Month End Close Checklist: Step-by-Step Guide (+ Free Checklist)
Why Care?: The financial close process, though repetitive, is fundamental in achieving clear and accurate financial outcomes, ensuring all financial records are in alignment.
Little Steps; Big Changes: Focusing on refining each step of the financial close process can enhance efficiency, reduce errors, and streamline operations for a smoother financial close.
Communication is Paramount: Effective teamwork and communication are essential for a successful financial close, preventing bottlenecks and ensuring deadlines are met. You need to project manage your close.
Automate What You Can: Incorporating technology and automation can significantly speed up the financial close process, minimize manual errors, and allocate more time for strategic analysis.
Having a month end close checklist helped me a lot more than I thought it would. After all, the financial close process is similar to tying a tie: you know you know how to do it, but if it's been a while, you feel it.
If you don't know how to do it, welcome. The month end close process:
- Ensures you have timely, accurate financial results
- Finds areas for improvement within the business' spending
- Keeps everyone focused on what’s important for the business
After all, the month end close isn't just about leaving the previous month behind; it's about ushering in a new one with clear financial insights and a strong foundation for what lies ahead.
In this article, I’ve covered the A-Z of the close process and given you the month end close checklist that I’m currently using as a template for you to apply to your own business.
Your Free Month End Close Checklist
First thing's first: here's the checklist, ready for you to download and use.
Later in this article, I'll explain my assumptions and the specific necessities of my business, so keep scrolling if you want to be able to customize this template to perfectly fit your business.
The Importance of Month End Close
There’s unexpected weight behind the month end close process. It allows you to step back from your daily activities and assess the last month's impact on your business, helping you:
- Lay the groundwork for future financial planning
- Highlight financial discrepancies ASAP
- Mitigate future operational and legal issues
Reviewing the situation dramatically reduces the chance of financial misreporting and inaccuracies.
A precise month end close crafts a narrative through figures, balances, and financial statements, forming the foundation for strategic business decisions. It injects a planned review of your accounting system, giving you a great excuse to evaluate overall performance.
Regardless of your feelings about bookkeeping, I hope you’ll see the value in a strong month end close process by the time you finish reading this article.
Preparing for the Month End Close
Success in the month end close begins before the accounting period’s end. It requires foresight, planning, and setting the right mechanisms in motion for a smooth, accurate, and efficient closing process.
Here's what you need to do:
1. Set Clear Objectives
Clear objectives guide the month end close process, ensuring every action aligns with the company’s financial goals.
Objectives could range from "ensure accuracy in income statement reporting" to "streamline the monthly closing process."
Having well-defined objectives simplifies the process and provides a benchmark for measuring your accounting department.
2. Identify Key Metrics
Identifying key metrics to monitor during the month end close is the best way to improve the workflow. These metrics could include:
- Financial accuracy
- Process efficiency
- Compliance rate
- Time to complete the closing procedures
- Number of account reconciliations you need to perform
- The average petty cash total in your bank accounts each close
Key metrics assess the effectiveness and accuracy of the month end close process, ensuring you and your team continuously improve it.
3. Establish a Timeline
Time is critical for the month end close. Crafting a clear, realistic timeline for each task is crucial, as it guides the process and ensures timely completion.
For example, I set a timeline to complete my month end close 10 business days before the month’s end.
Other companies may need to complete more (or fewer!) processes, depending on their functions and accounts. For example, if you:
- Hold inventory, you’d likely make monthly inventory entries to ensure correct values.
- Have a more developed payment management process, you’ll manage accounts payable (ie. we pay invoices within 30 days).
- To offer pay-outs of unused vacation, create a monthly adjustment to their vacation accrual.
- Pay salaries biweekly, you’ll need an additional payroll accrual adjustment at each month-end.
Executing the Month End Close Process
Time to get things done.
Here's the month end close checklist I use; feel free to download and adjust it for your business.
Closing Accounts
- Document all US credit card (CC) entries
- Document all Canadian CC entries
- Document all alternative currency CC entries
- Document all US Cash entries
- Document all CAD Cash entries
Month-End Entries
- Pay monthly tax installment
- Updated Capital Asset workbook
- Adjust monthly Capital Asset entry
- Update Prepaid workbook
- Adjust Prepaid workbook entry
- Update Monthly Accrual workbook
- Adjust Monthly Accrual entry
- Account for any non-cash third-party payments related to the current month (e.g., accounts payables, services acquired but not invoiced, etc.)
- Adjust monthly payroll entries into cost categories & divisions
- Reverse bonus accrual (if applicable)
- Input monthly bonus accrual adjustment
Reporting
- Fund EOR account
- Approve EOR payment
- Update Cashflow document
- Reconcile external payment providers, e.g., PayPal, Wise, Bill.com, etc.
- Reconcile USD cash
- Reconcile CAD cash
- Reconcile USD CC
- Reconcile CAD CC
- Reconcile alternative currency CC
- Input financial information into Internal Reporting Document (including Monthly results, budget to actuals, and any other relevant information for stakeholders).
- Adjust Internal Reporting Document (as needed)
Communications
- Communicate regarding required tasks from other departments
- Send out Cash Flow results email to Relevant Stakeholders
- Send out Financial Results email to Relevant Stakeholders
- [Current month] Financials closed
Best Practice Considerations
I have notes on the month end close checklist above.
First and foremost, I’m operating within a Canada-based media and technology company, BWZ, with global operations. You may want to adjust to make your accounts US-based.
