Develop A Month-End Closing Checklist For Your Small Business

Month-end can be a daunting time for business owners. Without the right month-end closing checklist and proper closing and reporting procedures in place, you can set your business up for serious financial repercussions.

But month-end closing and reporting procedures for your business don’t have to cause too much strain on your schedule. With the right process in place you can ensure your business records are accurate and easy to access.

What Is A Month End Closing Checklist And Why Is Having One So Important?

A month-end closing procedure and checklist is a step-by-step process of reviewing, reconciling, and recording all of your business transactions. It’s sort of like performing a miniature version of a year-end business audit.

You’ll record your company’s sales, expenses, payments, and other important financial information. This is important to your business for several reasons.

Related: Year-End Checklist For Small Businesses

Reconciling Monthly Results In More Accurate Records

First, reconciling your business details each month will ensure you keep accurate records for yourself and/or your accountant.

Accurate records will make life much easier during tax time. And it will make it easier for you to quickly access important financial numbers for other reasons, such as analyzing profit.

Related: Cloud Friday’s Business Advisory Services

You’ll Have An Up-To-Date View Of The Health Of Your Business

Second, assessing and recording your business financials each month gives you a frequent view of your business’s financial health. You’ll see changes happening real-time and you’ll be able to make adjustments quickly if need be.

For instance, if you run your financial statements one month and see that you are losing money in one area you can investigate it right away and make changes if necessary. If you wait to find large business losses until the end of the year, the financial impact is much more devastating.

Reconciling Monthly Saves You Time And Reduces Stress

Lastly, reconciling and recording business transactions and information each month can get overwhelming if you put it off. If you wait to reconcile business records on a quarterly or annual basis, you’re going to have a much tougher time recalling important information.

For example, if you wait to reconcile at the end of the year, you’ll never remember why you spent $250 at Walmart last June. That and the fact that you’ll be faced with reconciling several months worth of transactions will make the job much tougher.

Choose instead to break business reconciliation up into 12 smaller, easier jobs.

Suggested Steps in the Month-End Closing Process

Sonya Tapley, owner, advisor, and accountant at Cloud Friday, has some great suggestions on steps you can take that will help you create a successful month-end closing process.

Take into consideration all that needs to be done for proper month-end recording, and then modify this list as it fits your business. The Small Business Administration says that a month-end closing system is just one way to practice smart record-keeping for your small business.

1. Enter All Customer Invoices

You’ll want to start by ensuring all customer invoices in the previous month are entered into your accounting program, such as Quickbooks. If you can do this on a daily or weekly basis it will ensure nothing gets forgotten and all your customers are charged properly. Also, if an error is made it will be much easier to recall the facts of the transaction.

Taking this step will help ensure you’ve got an accurate number of all of your company’s sales for the year. Having accurate sales numbers will help you have a better handle of the solvency of your business.

2. Record All Customer Payments

Recording all customer payments for the month is the next step. It’s important to be sure to apply the payments against the coordinating, outstanding invoices. When you record payments against coordinating, outstanding invoices, be sure to use the bank account as the payment method if you’re going to be depositing the paid funds immediately.

If you are going to be depositing the funds later, for instance if you go to the bank with actual checks once a week, you’ll want to choose a different payment method. See step 2b for details.

2b. Record Deposits From Customer Payments

If you’re going to record payments that are not immediately deposited to your bank account, you’ll want to use “undeposited funds” as the payment method.

Next, you’ll record the deposits of the customer payments you brought to the bank. If you’ve invoiced properly, and properly applied the payments against the invoices, recording your deposits should be fairly easy.

Recording bank deposits will help make reconciling your company’s bank statements easier. If you skip this part and go directly to step three, your accounting books will continue to show that the customer payments for the invoices are due.

An error such as this could result in customers being billed for invoices they’ve already paid. And that type of error could result in customer dissatisfaction resulting in loss of clients.

