Closing the books: How Ramp prepares for a smooth annual close

Like many companies, Ramp’s fiscal year ends on December 31, which means our finance team is hard at work preparing for annual close. In this article, we’ll share how Ramp approaches the task of closing the books using our step-by-step five-week plan.

What does it mean to close the books?

Closing the books means wrapping up the financial accounting process for a specific period, usually a year, quarter, or month. For annual close, that means finalizing all your journal entries, ensuring financial records are accurate, and preparing your financial statements for internal and external reporting for the entire fiscal year.

How to close the books

At Ramp, we close the books over a five-week period. Here are the major steps we tackle each week as we prepare to close the books for the year:

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1. Make a checklist
2. Clean the balance sheet
3. Review the income statement
4. Tackle tax compliance
5. Close the books as a team

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We'll share the details of each step below.

1. Make a checklist

Thorough preparation is key to closing the books, so take the first week to think through each task you need to do before annual close. In addition to the big-ticket items like preparing 1099s for contractors, there are numerous smaller tasks that, when added up, can overwhelm even the most prepared team.

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To help me remember everything, I’ve started keeping a running list of the different components of the close:

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Accounting close

• Bank accounts and bank reconciliations
• All other reconciliations, including accounts payable (AP), accrued expenses, revenue, equity, and payroll
• Investments in securities and alternative assets
• Capital expenditures (CapEx), fixed assets, intangible assets, leasehold improvements, and related depreciation and amortization schedules
• Prepaid expenses
• Accounts receivable, allowance for doubtful accounts, and other receivables
• Deferred expenses, leases, and income
• Review of cost of goods sold (COGS) and operating expenses (OpEx)
• Equity and stock compensation

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Tax compliance

• Review your corporate tax situation to ensure you’re taking advantage of all deductions and credits
• Generate and deliver W-2s for all employees, as well as 1099s for all contractors
• Send Forms 3921 and 3922 to employees or individuals who have exercised their stock options during the year
• Prepare a Report of Foreign Bank and Financial Accounts (FBAR) if your company has foreign bank accounts
• Sales tax filing, if applicable

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Download Ramp’s free year-end close checklist to help you get started with your planning process.

2. Clean your balance sheet

Preparing the annual accounting close is a great opportunity to clean up your financial statements to prepare for your annual financial audit. In week two, I like to start with our balance sheet accounts. Here are the questions we run through for different accounts:

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1. Cash

Financial reporting is the story of money, and how it's being used, allocated, spent, and collected. Your bank accounts are at the center of your financial statements. Here are some questions to ask your team:

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• Do you have a list of all your bank accounts, their rationale, their location, and their contact information? No accounts should be left out, including operating accounts, checking accounts, letters of credit, testing accounts, petty cash funds, etc.
• Do you have accounts to consolidate, clean up, or close? Each account should have a clear purpose.
• Have you prepared bank reconciliations and ensured consistent recording throughout the year? For most accounts, the process is as easy as updating the monthly reconciliation prepared during month-end close.
• Do you have unnecessary clearing accounts that you can clean up and empty?
• Do you have foreign bank accounts with ending balances over $10,000? If so, you’ll need to prepare an FBAR for tax compliance.

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2. Accounts receivable

Accounts receivable (AR) is one of the most important accounts in every organization. Unfortunately, in many startups, it’s also the most challenging to manage and understand since it’s directly linked to the revenue and collection processes.

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Keep your AR tightly reviewed and reconciled to avoid surprises. The key is to build accurate and timely reports that detail activities and support subledger balances. Here are some questions for your team:

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• Can you reconcile statements sent to customers with internal reports? Auditors will select a sample of customers from your ledger to confirm this.
• Have you reviewed estimates and assumptions related to bad debts and provisioned for losses?

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3. Investments

Prepare an inventory of the different types of investments your company holds. Each type has its own set of considerations, leveling, and financial reporting disclosures. The key questions you should ask are:

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• If you have parent or subsidiary entities, have you reconciled the balance of investments in the parents to the balance of contribution received in the subsidiaries?
• For investments in fixed income, have you listed the maturity, rate, dividend, and interest income earned during the year? Make sure you properly recognize and classify the income earned. For example, investments held to maturity require specific reporting and measurement. Discuss these subtleties with your technical accounting team or auditors.
• Do you have alternative investments such as cryptocurrencies, real estate, or other startups? These are usually challenging to fair value and can burden your annual audit. You might reconsider the investment and whether it makes sense fiscally to keep it.

