Month-End Close Checklist: Your CPA-Built Guide (+ Template)
The financial close process is a ritual that, while mundane, can have some pretty profound repercussions if you focus on the right aspects of it. Your month-end close process is an opportunity to:
- Ensure you have timely, accurate financial results
- Find areas for improvement within the business' spending
- Keep everyone aligned on what matters 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.
Happy end of month!
The Importance Of Month-End Close
There’s an unexpected amount of weight behind the month-end close process. It’s where you step back from your day-to-day activities and assess what the last month meant for your business, helping you:
- Lay the groundwork for future financial planning
- Highlight financial discrepancies before it's too late
- Mitigate future operational and/or legal issues
After all, if you take time to review what’s going on, the chance of financial misreporting and inaccuracies drops dramatically.
A precise month-end close crafts a narrative, weaving a story through figures, balances, and financial statements, forming the foundation for strategic business decisions. It also injects something of a planned review of your accounting system, giving you a great excuse to evaluate overall performance.
Regardless of whether or not you love bookkeeping, I hope you’ll see the value in a strong month-end close process by the end of this article.
Download the Month-End Checklist Template
Later on in this article, I explain the assumptions I've made and specific necessities of the business I work for, so keep scrolling if you want to be able to customize this template to perfectly fit your business.
But first, here's the template, ready for you to download and use!
Preparing For The Month-End Close
Success in the month-end close begins well before the end of the accounting period. It requires foresight, planning, and setting the appropriate mechanisms in motion to ensure a smooth, accurate, and efficient closing process.
Here's what you need to do:
1. Set Clear Objectives
Clear objectives are the compass guiding the month-end close process. They create a sense of direction, ensuring that every action taken aligns with the overarching financial goals of the company.
Objectives could range from "ensure accuracy in income statement reporting" to "streamline the monthly closing process" itself.
Having well-defined objectives not only simplifies the process but also provides a benchmark against which your accounting department can be measured.
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 taken to complete the closing procedures
- Number of account reconciliations you have to perform
- The average total of petty cash in your bank accounts each close
Key metrics serve as a barometer, assessing the effectiveness and accuracy of the month-end close process, to ensure you and your team are continuously improving the process.
3. Establish a Timeline
Time is a critical factor when it comes to the month-end close.
Crafting a clear, realistic timeline for each task involved in the process is crucial, as it guides each step of the process and ensures that every task is completed when it needs to be.
For example, I set a timeline to have my month-end close completed 10 business days before the end of the month.
Other companies may need to complete more (or fewer!) processes, depending on their functions and what accounts they have. For example, if you:
- Hold inventory, you’d likely make some inventory entries each month-end to ensure inventory values are correct.
- Have a more fleshed-out payment management process, you’ll do some management of accounts payable (ie. at my company, we pay invoices within 30 days of receiving them).
- Offer pay-outs of unused vacation, you’ll have to create an adjustment to their vacation accrual each month.
- Pay salaries every 2nd week, you’ll need to do 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 that I use; feel free to download it and adjust it to suit 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 (ie accounts payables, services acquired but not invoiced, etc.)
- Adjust monthly payroll entries into various cost categories & internal divisions
- Reverse bonus accrual (if applicable)
- Input monthly bonus accrual adjustment
Reporting
- Fund EOR account
- Approve EOR payment
- Update Cashflow document
- Reconcile external payment provider(s), ie. 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 (this should include Monthly results, budget to actuals, and any other information you want to share with relevant 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 a few notes on the month-end close checklist that I included above.
First and foremost, I’m operating within a Canada-based media and technology company, BWZ, that has global operations. You may find that you want to adjust to make your accounts US-based.
There are some other best practices that I’d recommend adding to this list. Namely:
- Attach due dates to every item on the list to properly systemize it & be able to complete the close on a timely basis. At first, these due dates could just be for you to remember the order of your tasks and stay on track.
- As your team grows and processes get complex, you’ll find it helpful to assign tasks to additional team members. When you have due dates attached to each task, it prevents team-based bottlenecks and helps keep reporting consistent.
- Assign the responsible party to each task. While you could easily just write down the name of the person, I recommend building your checklist within task management software to make this responsive in real-time.
What Else to Include
There are likely to be other things that you need to include, that I have not; whether these are:
- Depreciation figures for fixed assets,
- Account reconciliations,
- Journal entries,
- Changes in physical inventory,
- Consolidation of parent and subsidiary(/ies) accounts,
- Foreign exchange-related adjustments,
- And any other accounting procedures you have.
