Streamline Your Financial Month-End Close
Should we sacrifice accuracy at the expense of speed?
It is a trade-off that should be considered. Let’s face it we are only 100% correct as to results when a business is liquidated/sold. We use estimates throughout the month-end close process each month. We accrue expenses like utilities not to mention the late expense report, etc.
Most financial transactions result from operational activities in a manufacturing organization. Shipments result in an AR invoice, purchase receipts result in an AP invoice, etc., but you have cut-off issues to consider in order to match revenue with cost for proper financial reporting for the month/quarter/year.
Yes, the longer you keep the books open the more accurate the month-end reporting, but it is more difficult to react, with corrective action, to information as it gets older (stale).
So how can you speed up the financial month-end closing process?
You close the books every month. The process is very much the same. It should be documented to allow efficiency as well as ensure all tasks are completed (considered) or even eliminated or revised. Financial controls and segregation of duties should be instituted to ensure the accuracy of transactions. An example of this is the bank reconciliation. With proper controls you can close the month without doing your bank reconciliations until after the financial close. You can do mini reconciliations during the month (weekly), if desired. I find with proper controls what is missed in the month-end close is a bank service fee which is very immaterial. I would consider weekly reconciliations of control accounts (reports to GL) such as Cash/Accounts Receivable/Inventory/WIP/Accounts Payable/Uninvoiced Receipts, etc. In most Manufacturing ERP systems like VISUAL ERP you can cost these transactions during the month and not wait until then end of the month. If you find an issue during the month you have time to explore it and since it happened less than a week ago it is easier to explore/analyze.
Consider standing accruals for expenses like the utility bill, legal/accounting services, etc. instead of creating a new accrual every month. Create standard accruals for other expenses like depreciation and execute them mid-month.
All the above will enable you to complete the month end close process quicker enabling you to have more time for analysis as well as provide more timely results to management. VISUAL ERP is an excellent tool to enable timely month-end reporting resulting in quicker and more efficient responses and corrective actions.
Authored by: Jack Hughes, CPA
Synergy Resources, Director Business Systems Deployment