Strategies for a successful month-end close to streamline success

The month-end close is a fundamental process in the realm of financial management that holds the key to ensuring accurate and reliable financial reporting. Accurate financial reporting stands as the bedrock upon which sound financial analysis and strategic planning are built and provides a steadfast foundation for steering a business toward its intended objectives.

What is the month-end close?

At its core, the month-end close process systematically reviews financial records, invoices, and statements. This rigorous review aims to reconcile every recorded transaction with tangible financial evidence, verifying that the recorded financial activities align precisely with the actual occurrences. 

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However, the month-end close process extends beyond mere reconciliation. It encompasses the review and adjustment of accruals, deferrals, and provisions.

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Once reconciliation and adjustments are complete, the next step is month-end reporting. This is where the financial results of the month are summarized and presented. It includes details such as revenues earned, expenses incurred, and any profits or losses. 

The benefits of a faster month-end closing process

Optimizing the speed of your month-end close offers several advantages for businesses.

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Availability of information: The primary goal of financial reporting is to provide information to management and other key stakeholders. The sooner the information is available, the sooner they can assess the health of operations and make important decisions about next steps.

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Operational efficiency: A faster month-end close frees up time and resources that can be allocated to other important tasks. This increased operational efficiency allows for a more agile response to changing market conditions and business needs.

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Timely decision-making: With a quicker close, financial reports are available sooner. This enables faster decision-making based on up-to-date and accurate financial information. 

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Stakeholder confidence: A swift month-end close enhances transparency and demonstrates effective financial management. Timely and accurate reporting instills confidence in stakeholders, including investors, lenders, and business partners.

What information do I need to complete a month-end close?

Successful month-end close procedures involve gathering and organizing specific pieces of information to ensure accurate financial reporting.

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Financial records: Start by collecting all financial documents for the month, such as invoices, bank statements, transaction details, investment ledgers (if any) and other reconciliations that might be needed.

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Revenue documentation: A revenue ledger should provide the details of all sources of revenue by line of products or services, making sure to accurately record sales, services rendered, and any other income.

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Costs for providing services and revenues: Any expenses incurred to generate revenue, such as hosting expenses from Google Cloud or invoices from other providers, should be categorized in Cost of goods sold or services provided (COGS). For example, hosting expenses such as Google Cloud and invoices from other providers should be gathered and properly categorized.

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Accruals and deferrals: Identify any expenses or revenues that have occurred but haven't been officially recorded (accruals) and any items that have been recorded but have not yet happened (deferrals). Adjust these as necessary for accuracy.

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General ledger: Compile a comprehensive overview of all financial transactions recorded in the general ledger during the month.

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Reconciliation statements: Prepare credit card and bank reconciliation statements to match recorded transactions with actual account balances.

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Expense tracking: Ensure all business expenses are accurately categorized and accounted for, including any outstanding or prepaid expenses.

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Inventory records: Review inventory levels and costs to validate the accuracy and adjust any discrepancies.

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Fixed assets: Update records of fixed assets, including depreciation and any additions or disposals.

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Loan and debt information: Verify loan balances, interest expenses, and other debt-related transactions.

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Employee compensation: Ensure accurate recording of salaries, benefits, taxes, and other payroll-related items.

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Prepaid expenses: Confirm any prepaid expenses and distribute them over the appropriate periods.

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Income and sales tax: Review income and sales tax obligations, ensuring compliance and accurate reporting.

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Financial statements: Generate key financial statements, such as the income statement, balance sheet, and cash flow statement, using the compiled data.

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By meticulously gathering, organizing, and reconciling these components, you lay the foundation for a successful month-end close.

Steps to a successful month-end close

Beginning the accounting close process for the month-end necessitates a very precise method. Utilize Ramp's month-end close list for guidance.

