As a business owner, sometimes it can be difficult to keep up with bookkeeping and accounting tasks on your own. However, it is very important for the health of your business to have standard procedures in place to close the books each month. Monthly financial statements are some of the most useful strategic tools for businesses to scale and grow. By maintaining consistent and accurate reporting of your profit and loss statement and balance sheet, you will be able to better interpret key data for fiscal monitoring, implement forward-thinking changes and prevent costly errors. At Agile Planners, we are committed to the success of your business and understand the important role that bookkeeping and accounting plays in that. Below you will find an overview of what you need to know for a successful month-end close.
The Month-End Close Process
What Is A Month-End Close?
In accounting, a month-end close is a series of steps in which a business reviews all financial records to ensure that they are balanced before the start of a new month. This process involves reviewing, recording and reconciling account information. The purpose of a month-end close is to keep all accounting data organized, accurate and complete, as well as ensure that all transactions for that month have been accounted for. Properly closing the books each month can provide you with invaluable insights on your business’s finances for improvement.
What Information Is Necessary?
In order for a business to successfully close the month, there is some essential information that must be collected and recorded. While this can range depending on your type of business, it generally includes:
- Bank account information
- Total revenue
- Inventory levels
- Total fixed assets
- General ledger data
- Financial Statements – P&L Statement and Balance Sheet
Reviewing Your P&L Statement
The profit and loss (P&L) statement, also known as an income statement, is one of the most important financial statements. Essentially, the P&L allows you to see whether your business is being profitable or not. When reviewing the P&L statement, you can focus on viewing your income and expenses for the current month or a period of time (quarter or year). While reviewing the top level of the report is important, it is beneficial to drill down into accounts where you can organize data either by name or description to make it easier to spot any differentials. Also keep in mind that all subledgers (Accounts Payable, Accounts Receivable, etc.) should match the amounts on the financial statements. There are two ways to view you P&L: cash or accrual. Cash will show you revenue and expenses once money has been received, as in a cash sale. Accrual, on the other hand, will present revenue when it’s billed rather than received and expenses when they’re billed but not paid.
Reviewing Your Balance Sheet
The balance sheet provides a view of the business’s assets, liabilities and equity. It is used to evaluate the overall health of the business as well as its liquidity or how easily its assets can be turned into cash. In conjunction with the P&L statement, it offers business owners a complete financial picture of their business. Unlike the P&L statement which shows performance, the balance sheet shows you the health of the company — what it owns and owes for a specific moment in time, like the end of the year. The three main things to consider when reviewing the balance sheet are assets, liabilities and equity. You can use the information on the balance sheet to calculate ratios, such as inventory turnover and how likely you are to pay off short term debt among others.
Financial Plans For Business Owners
Despite often being considered a time consuming task by business owners, the month-end close has the potential to guide your business toward greater success. Of course, how much you get out of it is determined by how much you put in. In order for the month-end close to be as beneficial as possible, you need to maintain detailed and up-to-date records, develop effective processes, and invest in the proper tools. If this all sounds like a lot or you’re struggling to find time to review your financials, don’t worry. At Agile Planners, we understand the many responsibilities that business owners have and that time can often be limited. We can provide you with CFO, bookkeeping services, and training. As a one-stop shop to fill all types of accounting needs, we take over bookkeeping and accounting tasks, integrate technology systems for optimal performance, and provide consulting services to develop a strategic plan for your business to grow and reach its goals. We’ll take care of the nitty-gritty so that you can focus on the bigger picture: running your organization. Contact us today to learn more about how we can help you with your month-end close process.