I’d recommend adding some other best practices to this list:
- Attach due dates to every list item to systemize it and complete the close on time. Initially, these dates could help you remember the task order and maintain progress.
- As your team grows and processes get complex, assign tasks to more team members. Due dates prevent bottlenecks and keep reporting consistent.
- Assign a responsible party to each task. Instead of just writing the person’s name, I recommend building your checklist within task management software for real-time responsiveness.
What Else to Include
There are likely other things that you need to include, that I have not, such as:
- Depreciation figures for fixed assets,
- Account reconciliations,
- Journal entries,
- Changes in physical inventory,
- Consolidation of parent and subsidiary accounts,
- Foreign exchange adjustments,
- And any other accounting procedures you have.
Remember this is for you; don’t hesitate to get granular with your tasks to suit your business.
Commentary on Changes
What’s included on the list in spirit, but not in verbiage, is commentary on changes.
Each month, I include commentary on accounts with significant MoM changes or material Budget to Actual differences (and the reasoning). This is done for both Cash Flow and Financial Results reporting.
For example, if you’re VC-funded and not yet profitable, your cash burn rate becomes a critical metric that your investors monitor. You’ll need to include an analysis of your current month’s cash burn relative to budget, an outlook of your cash burn, and a sensitivity analysis on that outlook (among other things).
Documentation of Processes
In a larger company, you may want documentation of each of your month end close processes, such as contractors and payroll split.
I calculate and do these myself, but a larger company may want to keep a completely separate workbook with this on record.
Separation of Duties
Large companies may include evidence of a preparer and a reviewer. This separation of duties is pretty common in larger companies; in a year or so from now, I’ll likely transition the month end close processes to another team member, assuming the reviewer role to allow for more controls and confidence in error-free work.
Accuracy in Reporting
100% accuracy in financial reporting is obviously the goal; however, focus on what’s material for your business.
If you’re financially healthy and find small discrepancies like a $30 off account, you won’t redo your entire model to find it. While the goal is complete accuracy, focus on getting a clear picture for your important stakeholders and communicating promptly.
You're most valuable when you provide decision-makers accurate, relevant information to make the best decisions for the company.
Compliance and Standards
Adhering to accounting standards and regulatory requirements is imperative. Compliance upholds the law and the principles of financial integrity and transparency.
Whether it's the US GAAP, IFRS, ASPE, or any local accounting standard your company uses, adherence ensures consistent, transparent, and comparable financial reporting.
Technology Utilization
Using the right technology can streamline the month end close process.
Whether it's tools for AR or AP automation, or accounting software ensuring compliance and accuracy in reporting, technology plays a pivotal role.
It’s about finding the right tools for your business to simplify your life without sacrificing quality. You’re the scorekeeper of your business; you have to ensure the points are correct.
If you’re still looking into accounting software, let me help. These are the best accounting solutions currently on the market, according to our technology analyst team:
Analyzing the Results
After the month end close, it's time for reflection and analysis.
The financial data on your statements narrate a story composed of the following elements:
Financial Insights
The month end close is more than a routine task; it can be a goldmine of financial insights.
It's about analyzing the numbers, understanding trends, and identifying patterns. Financial insights from the month end close help assess your company's financial health, cash flow, profitability, and solvency.
These insights aren’t just about understanding the present; they’re about predicting the future, whether you plug these numbers into a forecasting model or not.
They aid in budgeting, financial planning, and forecasting, enabling your company to make informed financial decisions. Plus, these numbers provide a benchmark for measuring your company’s future financial performance.
Who doesn’t love record revenue highs?
Performance Metrics
Key performance metrics like the cash conversion cycle, working capital efficiency, and cost management efficiency offer a clear, objective assessment of your company’s performance. Pay special attention to these metrics as you close the books each month.
Performance metrics help identify areas for improvement. They spotlight bottlenecks, inefficiencies, and areas for enhancement.
To excel as a strategic CFO and create value for top management, you must measure performance against benchmarks, understand gaps, and strive for continuous improvement.
Continuous Improvement
The finance realm changes quickly, and so should be the month end close process. Continuous improvement is not a one-time task; it's a culture, a commitment to excellence, efficiency, and effectiveness in the month end close process.
Process Evaluation
Use the checklist I provided as a starting point, adding and replacing tasks as you identify what’s most important for your organization’s growth.
There’s always room for improvement. Your job is to step back, assess the process from a bird’s eye view, and understand the big picture.
Evaluating the close process and results will help understand the effectiveness of existing processes, the accuracy of financial reporting, and technology efficiency. This will provide actionable insights to streamline the process, improve accuracy, and boost efficiency.
Adopting New Technologies
Don’t hesitate to try new things in this process. Adopting new technologies can enhance efficiency, accuracy, and compliance. Whether it’s accounting automation tools for faster cash collection or corporate performance management tools for real-time monitoring and analysis, embracing new technologies can be a game-changer.
New technologies can reduce the time and effort needed for the month end close, freeing you and the finance team to focus on more strategic, value-added tasks.
Just, for your own sake, check the work your new tools complete.
Time to Close the Books
Mastering the month-end process is a continual journey of diligence, analysis, and improvement. You’re keeping score of progress and setting targets on what to improve next, helping your business get better, every single month.
A successful month end close relies on preparation, execution, and analysis. It's about setting the right foundation, ensuring a smooth process, and learning from the experience to improve future outcomes.
Next up? The big review: the year end close.
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