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4. Prepaid expenses

Staff accountants and junior auditors spend a lot of time reviewing these capitalized expenses. That’s why setting up a prepaid policy at the beginning of the year or period can really save time here. Questions to ask your team:

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• Do you have a prepaid policy in place?
• Are you using a consistent daily or monthly formula to record the expenses over the different accounting periods for all vendors?

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5. Fixed assets, intangible assets, and goodwill

For fixed assets:

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• Do you have a consistent fixed assets policy for capitalization and depreciation? This will save you time at the end of the year. 
• Do you have a fixed asset capitalization threshold? We use one at Ramp to lighten our reconciliation work since the company is adding new employees and assets daily.

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For intangible assets and goodwill, you’ll need a more technical analysis. Asset impairment and goodwill accounting rules are complex, so it’ll help to get a subscription to the AICPA website and have a good technical discussion with your auditor. Questions to ask your team:

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• Do you need to assess any potential impairment on these assets? Given our M&A activities at Ramp, we do.
• Do you understand the strict measurement and disclosure requirements for goodwill? 

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6. Other receivables and assets

Are there other deposit accounts, employee loans, or assets that fall outside the previous categories? The end of the year is a good time to examine these assets more closely and recategorize them based on their use. Ensure you have all the appropriate documentation for any significant transactions.

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7. Accounts payable and accrued liabilities

Key questions to ask about AP and accruals include:

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• Are there any outstanding invoices you can pay before the end of the year? The fewer invoices that are left unpaid, the less stress in the new year.
• Are invoices properly categorized? Ramp’s AP automation software ensures that 99% of our invoices are categorized at the time of payment.
• Have you determined your accrued liabilities? Ramp gives you real-time visibility into all your outstanding invoices, which makes this process a lot less painful. 

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8. Other liabilities

This category usually doesn't carry much risk but can require a lot of time to reconcile and understand. I try to create the documentation for these accounts as they’re established. End of year is a good time to review the calculations for any deferred lease benefits or any liabilities and notes your company might have.

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9. Equity

Equity is by far the most important section of the financial statement (and my favorite accounting category). It's technical, revealing, and, unfortunately, often overlooked.

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Controllers usually devote a lot of attention to managing the equity section, especially because we often lead the 409A process, which determines the strike price of the company’s stock options. Questions to ask include:

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• Do you have equity transactions to review with your legal counsel? Do you need to update your statement of shareholders’ equity? 
• Have you reconciled your accounting ledger with your cap table? I create different accounts for each fundraising round.
• Have you separated different additional paid-in capital (APIC) accounts to facilitate the reconciliation process? You should do this if your investors paid more than par value for shares of your stock.

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Since equity and stock compensation involve considerable disclosures and usually require many pages in your financial statements, be prepared to spend a lot of time and effort here.

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3. Review your income statement

Dedicate week three to reviewing your income statement. This should be pretty straightforward if you've been following a monthly close process that involves a review of all significant accounts. Here are a few questions to keep in mind as you review each part of your statement:

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1. Revenue

• Do you understand your company’s different revenue lines? 
• Are you recording revenue gross or net? Why?
• What’s the revenue recognition policy for each of your revenue lines? If you work with auditors, have they blessed your policy? You’ll need to ensure alignment with revenue recognition standards like ASC 606.
• Any doubts about the collectibility of revenue you’ve already recorded?
• Have you reviewed revenue balances month over month for consistency in recording the transactions?
• Can you explain any swings in revenue during certain periods or months?
• Do you have “miscellaneous revenue” or “other revenue” categories you need to reclassify or document?

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2. Cost of goods sold (COGS)

• Is there a good mapping of the cost of services or products? 
• Is there appropriate documentation for what to include in COGS per your company’s operating model?
• What’s included in these categories? Any allocated payroll expenses? Any allocated OpEx?
• Have you consistently applied this classification to COGS?

