A monthly close is simply a routine for making sure last month’s numbers are complete and correct, then putting them to bed. Done monthly, it takes a fraction of the time of a once-a-year clear-up, and it means you always know where the business stands. Here is a checklist you can follow every month.
1. Bring in and reconcile every bank account
Import the month’s statements for every bank, card and cash account, then match each line to an invoice, bill or transaction. The aim is that the balance in your books equals the bank’s closing balance on the last day of the month. If you have set up bank rules for repeating items, most lines will clear in a click.
2. Clear anything flagged for attention
Look for bills still in draft, overdue bills, spending with no supplier and bills with no receipt attached. Fixing these now is far easier than remembering what they were in six months.
3. Make sure every sale and cost is recorded
Check that all invoices issued in the month are in the books, including work completed but not yet billed. Check that supplier bills received in the month are entered, even if they will be paid next month.
4. Post accruals and prepayments
If you received goods or services you have not been billed for, record the cost with a manual journal. If you paid in advance for something that covers several months, such as insurance, spread the cost across the months it covers. See Post and reverse manual journals.
5. Run depreciation and adjust stock
If you own equipment or vehicles, post the month’s depreciation. If you hold stock, count it or at least check the system quantities against reality and record any difference as an adjustment.
6. Review who owes you and who you owe
Run the aged receivables and aged payables reports. Chase anything more than a month overdue and plan payments to suppliers around their due dates. Aged reports are the quickest way to protect your cash.
7. Check the main reports
Run the profit and loss, balance sheet and trial balance. Ask simple questions: Is income roughly what I expected? Is any expense unusually high or low? Does the bank balance on the balance sheet match the statement? Does anything look odd, such as a negative asset or a large unexplained balance?
8. Compare with your budget or last year
Add a comparison to the previous month or the same month last year. Large swings deserve a closer look. If you keep a budget, review the variances and decide whether to act.
9. Lock the period
Once you are happy, set a lock date so nothing in the month can be added, edited or deleted by accident. This protects figures you have already reported, filed or discussed with your accountant. See Opening balances and lock dates.
10. Share the numbers
Send a short pack to the people who need it: your accountant, partners, your board or your bank. A scheduled report pack can do this automatically each month.
Make it a habit
Choose a fixed day, such as the third working day, and put it in the calendar. Write down your own version of this list and tick it off each month. Within a quarter or two the routine will take well under an hour for a small business, and surprises at year end will largely disappear.
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