How to build a month-end close process

Written By

Parker Gilbert (CEO of Numeric)

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You’ve just started as the first accounting or finance hire. And in addition to trying (in vain) to remember the names of your new coworkers and deciphering which Slack channels you can ignore, you’re tasked with building out a month-end close process from scratch.

A good month-end close process sets the foundation for accurate accounting. A bad month-end close process means a stressful, espresso-powered sprint each month — as over 87% of accountants work overtime during the financial close.

So where do you start? We’ve broken down the steps involved in building out a strong process.

Step 1: Avoid a blank page

While you may be a pioneer in documenting a formal month-end close process, there’s no need to start fully from square one.

Ahead of hiring you to handle accounting in-house, your organization likely first worked with an outside accounting or bookkeeping firm. Ask the external team for any existing close documentation they’ve created. If the current process isn’t written down, as is often the case, set up a time with the outside team to walk through their current process of closing the books.

The same is true, of course, for any current accounting team members if you’re joining an established team. Start by gathering a lay of the land, and noting what tools are used and key workflows.

Step 2: Isolate high-impact accounts

The goal of the month-end close boils down to delivering high-quality financial data to inform business decisions.

Before jumping to any conclusions, set up a conversation with business partners across the company, your CEO, department heads, and any business units proximal to cash flow to pinpoint which business decisions are dependent on underlying accounting data.

“Work backwards from who your team is delivering data to and what they need,” Parker Gilbert, CEO of Numeric, recommends. “For a typical SaaS company, that often translates to understanding revenue and deferred revenue. Other accounting procedures, like accounting for stock-based compensation, for example, might instead be best tackled at year- or quarter-end.”

Your team has limited bandwidth. Isolating key accounts based on what’s driving decision-making helps keep the first few iterations of your month-end process manageable. For most teams, key accounts consist of:

  • Revenue & deferred revenue
  • Cash
  • Payroll
  • Accounts receivable (AR)
  • Accounts payable (AP) & accrued expenses

Step 3: Map data sources, workload required, and timing constraints

Now here comes the bulk of the work. For each key account you’ve identified, take the time to answer:

  1. How are you recording this information? What systems are used?
  2. What is the level of work involved in reconciling this account?
  3. When is it possible to reconcile and close this account?

From there, start building out your close process for the high-impact accounts you’ve identified. Here’s the recommended order to work in:

Build your month-end process for revenue

Before anything else, you’ll want to dive into all revenue streams and sources — for each product or service that your team offers, how are you billing or invoicing customers? Where are you keeping track of all invoices sent? (Is it in an Excel spreadsheet, or on a platform like Stripe?)

Depending on your company type and the timing between invoices sent and when all performance obligations have been fulfilled, your month-end process may involve applying your revenue recognition policy and accounting for deferred revenue.

For a typical SaaS company, for example, month-end will involve either a systematic or manual entry of deferred revenue to note when invoices have been paid for with the expectation of services yet to be performed. In other instances, like billing based on project milestones, revenue may be accrued.

Understand how revenue is recognized, where invoices are sent out and core systems of record involved, and then map out what needs to happen at month-end to ensure that all revenue is recorded properly. You’re driving towards confidence in both the total revenue for the previous month and correct allocation to buckets of importance when reporting, whether that be by geography, product line, or department.

Build your month-end process for cash

With revenue dialed in, the next key account to map is cash.

Connor Foran, former Controller at Squarespace and current Solutions Lead at Numeric, states, “For most earlier stage companies, the priority is top line growth and cash burn. By starting there when building out a month-end close process, you begin to cover your bases and deliver actionable insights.”

For cash, again, start by isolating the sources of the account: are bank statements your source of truth? Or are credit card statements? A blend of both?

To avoid swimming in work come month-end, most teams will handle cash across the month, actively making entries for transactions and often setting up automated bank feeds to more easily compare against their GL.

When reconciling at month-end, the timing here can be tricky — while bank statements are typically complete at the end of each month, credit card statements are often released mid-month. When building your month-end process, understand the timing of cash recs and when you can download the full population of your bank accounts.

Build your month-end process for payroll

Payroll is typically the largest expense for most businesses, making it the next area to focus on when building out your month-end close process after revenue and cash.