Cash and cash-like holdings

1.1 Input all cash-related dealings into the General Ledger (GL) for the concluding financial cycle.

1.2 Scrutinize cash operations and reconcile the bank statement with GL account balances.

1.3 Archive every bank and credit card statement for record-keeping.

Receivables ledger

2.1 Compose, log, and circulate remaining bills; cross-check posting accuracy in the sub-ledger.

2.2 Produce and inspect an aging report for accounts receivable.

2.3 Engage with overdue customers to evaluate collectability.

2.4 Evaluate and mark down any receivables requiring write-offs.

Prepaid and current assets

3.1 Assess fresh prepaid transactions for correctness, including compliance with internal thresholds and correct GL coding. Segment invoices for long-term prepaids.

3.2 Configure automated depreciation tables in the Enterprise Resource Planning (ERP) system for each new prepaid item.

3.3 Register depreciation expense entries into the GL.

3.4 Revisit prepaid accounts during quarter-end and year-end for unsettled transactions and make necessary adjustments.

3.5 Validate prepaid account reconciliations against the GL.

Property, plant and equipment

4.1 Scrutinize newly acquired fixed assets for accuracy and validate against internal capitalization policies and GL codes.

4.2 Incorporate new assets into the fixed asset sub-ledger or Excel worksheet, complete with all relevant details.

4.3 Confer with department managers to update the fixed asset registry; record asset disposals or impairments as needed.

4.4 Compute and document depreciation expenses for all assets.

4.5 Ensure capitalization thresholds are strictly followed.

4.6 Reconcile fixed asset accounts, corroborating data points.

Intangibles

5.1 Evaluate new intangible asset acquisitions per internal guidelines.

5.2 Confirm accurate recording of new intangibles, including life expectancy and amortization.

5.3 Review lifespan assumptions for existing intangible assets.

5.4 Insert amortization expense entries into the GL.

5.5 Reconcile and affirm intangible asset accounts with the GL.

Software capitalization

6.1 Arrange meetings with Software Engineering Team Leads to catalog current projects and stages.

6.2 Decide on capitalization versus expensing based on internal protocols.

6.3 Review workforce listings for capitalizable projects.

6.4 Evaluate related expenditures like software licenses and third-party services.

6.5 Conduct analysis for capitalization; reclassify costs from Profit and Loss (P&L) to Balance Sheet (BS).

6.6 Reassess previous capitalizations for possible disposals or impairments.

6.7 Record software amortization in the GL.

6.8 Cross-verify capitalized software accounts with the GL.

Investment activities

7.1 Log interest and dividend gains into the GL.

7.2 Square investment transactions for the period.

Payables management

8.1 Execute a three-way match for purchase orders, receipts, and invoices.

8.2 Log invoices that lack purchase orders.

8.3 Generate and scrutinize the Accounts Payable (AP) Aging report for discrepancies.

8.4 Match ERP and Ramp AP Aging reports and investigate any variances.

8.5 Search for undisclosed liabilities.

Accruals and deferred costs

9.1 Contact vendors or departments for unbilled service estimates.

9.2 Account for business tax accruals.

9.3 Register bonus accruals as provided by Payroll and HR.

9.4 Note down commission accruals based on Sales team data.

9.5 Re-examine last month's accruals for payment statuses.

9.6 Compile accrual listings and update the GL.

9.7 Reconcile after approval.

Borrowings

10.1 Examine short-term and long-term liabilities; update unrecorded interest and outstanding principal.

Miscellaneous liabilities

11.1 Classify other liabilities as current or noncurrent and reconcile where necessary.

Payroll reconciliation

12.1 Review the Human Resources Information System (HRIS) against the payroll ledger.

12.2 Document monthly payroll and associated expenses by department.

12.3 Reconcile cash disbursements for payroll with HRIS.

12.4 Reconcile payroll liabilities in the GL.

Owner's equity

13.1 Download stock-based compensation data from management software.

13.2 Reconcile early exercise options.

13.3 Record equity-based transactions.

Revenue and expenditure

14.1 Post revenues as per accounting norms.

14.2 Validate revenue figures against internal databases.

14.3 Analyze and explain financial statement fluctuations.

14.4 Reclassify operational costs as needed.

Closing and financial reporting

15.1 Plan team check-ins during the closing process.

15.2 Conduct an accrual retrospective and sub-ledger audit.

15.3 Schedule preliminary and final financial statement reviews.

15.4 Record allocations and manual entries for presentation.

15.5 Examine intercompany balances for elimination.

15.6 Scrutinize departmental GL data and make adjustments.

15.7 Confirm the thoroughness of all account reconciliations.

15.8 Execute variance analysis for P&L and Balance Sheet accounts.

15.9 Notify finance and FP&A teams for financial statement inspection.