Here’s a video that shows you to correctly record customer payments.

https://www.youtube.com/watch?v=P77BDqNLfdI&feature=emb_logo

3. Enter All Vendor Bills or Expenses

Next, you’ll want to enter all of your company’s expenses into the Vendor area as either Bills or Expenses. Doing this will help you know how much of your company’s income went toward vendor expenses. As a note, “Bills” typically refers to an expense with a future due date, and
“Expenses” are paid immediately.

Remember that “vendor” defines any person or company your business purchased a product or service from. This includes office supply purchases from big box stores and restaurants you had business meals at as well.

4. Record All Vendor Bill Payments

Now it’s time to record all of the payments you made against outstanding bills to your vendors. Since purchases made immediately, like big box store purchases, are entered into the accounting system as an Expense and not a bill, those will already be listed as paid. As stated earlier, vendor Bills are for expenses that will be billed to you and may not be paid until the following month.

Be sure to apply payments against outstanding vendor bills as opposed to just recording them as an expense in your checking account register. Just as you did with customer invoices, applying payments against coordinating vendor bills will help keep your books organized and help you avoid double-payment to your vendors.

Related: 20 Productivity Apps For 2020

5. Verify Accounts Payable And Accounts Receivable Numbers

After you’ve recorded all of your payments and deposits, you’ll want to verify your accounts payable numbers and accounts receivable numbers.

Be sure they match up with what you’re showing for outstanding customer invoices and outstanding vendor invoices. If there seems to be any discrepancies, retrace your work regarding customer and vendor invoices and payments in order to locate any errors.

6. Reconcile All Business Accounts

When completing this step, it’s important to reconcile not only bank checking accounts and savings accounts but credit card and loan accounts as well. Be sure there aren’t any transaction errors on your accounts.

In addition, be sure to capture any interest you’ve paid on credit cards and loans in your expense column.

7. Record Any Changes To Your Company’s Fixed Assets

Now it’s time to record any changes to your company’s assets. Did you sell a fixed asset? Donate or dispose of one? Did you purchase a new fixed asset?

Record these changes in your accounting program, and scan or file any coordinating receipts as well.

8. Run All Financial Statements

Now that you’ve recorded all of your company’s business financials for the month, it’s time to run your financial statements. For most businesses, this includes your company’s Profit & Loss statement as well as the month-end Balance Sheet.

These reports are important to asses the financial health of your business. You’ll want to know as quickly as possible if your business decisions are working. For example, if you run an ad campaign, you’ll want to ensure your profits increased enough to justify the extra cost of the campaign.

9. Distribute Financial Statements

After you’ve completed your records and run your financial statements, it’s time to distribute copies of those financial statements to those who need them. Some examples of who might need your month-end financial statements include your company’s accountant or accounting department, your company’s managers and your company’s executives.

When those who need to be in the know have copies of your company’s monthly records, it helps ensure everyone is kept up-to-date on business financials and can share input and ideas as needed too.

Related: How To Stay Organized At Work

10. Save Backups Of Financial Statements

In this next step, you’ll want to save financial statements, bank statements, and credit card and loan statements in a PDF format to a shared drive or company server.

Having records saved on some type of a backup or cloud server will help avoid total loss of records due to technical problems. In this day and age, it’s vital to have backups of crucial financial and other records.

This fast and easy step will avoid you having to completely re-create financial records in the event of some type of technical failure.

11. Complete An Inventory Count

Sonya also recommends reconciling your inventory on a monthly basis–IF you have a smaller inventory supply. If you have a larger inventory, reconciling on a quarterly basis will likely be a more reasonable option from a time and staffing perspective.

Tracking your inventory on a frequent basis can help you easily detect inventory losses. And it can help ensure you don’t have an oversupply of inventory or a lack of inventory for your company’s client needs.

Summary

Having a month-end closing checklist–and completing that checklist every single month–is a smart way to run your business more responsibly. Keeping up-to-date records can help you be prepared for every business event, from tax audits to selling your business.

And once you get a month-end procedure that works for your business in place, reconciling your business numbers on a monthly basis will be an easy task.

Do your business a favor by keeping up-to-date, accurate records via performing a month-end closing checklist each month. Doing so is one of the key steps to building a focused company that will survive and thrive.

 

Develop a month end closing checklist for your small business

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