Where is payroll information stored? Gusto? Rippling? ADP?

As a part of the month-end process, accounting teams typically pull payroll data from relevant systems to reconcile against cash. Pay attention to potential payroll expense accruals as well — does your business need to accrue for hourly employees, vacations, or bonuses?

The payroll process also presents an opportunity to lighten the workload during month-end. As payroll information is submitted ahead of employee payment mid-month and a few days before the end of the month, relevant reports are often finalized ahead of the start of the official close process.

Tackling payroll reconciliation early can reduce pressure and workload during month-end.

Build your month-end process for accounts payable (AP) and accrued expenses

With cash, revenue, and payroll processes solidified, your team is already on the right track to produce actionable financials. For most accountants, the next area to dial in is AP and Accrued Expenses.

Research how accounts payable are currently handled at your company. Most teams will have either created a standard ap@company email address where all invoices are forwarded or have instituted AP-specific software. Your month-end process will then involve reviewing all invoices and ensuring that they’ve been booked properly.

AP accounting will also require instituting a hard cut-off after which any new invoices received are recorded for the next accounting period and expenses from those invoices should be accrued.

For accrued expenses, talk with the usual suspects to determine material accruals you’ll need to book each month, typically for legal services, professional services, and often marketing expenses. Over time as you iterate on your month-end process, you’ll continue to add in accruals for any vendors that bill in arrears.

Step 4: Build your month-end checklist

You’ve done the discovery work of identifying data sources, timing constraints, and estimating the workload involved in month-end processes for key accounts — it’s time to bring that information together into a month-end checklist.

Your month-end checklist is your playbook for the close process, coordinating and aligning the members of your team on what needs to get done each month.

To start, outline all steps of the month-end process that you’ve inferred from diving into key accounts and assign a preparer and a reviewer to each. For now, estimates of due dates will suffice. You’ll learn a lot in your first few closes, including the volume of work involved in each step, and will likely modify due dates later on.

Your month-end playbook can be housed in Excel, or Numeric offers a free month-end checklist tool with the ability to map dependencies in the close and stay updated on progress with Slack and email digests.

Finally, remember that simplicity is key for your first iteration. There’s no need to document every microscopic task involved and add administrative work to your plate — keep it all at a  high level, focusing only on required items and anything that may slip off the radar.

Step 5: Close with your process & set timeline expectations

Time to put your month-end process into action and officially close out the books. During your first month as your team works through the checklist, keep notes on:

  • Which tasks took significant amounts of time?
  • Which tasks were completed far after the estimated due date?
  • Which tasks held others up?
  • What other items did the team do at month-end that weren’t on the checklist?

The close process is iterative. Each month, your goal is to inch towards a more documented, accurate, and faster close process.

At first, that might mean improving the staging of steps involved and identifying dependencies to incorporate month-end checklist best practices. Then, perhaps expanding balance sheet reconciliations to include prepaids or fixed assets, or adopting software to automate manual processes.

Once you’re armed with 2–3 closes under your belt, it’s time to make a commitment on a close timeline. Communicate clearly to the CFO, CEO, FP&A team, or other relevant stakeholders when they can expect the books to be closed each month.

By setting and then delivering on your deadline month-over-month, you establish a habit of capable execution and begin to prove that your team is a strategic asset to the business.

When building a month-end process from scratch, focus first on key accounts that drive business decisions, dissecting the systems involved, sources of truth, and current practices. Then bring it all together in a month-end checklist, organizing and adding visibility to your close process.

But remember that running a successful month-end close doesn’t mean the work is over. You should treat this as an iterative process — one that you’re actively improving on. Leading accounting teams view each month as an opportunity to incrementally make progress to close faster and more accurately. Ultimately, the best close processes are always under construction.

Numeric is a close automation platform, built to help accounting teams organize their month-end process and reduce the manual work involved in reconciliations, flux analysis, and maintaining accurate accounting data with AI and automation.

Written by

Parker Gilbert is the CEO of Numeric. Previously, Parker built and managed the Finance, Accounting, People Ops, and Recruiting functions at Hearth, a venture-backed startup in the home improvement space.

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