Implementing a monthly close process for your accounting department can help you gain a better understanding of the financial health of your business while allowing you to mitigate risks and plan for the future. Visibility into the financial results of prior months gives you a better pulse on how your business is tracking and enables you to make more informed decisions. But what is a monthly close process, why is it important and how can it be implemented?
What is a Monthly Close Process?
A monthly close process is a set of accounting procedures that ensures all transactions are properly recorded and recognized in the previous month. The process could include various transaction-based procedures, as well as reconciliations, journal entries and a procedure in place to investigate unexpected results. In addition, a typical monthly report includes standard financial analytics and other necessary metrics.
5 Reasons to Incorporate a Monthly Close Process
A monthly close process is essential for the long-term success of all businesses. Here are 5 reasons why it’s important to establish a monthly close process:
1. Understand the financial results of your company: You might think you know your business, but do you really know everything with 100% certainty? If you do not have reports to review each month, then you cannot truly understand the financial results of your business.
2. Make timely decisions: With the help of monthly close metrics and reporting, you will be able to quickly look at your financials and make decisions about spending. You will also be more likely to catch unnecessary expenses. For example, if a subscription price has increased on an auto-renewal and you do not regularly review your spending, you may not have noticed. By understanding your spending each month, you can quickly identify all expenses going out of your account and evaluate whether or not a particular service is valuable to your business.
3. Introduce proper internal controls: Having a process in place can ensure there are proper segregation of duties in your accounting department. A monthly close process typically also includes processes and procedures throughout the month. Understanding your internal processes will help you manage who is authorized to do what in the transaction approval process.
4. Encourage accountability: When every team member in your accounting department does what is required of their position, you can hold your personnel accountable. You will be able to know if certain required steps are performed correctly and timely and if and where there was an issue in the process that may need to be addressed.
5. Produce reports when needed: You can encounter a situation where you have to produce a financial report unexpectedly, such as for a refinance or insurance renewal. By instituting a monthly close process, you will be able to produce reports quickly and accurately when needed.
How to Implement a Monthly Close Process
While change to certain processes may cause friction for accounting teams, implementing a monthly close process can help you run your business more effectively. To get started, first develop a plan. Identify what numbers are important to track, evaluate different strategies and technologies if needed, train your team on the process and then re-evaluate how effectively your current monthly close process is running.
There are many benefits to establishing a formal monthly close process in your accounting department. If you have questions about introducing a monthly close process for your business, contact a member of the Janover team today.