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3. Operating expenses (OpEx)

• How do you categorize operating expenses? At Ramp, we categorize these expenses by functions, such as research and development (R&D) expenses, sales and marketing expenses, and general and administrative (G&A) expenses.
• Is your mapping consistent during the year? Are vendor invoices booked consistently in the same account throughout the year?
• In what buckets are the various expenses recorded? What are the miscellaneous expenses you should look at?
• Did you perform a reasonableness test on your recurring expenses? For example, rent expenses should be consistent month over month, and you can do a quick reasonableness calculation to check whether the account balance is correctly stated.
• Did you prepare a payroll reconciliation? Payroll is the most significant expense for any company (and also the most predictable one). Auditors usually require a payroll reconciliation, and maintaining a monthly payroll reconciliation is a good starting point.
• Have you reviewed the accounts for expenses that require separate disclosure, such as advertising and stock compensation expenses?
• Are non-expenses properly stated? Always review depreciation and amortization expenses since these are usually reviewed for tax purposes.

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4. Other income and expenses

• What expenses or incomes do you list in this category? “Below-the-lines” balances are always scrutinized, so be sure the expenses in this section of your income statement fall outside your company’s operating functions.
• Did you review the latest US GAAP guidance on where you should record extraordinary expenses like restructuring expenses and severance payments?

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Don't forget to discuss presentation

Last but not least, discuss the overall presentation of your income statement with management. They should be fully committed to the presentation—and understand that it should stay consistent year over year. Once you agree on a presentation, you shouldn’t change it in subsequent years unless you have significant reasons to do so.

4. Tackle tax compliance

Taxes are usually an afterthought in the annual close process—which is ironic because taxes are the end result of any financial reporting. Applying the same review rigor to all the components of tax compliance is a must for any successful accounting team. In week four, focus on the to-dos below with the support of your payroll accountant:

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Prepare W-2s

If you have employees—or if you are an employee—you know how important W-2s are, and how crucial it is for them to be accurate and timely. W-2s for 2024 are due by January 31, 2025.

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Your payroll provider will usually process and post W-2s. However, the accounting department is responsible for ensuring their contents are accurate and complete. With the assistance of your HR or people team, review all personal information to ensure the data on the forms are accurate and complete.

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Also ensure that stock compensation activities, such as grants, exercises, and vesting, are properly included, and that calculations for payroll tax withholding are accurate. Additionally, because Ramp offers fringe benefits to employees (like home office and education stipends), we need to ensure these benefits are properly reflected in employees’ W-2s.

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To prepare for this task, we issue these benefits via a spend program in Ramp that properly categorizes expenses to the fringe benefits general ledger. At the end of the year, we run a report on the fringe benefits expense account and provide that report to our payroll provider.  

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Prepare 1099s

Most companies have independent contractors that provide various services or necessary products. Form 1099 records the income they’ve earned from working with your company. No company can pretend to have a flawless 1099 reporting process—if you do, I'd love to chat.

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Needless to say, we've made the reasonable decision to outsource this process to our external accounting firm. Under my direction, they'll compile a full list of vendors we paid during the year and confirm that there is an updated W-9 or W-8 BEN for each vendor. In the case that there is no W-9 or W-8 BEN, they will contact the vendor to obtain the form.

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Once the forms are complete, they’ll prepare a 1099 for any vendor we paid more than $600. We'll also review that any relationships that received referral payments or other types of compensation are listed and provided with the forms.

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If your accounting team is small, it makes perfect sense to outsource this process as much as possible, especially if your team is engaged in other important close procedures. Like W-2s, the 2024 deadline to send these forms is January 31, 2025.

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Don't forget

• Issued stock or exercised options? You'll need to prepare Forms 3921 and 3922. Again, you can outsource this process to a trusted party if your accounting team is stretched thin. The deadline to send the forms is—you guessed it—January 31, 2025.
• FBARs for foreign bank accounts are due later in the year on April 15, 2025 or, if you file a tax extension, on October 15, 2025. However, I believe you can prepare FBARs early in conjunction with your bank account reviews and reconciliations.
• You can start work on your R&D tax credit while preparing your payroll reconciliation. Accurately categorizating employees by department and task will make this a lot easier to calculate. Also, ensure you have supporting documentation for all the R&D activities you can report.

