Building a sustainable finance function: Mastering the month-end close

Welcome to the first post in our series on crafting a sustainable and scalable finance and accounting function for small and middle market businesses. In this article, we are going to delve into the bedrock of financial integrity: accounting and the month-end close.

What is the month-end close?

Every month (ideally), the accounting department takes on a series of tasks to update the books and records of the business. This process includes ensuring that all bills and invoices have been properly recorded in the system, supporting schedules and bank statements have been reconciled, and internal financial statements have been prepared with all the relevant assumptions and estimates.

Why is important to have a good month-end close process?

A business’ ability to operate and grow depends on the ability of management to make decisions quickly. From a financial perspective, the information needed to make those decisions is contained in the month-end close package that includes all the core financial statements and selected information for management’s review. The absence of this information can delay management’s ability to make decisions or force management to make ill-informed decisions.

What are the essential elements of a month-end close process?

For small and middle market businesses, the following areas are key to having a fine-tuned month-end close process:

• A Cloud-Based Technology Platform: Embracing cloud-based technology is an essential step for the modern month-end close. Cloud-based platforms offer scalability, flexibility, and accessibility, empowering finance teams to collaborate seamlessly from anywhere. Our clients leverage tools like real-time bank integration on QuickBooks Online and NetSuite, as well as BILL.com for bill pay to have access to real-time data reporting and analytics. Properly leveraging cloud-based tools like these allows for the entire accounting function to work smoothly, especially during the Month-End Process.

• Alignment of a Chart of Accounts: It is during the month-end close when most businesses analyze their operations, and that analysis cannot occur without a standardized chart of accounts (COA) to provide essential clarity over the reporting of financial transactions. Our clients employ a variety of styles in their charts of accounts depending on their needs, including class reporting, separate entity reporting, and roll-up accounts. While every COA will look different depending on certain operational reporting requirements, it’s essential to periodically review the level of detail and align with management’s reporting requirements.

• Consistent Application of GAAP: Adherence to Generally Accepted Accounting Principles (GAAP) is paramount. It provides a standardized framework for financial reporting, ensuring uniformity, comparability, and transparency when analyzing the company’s financial position every month. GAAP application becomes more important as the company’s financial reporting requirements become more sophisticated, usually because of some kind of financing such as investor funds or bank loans. While many smaller businesses consider GAAP accounting only once per year for external reporting purposes, our clients have found success applying GAAP every month in conjunction with management reporting and have saved a considerable number of year-end efforts in doing so.

• Balance Sheet Reconciliations: How do you know if your balance sheet is accurate? The answer is to have the supporting schedules known as Balance Sheet Reconciliations. These workpapers are critical for identifying discrepancies and ensuring accuracy in financial statements. Our best clients have implemented robust reconciliation processes for all their key balance sheet accounts including cash, accounts receivable, accounts payable, and inventory.

• A Defined Month-End Close Process: A well-defined month-end close process is the heartbeat of financial operations, and that definition starts and ends with a month-end checklist. It’s critical to establish clear timelines and responsibilities for everyone involved to streamline the process of closing the books. Our clients have found great success in using their month-end checklists to define key milestones and deadlines to work towards such as having bank reconciliations done on the second business day and the entire package prepared by the 10^th business day.

• Roles and Responsibilities: In most businesses, the month-end close is a team effort that requires each team member to have clearly defined roles and responsibilities within the finance function to promote accountability and efficiency. In conjunction with the month-end checklist we noted above, certain individuals should be designated as responsible for specific tasks, such as account reconciliations, journal entries, and financial analysis. By clearly defining who is doing what at the end of the month and fostering a culture of collaboration and communication, our clients have been able to execute on their month-end closes with consistently positive results.

• Financial Reporting Controls: No month-end close is complete without internal controls over financial reporting. For most small and mid-sized businesses, these controls will mostly consist of approval workflows on certain payments, and review processes over key accounting workpapers.

How to take your month-end close to the next level

Mastering the month-end close requires a holistic approach that encompasses GAAP compliance, process efficiency, technology integration, and strong internal controls. By embracing best practices and leveraging modern tools, your organization can establish a sustainable finance function that drives value and fosters growth. Siegfried Advisory is here to support your organization at any stage it its development. Whether you are trying to define the month-end close tasks for the first time or are trying to make the established close processes more efficient, we are happy to help!