses. This makes it really hard to manage your operation, and gives investors or lenders a misleading snapshot of your organization, making it difficult for them to recoup their investment later on. 

Even if raising funds isn’t slotted in the immediate future, this could come back to haunt you in the future when you’re ready to pursue that route.

 

The Benefits of a Solid Process

On the other hand, clean and accurate financials help your organization achieve its financial goals. A reliable month end close process and solid financials make it easier to forecast and budget for the future. And from a reputation standpoint, it shows key stakeholders that you really understand the economics of your venture. 

All of this ultimately helps you scale and reach exciting milestones like getting acquired, going public, or having a fruitful cash flow business.

 

How Long Does the Month End Close Process Take?

The length of your month end close process will vary depending on the size of your organization and the resources you have available. 

If your transactions are complex and difficult to reconcile, things may move a bit slower. Having a very small or busy team can also hinder your month end close process. 

Most organizations like to finish this process within 5-7 business days from the end of the previous month. While larger organizations usually have more complex budget sheets, they also tend to have more efficient processes in place to get things done on time. 

The key is to find a balance between speed of completing this process and the accuracy of results. If you rush through your month end close, you could end up making costly errors. However, if your process is too slow, you lose timely visibility of the health of your startup, which limits your ability to make financial decisions in the short term.

What Steps Are in a Month End Close Process? 

At Graphite, we created a simple, templated streamlined month-end close checklist based on our experience working with startups across a broad range of industries. 

This checklist serves as a starting point for your month end close, specifying what needs to get done, when it should be done, who is responsible for each task, and who is responsible for the review of each task. There should also be at least one preparer and one reviewer. 

Download our Free Month End Close Checklist

Used by the best startups

How Can I Improve My Month End Closing Process?

The best way to improve your month end closing process is to standardize it. 

By having an established set of steps you take each month, you’re able to work more efficiently and reduce confusion among your accounting team. 

Here are some important steps you should take to streamline your month end close.

 

Automate Processes With Your Tech Stack 

Much of your month end close process can be automated with the right technology, which will save you time and help you get organized. 

Settle, Bill.com, and Ramp are a few examples of programs that will automate payment processing and help you manage your cash flow.

 

Create a Checklist

To truly standardize your financial processes, you’ll want to implement a month end close process flowchart or checklist

Specify which action items need to get done and the timeline you need to follow. Then, assign them to a specific person or team each month.

The more detailed and specific you make your checklist, the more likely these items are to get done. 

You should also standardize your accounting processes by setting aside appropriate funds for prepaid expenses and fixed assets. These things are sometimes neglected during the month end close process, but standardizing the process ensures that they get done.

 

Work Through All Reconciliations Every Month

No stone should be left unturned when it comes to your month-end close process. 

Take the time to make sure every item in your balance sheet is appropriately reconciled and has the necessary workpapers to back it up. If you can’t reconcile an item, make sure that you know why and have a plan to address it moving forward.

 

Streamline Your Month End Close With Graphite

Implementing an efficient month end close process is the first step towards reaching your financial goals. Whether you’re looking to get acquired, go public, or just scale your business efforts, you’ll need clean financials to get funding.

As a startup, you might not have the time or resources to give your month end close the time and attention it deserves.

That’s where Graphite comes in—our team of fractional CFOs and accountants are here to help you tackle these challenges. We specialize in startup accounting, so we understand the unique challenges you face as you grow.

Ready to get started? Be sure to download our month end close process checklist, and reach out to us to learn more about our services. 

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