15.10 Review preliminary statements and managerial reports.

15.11 Complete reporting for board and investors.

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Make use of this checklist above as a guide to achieve an accurate, efficient, and orderly month-end closing process. For more tips on a successful month-end close, check out tips from Ramp's own finance team to ensure a successful close. You can also check out a recent webinar I hosted on this topic: Strategies to achieve a 5-day close.

Best practices for an efficient month-end close 

Achieving an efficient month-end close involves adopting pragmatic month-end close best practices that streamline the process and enhance accuracy. 

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Set clear deadlines and responsibilities with a close checklist: Ensure that everyone involved understands their responsibilities and the timeline for completion by creating a close checklist. This checklist assigns responsibilities and clarifies when tasks are expected to be done. It can also be used as a tracker to evaluate and improve the process.

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Back up data regularly: Implement a robust data backup system to preserve your critical financial information.

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Use templates: Pre-designed templates for financial statements, reconciliations, and other documentation can expedite the process while maintaining consistency and accuracy.

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Organize documentation: A structured documentation system minimizes search time and reduces the risk of overlooking crucial information.

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Embrace automation: Automating repetitive tasks can significantly enhance the efficiency of your month-end close. It saves time and also reduces the likelihood of manual errors.

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Reconcile regularly: Implement periodic monthly reconciliations rather than waiting until month-end. This practice prevents a last-minute rush and allows for early detection and resolution of discrepancies.

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Collaborate cross-functionally: Foster collaboration among different departments involved in the month-end close process. 

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Conduct a pre-close review: Before finalizing the month-end close, perform a pre-close review. This entails a comprehensive assessment of all financial data, reconciliations, and adjustments. Address any discrepancies or issues before completing the process.

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Share training and knowledge: Ensure that your team is well-versed in month-end close procedures. Provide training and knowledge-sharing sessions to enhance their understanding of the process.

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Improve continuously: Regularly evaluate your month-end close process to identify areas for improvement. Solicit feedback from your team and explore ways to refine and optimize the procedure.

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By integrating these best practices into your month-end close routine, you pave the way for a streamlined, error-reduced process that yields accurate and insightful financial reporting.

How can Ramp help in your month-end closing process?

With its comprehensive suite of features, Ramp offers a range of benefits to enhance your business's close operations and financial management.

• Automated categorization and syncing to the accounting software: Ramp's accounting automation software provides a powerful answer for month-end closing responsibilities. By accurately organizing expenses and linking them effortlessly with your accounting software, this does away with the need for laborious manual entry and guarantees that your financial documents are precise and up-to-date.

• Efficient data management: Ramp simplifies data entry, storage, and retrieval, ensuring your financial information is organized, accessible, and accurate. Say goodbye to manual data input and welcome an automated, error-reduced approach.

• Automated reconciliations: Ramp's intelligent algorithms automate reconciliation tasks, swiftly identifying discrepancies and flagging potential issues. 

• Tailored reporting: Generate tailored financial reports with ease, thanks to Ramp's customizable reporting capabilities. 

• Enhanced collaboration: Ramp facilitates seamless collaboration among your finance and operational teams, ensuring a unified approach to month-end closures.

• Streamlined compliance: Ensure adherence to financial regulations and compliance standards effortlessly with Ramp's built-in compliance features. 

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Experience increased efficiency, accuracy, and collaboration, all powered by advanced accounting automation software. Ramp empowers you to optimize your close operations, enabling your business to thrive in the realm of financial management. Explore how Ramp's platform can help you.