Remember that this is for you; don’t be afraid 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, when I communicate, I include commentary around accounts that had significant MoM changes or material Budget to Actual differences (and the reasoning as to why the differences existed). This is done for both Cash Flow reporting 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 are actively monitoring.
In that case, you’re going to 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 fact, a year or so from now, I will likely transition a lot of the month-end close processes to another team member, thereby assuming the role of reviewer to allow for more controls and more confidence that no errors exist.
Accuracy in Reporting
100% accuracy in financial reporting is obviously the goal; however, I’ll note that you need to focus most on what’s material for your business.
If you’re healthy on cash and find small discrepancies such as an account that’s $30 off, you aren’t going to redo your entire model to find it. While the goal is always complete accuracy, focus on the thing that matters most: getting a clear picture for your important stakeholders and communicating on time.
You are most valuable when you're giving decision-makers accurate, relevant information, as they can then use it to make decisions in the best interest of the company.
Compliance and Standards
Adhering to prevailing accounting standards and regulatory requirements is imperative. Compliance upholds the law and the principles of financial integrity and transparency.
Whether it's the US-based Generally Accepted Accounting Principles (GAAP), the International Financial Reporting Standards (IFRS), the Accounting Standards for Private Enterprises (ASPE), or any other local accounting standard that your company may use, adherence to these standards ensures consistent, transparent, and comparable financial reporting across the board.
Technology Utilization
Employing the right technology can significantly streamline the month-end close process, which can absolutely prove time-consuming if you haven’t optimized it.
Whether it's automation tools - on the AR automation or AP automation side - or accounting software ensuring compliance and accuracy in reporting, technology plays a pivotal role.
It’s about finding the right suite of tools for your business to make your life easier without sacrificing the quality of the results. You’re the scorekeeper of your business; you have to make sure the points are correct.
Analyzing The Results
Once you've completed the month-end close, it's time for reflection and analysis.
After all, the financial data on your statements narrate a story, which is composed of the following elements:
Financial Insights
The month-end close is more than a routine task; in fact, it can be a goldmine of financial insights.
It's about delving into the numbers, understanding the trends, and identifying patterns. Financial insights gleaned from the month-end close help in understanding your company's financial health, cash flow situation, profitability, and solvency.
These insights are not just about understanding the present; they are about forecasting 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 well-informed financial decisions. Plus, what’s even better, these numbers provide a benchmark against which your company's future financial performance can be measured.
Because, at the end of the day, who doesn’t love all-time 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. You’re going to want to pay special attention to these metrics as you close the books each month.
On top of letting you know how you already did, performance metrics help identify areas for improvement. They spotlight the bottlenecks, the inefficiencies, and the areas where there’s scope for enhancement.
If you want to excel in your role as a strategic CFO and create innumerable value for top management, you have to start measuring performance against set benchmarks, understanding the gaps, and striving for continuous improvement.
Continuous Improvement
The realm of finance is ever-evolving, and so should be the month-end close process. Continuous improvement is not a one-time task; it's a culture, a commitment to striving for 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 find out what’s most important for your organization’s growth.
After all, there’s always room for improvement. Your job is to take a step back, assess the process from a bird's eye view, and understand the big picture.
On top of evaluating the close process, results from your close are going to help in understanding the effectiveness of the existing processes, the accuracy of the financial reporting, and the efficiency of the technology utilized. This will provide actionable insights that can help streamline the process, improve accuracy, and enhance efficiency.
Adopting New Technologies
Don’t be afraid to try new things within this process. Adopting new technologies can significantly enhance the efficiency, accuracy, and compliance of the process. Whether it's accounting automation tools that expedite cash collection or corporate performance management tools that facilitate real-time monitoring and analysis, embracing new technologies can be a game-changer.
New technologies can help in reducing the time and effort required to complete the month-end close, thus freeing up you, and the rest of the finance team, to focus on more strategic, value-added tasks.
Just be sure to check over all the work that your new tools are completing.
Time To Close The Books
Mastering the month-end process is a continual journey. It’s a blend of diligence, analysis, and relentless pursuit of improvement. You’re the one keeping score of how things are going and letting everyone else know what they should be targeting for improvement.
The essence of a successful month-end close lies in its preparation, execution, and analysis. It's about setting the right foundation, ensuring a smooth sail, and learning from the voyage to enhance future journeys.
Next up? The year-end close.
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