Understanding How to Do a Month End Close Process in a Much Elaborate Way
The importance of the month end close process can be gauged from the fact that keeping track of what happened in the previous month will be possible. Based on this tracking, your clients can plan for their future success. Hence, it will be safe to say that the close process of the month-end is the stepping stone to success for your clients.
Through this process, your clients will accurately understand their financial position. Based on this, they can make short-term decisions and motivate their employees to work towards long-term goals. Plus, it is important to note that if the month-end closing process is accurate, the year-end closing process will be much easier to understand.
While the month end closing process is important for a business, it is also very time-consuming, so these days, it is handled by accounting practices like yours. However, you will agree with us that this task can be quite time-consuming for you, especially when you are handling multiple month-end close processes. In such a situation, you can always depend on the outsourced bookkeeping service of outsourcing accounting service providers.
What is the Month End Close Process?
You must have heard about the terms closing of books, month end, and so on, so let’s focus on the month end close process. Under this process, your accounting teams will collect, review, and reconcile the previous month’s transactions and financial activity on behalf of your clients. Through this process, you will maintain financial accuracy and full compliance while maintaining data integrity, and your clients can use this data for analysis and planning purposes.
While you can predict your client’s spending and trading activities, you must expect newer issues to crop up. That’s why a solid flow of information is essential, especially at the closing of each month, from when the data is being gathered to the final financial report.
Crucial Steps in the Month End Process
Preparations
Start by ensuring the supply emails about unpaid invoices. While automatic entries do not require much checking, ensure that all the manual entries are accurate.
Reconciling Cash
Check the cash destination and relationships, and double-check all payment accounts to ensure everything is organised.
Accrual Estimates
Make sure to check the month end accruals and track the coverage for next month.
Preliminary and ASC 606 Reviews
Check all the automated and manual data flows, testing their validity and ensuring the information is accurate and consistent across all the reports.
Do the Flux Analysis and Adjust Accordingly
Also known as flexing your financials, the flux analysis lets you review your monthly and quarterly month end closing to see whether it is meeting your client’s business goals and expectations. If something is not working out, immediate action can be taken.
Why is the Month End Close Process Important?
Through the month end close process, you will be able to track your client’s monthly business transactions. Hence, it is essential to ensure that all the data is as accurate and complete as possible. This accurate data is used in various accounting processes, for example. The accurate month end report makes the year-end closing much more accurate.
There are many other benefits of month end closing, which are as follows:
- Helps in creating accurate and up-to-date financial records.
- It simplifies the process, thus making the auditing task easier.
- Identifies areas of improvement.
- Organise annual financial statements and save time filing tax returns.
Benefits of Using Month End Checklist
Before you start the month end close process, it is important to perform the month end checklist. The checklist has many benefits that will smoothen the process. Let’s go through each of these benefits one by one.
Minimises the Accounting Errors
Accounting reports contain a huge volume of data, which increases the chances of duplication, omission, and other errors. These errors can be honest mistakes or viewed as theft or a cover-up of fraud. Hence, through a month end checklist, you can rectify these errors before they grab the attention of regulatory agencies like HMRC.
Get Improved Results Through Accurate Reporting
Accurate reporting allows your clients to identify trouble areas and rectify them. In addition, your clients’ investors and stakeholders can access these reports and assess their performance and financial condition. By following the checklist, you can remove all the errors and omissions and produce accurate financial reports on which stakeholders and your clients can rely.
Increase in Efficiency
Preparing reports takes time because of the huge amount of data. This leads to delays in report-making, which can lead to performance issues and a lack of awareness among your clients. The prepared month end checklists reduces the time to make and conduct internal financial reports.
5 Common Mistakes Made in Month End Close Process and How to Avoid Them
Duplication of Data
Chances of data duplication increase when your clients do manual entry, which is also a time-consuming process. You must manually upload these data into the accounting system, which is time-consuming, resource-consuming, and error-prone. The solution to this problem is automation, which can be achieved by using outsourced bookkeeping services from professional and experienced providers.
Lack of Process Standardisation
The month end closing process contains the same steps each month. However, manually integrating the data brings a new set of challenges. Standardising processes brings accuracy and consistency in results month after month. Standardizing processes allows you to meet month-end goals, even when short-staffed.
Delays in Financial Data
Another challenge that accounting practices like yours will face is the delay in making financial reports due to a lack of data from your clients. If this process is taking considerable time, then you must decide on a method for improving efficiency, and one way to do that is by using the outsourced bookkeeping services of an accounting service provider. An experienced service provider has a set of steps for gathering financial data from your clients, thus streamlining the data gathering and speeding up the reporting process.
Understaffed Accounting Teams
Adding additional staff requires additional resources, which you may want to avoid. In that case, you must train your existing staff to run the month end close process. However, an accounting service provider’s outsourced bookkeeping service is another viable option. This alternative can work for you and your client and reduce your work pressure.
Lack of Automation
In today’s accounting world, automation is a must. Too much reliance on manual processes will hamper corrections and revisions. Hence, you need to integrate the latest tools and technology that will boost up your month end close process or else you can identify an accounting service provider that offers outsourced bookkeeping services with full automation.
Conclusion
After reading this blog, you will better understand the month end close process and its importance. We are confident that now you will be able to identify the challenges, benefits, and mistakes made during this process, thus helping you streamline it and bring benefits to your clients.
To improve your month end close process further, you must use the outsourced bookkeeping services offered by Corient. We are an established accounting service provider based in the UK with experience in handling month end processes and various bookkeeping accounting tasks. For more information about our services or to elaborate on your requirements, please use our contact form on our website, and our executive will contact you.