The Basic Monthly Close

Timing

We are nearing the end of the month so now is the time to start planning your monthly close. If you can block off some time to focus specifically on this during the first or second week of the month, you’ll thank yourself later.

Importance

Having a current set of books is invaluable to you as a business owner for decision-making. Besides your internal decision-making processes, you also need to present a current set of financials to obtain lending from banks or funding from investors.

Aside from the significant functional failings of the recent COVID-19 relief funding options, there were undoubtedly many businesses who missed out because they did not have their books ready to even apply. Don’t let something like this hold you back from making the moves that your business needs when it needs them.

Tasks

To do a simple, soft monthly close (vs. a hard close), do the following:

  1. Record Revenue. Confirm all invoices have been sent to customers or all sales are included in your accounting system for the previous month. Record or send any missing items. This step is to ensure you get all of your income invoiced and documented for that month.
  2. Record Expenses. Check to make sure all expenses have been entered and assigned to an expense category. This is the step where you list what each expense was for which then builds out your income statement expense line items (e.g., rent, utilities, marketing, etc.).
  3. Reconcile your Bank Accounts. Your accounting software should have a tool that enables you to do this. This step ensures that your accounting records (books) matches your bank records. Since you just recorded income (inflows) and expenses (outflows) in steps 1 and 2 above, this is where you check yourself to make sure you didn’t miss anything or double-count anything.
  4. Run Reports. Once you’ve got those three basic steps completed, you’re ready to run your reports! Run an Income Statement (Profit & Loss) to see how much revenue and expenses you had and what your Net Income is. Run a Balance Sheet to see what your cash position is and how much debt and equity you have in the business at the end of the month.

In many cases, there are more advanced parts of a monthly close that an accountant is best-suited to perform (recording fixed asset depreciation, inventory, prepaid expenses, accrued revenue, accrued expenses, and deferred revenue, etc.), but the above steps will get you pretty far to enable better decision-making and clear, timely reporting for outside parties (banks and investors) when needed.

The monthly close ties in closely with the Monthly Review. The process above is a more detailed version of organizing your monthly income and expenses. You can then use the reports you generate to complete the Monthly Review steps of analyzing your spend categories and identifying areas for improvement.

If you’re feeling stuck and keeping up with your financials is just not happening, sign-up for your FREE intro call to see if we would be a good fit to work together to get you back on track!

Lis Lee Accounting is not a financial planner, broker, or tax advisor. Neither Lis Lee Accounting nor the content herein are intended to provide legal, tax, or financial advice. The content and materials are intended only to assist you in your general organization and decision-making for your business or practice. Lis Lee Accounting shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof.

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