Often companies are inundated with so many transactions during the month, month-end close is often overlooked or not prioritized. Month-end billings, unusual transactions, and other items take precedent and month-end close becomes quarter end close, which then becomes audit close. Often month-end close is pivotal in determining profitability for the month, assessing adherence to budgets, and aids in making short-term decision. Additionally, closing each month can aid in monthly trend analysis and identify areas of concern management may wish to review.
Month-end close is very similar to year end close, just on a much smaller scale with the goal of closing each month to prepare internal financial statements for review. Monthly transactions consist primarily of expenses and billings for the period with a few infrequent transactions such as fixed asset purchases, investment purchases, equity transactions, or other planned transactions. Once all transactions for the month have been recorded, the company will ensure subsidiary ledgers reconcile to the general ledger to ensure all information is accurate; then finally accrue for activity that related to the current month but is paid in a subsequent month. At last, the financial statements are ready for review!
Often reviewing monthly financial information is pivotal in determining many aspects of the financial health of the company. Monthly financial information can assist the company in multiple ways such as determining if the company might require short-term financing to meet cash flow for the next month or to determine if the company is on track to meet financial covenants. More importantly, monthly financials may help in decision making for the next month, such as purchasing fixed assets or identifying issues with accounts receivable collections. Ultimately, preparing monthly financial statements provides valuable insight into the financial health of the Company. Perhaps the best benefit is that financial audits or reviews run smoothly and most, if not all, of the information has been reconciled and reviewed thoroughly.
While month-end close might add additional work to an already full schedule, it is important to consider the benefits this can add to overall financial success. Often, month-end close allows companies to be proactive in addressing risk or identifying problems rather than being reactive. So, when deciding if month-end close is important, always remember, “In this world nothing is certain but death, taxes and month-end close”.