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Above all else, consult with tax advisors and accountants to get the latest updates on tax regulations and requirements that might affect your annual close process. It's essential to identify any pending changes or legislation before finalizing your financial close process so you can adjust financial statements as needed.

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5. Close the books as a team

There are many steps involved in annual close. Here's the key to getting them all done: Your finance team can’t do everything, nor should they. Indeed, the most detailed list and thoughtful process can go awry without the proper work distribution, prioritization, and support system.

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Distribute the workload

While creating our task lists, we did a thorough inventory of our resources. How can we distribute the various tasks? One of the first things we did was create an allocation plan outlining what can be done externally, what can be automated, and what should be done internally.

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We prefer to use as much automation as possible. For example, we're relying on our equity software to prepare our 3921s and focusing on ensuring data integrity. We also allocated certain recurring and simple tasks, such as preparing 1099s and recording payroll entries and bank reconciliations, to our external accountants.

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Last but not least, we worked closely with our data and engineering teams to generate all the reports and information needed for the close.

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Prioritize your needs vs. wants

Prioritization is crucial. Be realistic and focus on what you need to do instead of what you want to do. For example, it might not be realistic, nor fair to the team, to implement an ERP in the final months of the year, no matter how smart it is to have a clean start come January. At Ramp, we scheduled our ERP transition for springtime, after our audit deadline.

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Educate your team and get buy-in

Annual close involves the whole organization, not only because it represents the company’s overall financial position but because every employee’s story is digitized in this report as a result of receiving financial compensation. Management's support is necessary to anchor the process.

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Luckily, given the nature of Ramp’s products and services, the whole company supports and follows our financial and accounting processes. I see our finance team as the first customer and beta tester for Ramp's platform.

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Not every accounting department has a comparable privilege, so controllers and their teams need to educate and train stakeholders across the company. Take pride in your annual close and emphasize why it’s so important. It’s not a boring, routine exercise—quite the contrary. It’s exciting and unpredictable!

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Because of this unpredictability, especially at startups, you'll need to prepare yourself for the first trimester of the financial year. During the holidays, take the time to rest and celebrate all the challenges met and achievements won in closing the year.

Common year-end mistakes to avoid

Take a proactive approach to closing your books by avoiding these common year-end closing mistakes:

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1. Rushing to close: There’s a reason why the first thing we do at Ramp is make a checklist of everything we need to do to close the books. It pays to plan ahead and identify all the necessary tasks you need to complete before year-end. Have your full team review the plan to make sure you don’t have any gaps.
2. Failing to reconcile accounts: Regular account reconciliations can help you avoid unpleasant surprises at year-end. If you need to prioritize, the most important accounts to reconcile are your bank accounts, accounts receivable, and accounts payable. Be sure to address unusual entries and fix any discrepancies immediately.
3. Missing or inadequate documentation: Proper documentation is the keystone of your financial processes. You should have an organized system for tracking, storing, and maintaining financial documentation. Modern finance software like Ramp is a huge help here, allowing you to store important documents like receipts and invoices in the cloud.
4. Neglecting tax preparation: As I mentioned above, taxes tend to be an afterthought in the annual close process. But missing deadlines for tax filings, overlooking new regulations, or failing to gather the necessary documentation can lead to penalties. Consult with trusted accountants and tax advisers, and outsource where necessary.
5. Lack of communication: Poor communication between departments, especially finance, HR, and operations, can lead to incomplete or incorrect financial data. Get buy-in from the right stakeholders across the organization and hold regular meetings to establish clear lines of communication and separation of duties.

How to automate book closing

Consistent and accurate bookkeeping throughout the year makes annual close a whole lot simpler. That’s why it pays to have accounting automation software that integrates directly with your existing fintech stack, including your accounting software, HRIS, and ERP.

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Ramp’s modern finance platform offers the expense management and accounting automation features you need to save time and improve accuracy. Ramp syncs with accounting software like NetSuite, QuickBooks, and Sage Intacct to automatically reconcile transactions in real time.

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With Ramp, Walther Farms was able to close their books 10x faster, ultimately saving their finance team 18 days per closing cycle. Read the story to learn how Ramp can save you time and money and speed up annual close.