Achieving a Month End Close in One Day
Guest Contributor – Bill Denney
In this piece Bill Denney, a finance leader living in Green Bay, Wisconsin, describes a successful close, it’s benefits and what it takes to get there.
What does a successful financial close look like?
- All audiences of the financial statements
- have reliable info,
- when needed,
- in a format meaningful to them so they understand the financial results
- are able to make better decisions from the financial reports they receive
- The Close is completed on +1
The benefits of a successful financial close include
- It is an effective means to achieve specific goals such as:
- sales growth,
- improve margins,
- grow EBITDA,
- optimize working capital,
- increase ROI
- Free up Finance to go deeper toward being strategic business partner with all areas of the business.
Reporting out of the closing process should be INSIGHTFUL not just data (aka noise).
A path to a successful financial close
1. Set a goal. Present team goal of closing books and publishing financial statements on 1st business day of new month. Encourage everyone to come up with ideas to improve current processes.
Keys to success:
- The team understands and buys into the benefits of a fast close.
- They believe this effort will improve their job, not eliminate it.
- Creative, outside the box, bold, transformative thinking by the whole team.
- There is a mechanism to give each idea a transparent and fair analysis.
- Regular robust partnering with all functional areas.
- Ownership mentality - act in the best interest of the business
2. Develop month end check list
- Assign specific tasks to specific people. Each task and reconciliation is reviewed and signed off by 2 people.
- Action (improve processes) should be taken so no odd or reconciling items exist longer than 1 – 2 months.
- Due dates - daily where possible.
- Reconcile cash first thing in the morning DAILY which likely has ripple impact (good) on other accounts.
- Monitor reconciliation of Accounts Receivable, Inventory, Accounts Payable. A/R and A/P should be clean DAILY.
- Miscellaneous A/R and Accrued liabilities – plan and take appropriate action –
- Schedule to close books 3pm last day of month.
The first part in the webinar series, Perfecting the Close – covers the closing checklist
3. Invoicing, Accounts Receivable, Supplier Bills and Accounts Payable
Develop processes to:
- Record all transactions within 24 hours of confirmed receipt by customer (our sales) and receipt of incoming product from suppliers (our inventory).
- On last day of the month record as many transactions as possible by 3pm. (To avoid last day chaos, record all transactions from previous days timely)
- Automate and enhance processes as much as possible.
- Test cut offs at quarter and year end.
4. SGA (Administration) expenses.
- Key to success – Receiving and recording vendor invoices – contact vendors about when you need to receive their bill.
- Accruals – prepare estimates, recording deadline is 3pm last day of the month, prefer before last day of month.
- Fixed expenses – easier to accrue because the amount not changing much.
- Variable expenses – determine what drives these expenses so an accrual can be posted by 3pm on the last day of the month.
- Standard/Recurring entries PLUS accruals– Depreciation, unemployment taxes, insurances, etc. Record by 25th of each month. Consider adjusting 1 – 2 times per year.
- Automate and enhance processes as much as possible.
- Consider outsourcing as an option. Most SMEs don’t have the breadth of knowledge or systems to effectively manage payroll administration.
- Record each payroll paid within 24 hours of when reports are available which should be 1 – 2 days before payroll is actually paid.
- Develop an excel template as part of your budgeting process to estimate each payroll with special focus on work days each month, payroll period end dates, pay dates. Use this information to estimate the monthly payroll accrual. Record your payroll accrual entry within 24 hours of having reports for last payroll paid.
6. Completing the financial close puts us position to publish the financials, including analytics (KPI’s, metrics, dashboards) so we can understand results, make better decisions and exceed our goals.
- Partner collaboratively with all areas of business to determine what analytics are needed and when they are needed.
- Track working capital metrics (days sales outstanding and days in inventory) down to key supplier and top customers.
To learn more about improving processes, including a tool to help you redesign your closing and other financial processes, read The Guide to Financial Process Redesign
The path beyond a successful financial close
Having a quick month end close will allow your team the band width to expand on other important real time and future focused activities. For example,
a) What analytics can we publish (email to each key person) at end of each day, such as sales and gross profit, including tracking vs forecast/budget.
b) Daily, weekly, or month end publish sales/gross profit and inventory following 80/20 concept perhaps including further drill down into top 10 – 20 customers by key product, by supplier? Do we need any other 80/20 concept analysis?
c) Partner with all cross functional leadership to develop profile of preferred and ideal customers and suppliers.
d) Partner with IT
- Get all dashboards, metrics published real time on pc’s, laptops, cell phones.
- Automate manual processes and digitize key information (for more on this read Improving Business Valuation with Finance Automation)
Achieving a month end close in one day – a big step in transforming your finance team.
Identify your path to CFO success by taking our CFO Readiness Assessmentᵀᴹ.
Become a Member today and get 30% off on-demand courses and tools!
For the most up to date and relevant accounting, finance, treasury and leadership headlines all in one place subscribe to The Balanced Digest.
Follow us on Linkedin!
