Accounting Close Process & Frequency
Mastering the Month, Conquering the Quarter, and Owning the Year: Your Guide to Period-End Close
The rhythm of business is often marked by deadlines – sales targets, project milestones, and, crucially, the period-end close. While it might feel like a routine task, a robust and timely close process is the foundation of sound financial management. It's not just about ticking boxes; it's about gaining real-time insights, maintaining accuracy, and building a foundation for informed decision-making. Let's break down how to approach your monthly, quarterly, and annual closes effectively.
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The Monthly Pulse: Real-Time Insights at Your Fingertips
Every month, ensure your accounts reconcile to third-party reporting. This means that revenues are reconciled to your invoicing/customer payment platform, bank statements are reconciled to the balance sheet, any open liabilities are recorded in the correct period, and you understand how you arrived at your ending equity numbers (i.e., contributions and distributions are accurately recorded). This helps ensure that the business is navigating its finances in real time.
Businesses can identify issues more quickly when they keep up with the financial reporting framework regularly. This also allows for regular questions. If you don't understand a number on the financial statements, it could mean something needs to be written off or an incorrect entry was posted. This is why keeping supporting documentation is so important.
The monthly frequency is even more vital for private or real-estate funds, partnerships (including joint ventures), corporations (including S-corps), and organizations preparing to be audit, investor, and lender ready. Another key aspect is accounting and finance controls. Controls essentially mean you have the right team members delegated to execute and reconcile appropriate accounts, usually accounts they specifically manage. When you regularly ensure processes are implemented and accounting policies begin to be documented, there will be a more sound environment for your business.
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The Quarterly Deep Dive: Analyzing Trends and Planning Ahead
On a quarterly basis, if you are on accrual accounting, it's a good time to perform a deep analysis of your payables and receivables to ensure they are as accurate as possible. The best way to check accuracy is to dig in and truly understand what is being accrued on the balance sheet. (Pro-tip, next months cash payments are a good way to assess if anything should have been accrued before cash went out the door). If your business already maintains its accounts monthly, the monthly process might be so streamlined that the quarter-end touch-up is light. You want your accounting team to review automations, reports, and perhaps month-to-month trends to provide you with a summary of your quarterly performance.
Quarter-end reporting can give you insight as to whether or not the year is shaping up as expected. If it's not shaping up as expected, this is a good time to pivot and discuss alternative strategies that can help you reach your revised goals.
Quarter-end reporting is also a good time to estimate any quarterly tax obligations and tax distributions as needed. Talk with your Tax CPA during this time to ensure everything you need from a tax perspective is covered for the quarter.
Sometimes, you only need support for a specific part of your accounting and finance function. We can step in to help with things like reviewing financial statements, preparing essential footnotes, and discussing key trends with your board and upper management. This vital information empowers you to adjust your strategy as needed. Those financial statement footnotes, for example, provide crucial context, allowing stakeholders to understand the numbers more deeply and ensuring compliance with financial reporting standards.
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Annual Financials: Reflecting, Refining, and Preparing for the Future
Annually, similar to quarterly, it is important to understand what is on your balance sheet. If you don't know what is there, chances are something needs to be adjusted. At this point, it's likely that your expenses and revenues have already been 99% reconciled for the year. Therefore, finalizing the books isn't a heavy lift!
If you're keeping track in an Excel workbook, now is the time to transition the work to accounting software, with your workbook uploaded as support for the final posted entries within your accounting system. Additionally, footnote disclosures are vital at year-end to describe the year-end balances to key stakeholders in accordance with applicable financial reporting frameworks.
Year-end can stress anyone out quickly since there are many moving pieces and more importance is placed on the accuracy of financial statement numbers. If you can, stay ahead of key deadlines, communicate these deadlines early, and make sure the deadlines work for everyone, including your investors, lenders, and tax CPA. More to come on year-end reporting tips in a separate post.
To wrap it up…
The period-end close is more than just a compliance exercise. It's a vital process that provides invaluable insights into your business's financial health. By establishing consistent monthly routines, conducting thorough quarterly analyses, and diligently finalizing your annual books, you empower yourself with the knowledge to make informed decisions, navigate challenges effectively, and ultimately drive your business towards success.
Make the period-end close a priority – your bottom line will thank you for it.
Stay tuned for more…
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