Monthly Close Process

The Monthly Close seems to take longer and longer these days. GAAP is getting complex. Companies are recording complex transactions that require additional work to record, reconcile and eventually generate error free financial statements.

After public accounting, I was hired as a corporate controller by an online retailer. Revenue was $12M and the company had, at the most, 20 balance sheet accounts, 30 employees, and 3 revenue accounts. Life was simple. I usually closed the books within 3 business days, including booking all the depreciation, accruals, recording leases, amortizing prepaids, equity etc. The CFO took a couple hours to review and, bang, the financials were presented to the executive team.

So what really happened. Well, many things changed. For me, my company went from a single to a consolidated entity. We got into the acquisitions mode, and acquired two other companies. Our angel and series A investors no longer wanted organic growth but rather growth via acquisitions. And the banks were willing to fund these acquisitions. Money was cheap and we borrowed so we can add additional revenue without the hard work of growing organically. The CEO simply wanted a quick increase in EBIDTA. However, he didn’t see the value to adding accountants to handle the additional workload. So, the monthly close process suffered. Now I had four companies I needed to close the books for. Each entity had their own office manager who handled day to day accounting functions but reported to me. I had to email them to make sure all bills, invoices and other transactions were properly recorded in the system. So now instead of relying on just the AP, AR, Revenue and staff at the corporate level, I had to rely on the remote accountants. This was tough.

But the good news is that the monthly close process does not need to be complex or take forever. There are several steps to creating an effective and efficient close process. Here are the 3 basic steps:

First, create a checklist
Every company I worked at or audited or consulted with, I always wanted to see the closing checklist. This will give me an idea if their controller or bookkeeper is on top of things. I usually glance at their checklist, then review their balance sheet, P&L and other financial information to see if the checklist encompasses all of the accounts. For example, if a company is in manufacturing, I usually would like to see a COGs section in their monthly close checklist which will usually cover any cycle count information, overhead and other allocation or E&O or other inventory adjustment calculations.

Creating a closing checklist is simple. You create one template based on your business, then copy and paste it for each month. As you add new or remove old accounts from the balance sheet and P&L, you update the checklist. I had a situation where we received advance payments for our services, I had to create a Deferred Revenue account on the balance sheet, create a spreadsheet and reconcile the revenue earned vs unearned each month.

Second, is to automate as much as you can
At a company I worked at, there were over 200 maintenance contracts for a variety of equipment. Each piece of equipment had several maintenance contracts. When I initially setup the initial amortization, I used Quickbooks recurring feature to automate the entry each month. Then when we moved over to Microsoft Dynamics GP, I created similar automation. I am a strong believer in automation. Other complex tasks can be automated by using Excel macros or various online tools. I will cover Excel and macros in the technology section later.

Third, be proactive
Each morning, I open the monthly closing checklist, then throughout the day I add new items on the list or remove non-relevant items. For example, I know that the sales tax filings are due at the end of each month following quarter end. So in the April closing checklist, I add a task for sales tax due. But now you may be asking why do I add tax returns due dates and other non-close items to the Close Checklist. For me, I look at returns and other time-sensitive tasks as a monthly close. Just as we use our phones for responding to emails, checking traffic, weather and watching movies, I use the checklist for all my accounting duties.

Hope this helps you out with your monthly close process.