An End-of-Month Checklist for Your Business Finances
Before you leave the house, you follow a set routine. Purse? Check. Wallet? Check. Car keys? Check. Door locked? Check. Food left out for Cami? Whoops, gotta go back! And that’s why you have a routine.
Our routines ensure nothing slips through the cracks. They are mental checklists, or ingrained behaviors, that we can do on autopilot. Like the steps you take before locking your door, there are steps you should take to make sure your business’s finances are buttoned up and “closed” each month.
In the accounting world, we call this month-end close (MEC), and you may have heard it referred to as “closing the books”. Essentially, at the end of each month, you make sure all of your financial transactions are tidy and tied-out. These are the final touches to your books and financial reports. That's why we call it a "close." Afterward, you shouldn't have to make any other changes.
While this is a recurring to-do, once a month is hardly frequent. That makes it harder to remember what and how to do it. Add on the fact that accounting is complex, and you may feel lost before you even start.
My goal here is to clarify what exactly happens during a MEC for you. I’m going to walk you through my MEC process that I follow every month for my clients and my own company.
After you’ve gone through this checklist a handful of times, it'll get easier, which will (in turn) make your quarterly and annual reviews easier. But for now, it's baby steps. To guide you month after month, here is a checklist on what to do. Be sure to download your copy and add it to your finances folder. It’ll make your MEC way easier.
I've closed books hundreds of times—for several years and several companies. Here are the five steps I follow when I do MEC.
5 Accounting Tasks To Complete Every Month
1. Complete your weekly finance date.
For the first step, have your normal weekly finance date. If you missed what that is, check it out here. Run through all five steps and make sure all transactions are in your books through the end of the month.
If you’ve kept up with your weekly finance dates, you’ve already done most of the heavy lifting—data entry—and it’ll make your MEC much easier.
Sometimes you'll have a crazy week that leads to missing your weekly finance date. That’s okay, you can catch up on the following date. Any longer though and your brain will forget details and receipts tend to disappear. I mean, how often do you tell yourself to remember something and then it completely slips your mind? I sure have.
Don't let that information sit on your mind, taking up bandwidth. Get it out of your head and into your books, so you can move on with your work and life.
2. Reconcile your bank & credit card accounts.
This next step is a linchpin to a proper month-end closing of “the books”. You need to reconcile your accounts. Effectively, this is like balancing your checkbook… if you learned how to do that in Home Ec class. You compare the starting amount on your bank statement with the ending amount, and then confirm every transaction in the middle. This confirmation is the process of reconciling the transactions you’ve created to the ones on your statements. In essence, you’re double-checking your work.
To reconcile in QuickBooks, you compare the ending balance on a statement to the QuickBooks balance in the Reconcile area of the Accounting Center. You should repeat this process for every account that sends you a monthly statement: checking, savings, credit cards, PayPal accounts, etc.
If you've done your bookkeeping properly, this can take as little as 30 seconds. QBO uses smart technology to identify what's cleared your account and what hasn't.
By reconciling, you’ll catch errors. For instance, if you entered a transaction twice, a payment didn't clear, a check bounces, or the like.
Many DIY bookkeepers overlook this step, so please don’t make that mistake. This is how you button-up your books. You ensure everything that went through the accounts is in your accounting books.
By syncing your accounts in the Banking section, it may seem like you’re reconciling as you go. This is incorrect. Mostly I see errors here for transfers between accounts, like credit card payments. Seldom do I find bank connection errors.
Oftentimes an unreconciled difference is a physical check. You wrote the check, mailed it off, and recorded it in your books, but the receiver hasn't deposited it yet. These can remain as unreconciled items and will clear when the payee makes the deposit.
3. Prep your sales taxes.
If you're required to file sales tax reports, now is the ideal time to do so. Depending on your business, you may do this monthly, quarterly, or not at all. Adjust the frequency of this step to match.
After you reconcile your accounts, run a sales report. There are many ways to approach how you calculate sales tax. It all depends on what you offer and the state rules, which is too much to get into here.
You want to do this after reconciling because you pay sales tax when money changes hands, i.e. you complete a sale.
If a client hasn’t paid you for the work yet, you don't owe taxes yet. If they’ve paid early, you owe taxes now. Run your sales report on a cash-basis, so that it shows only what cash changed hands.
4. Review your financial reports.
Once you’ve completed the previous steps, you’re ready to look at financials. You're ready to see the product of all your finance dates and MEC work.
In the next blog, I’ll go over what to look at in each report. For now, star these in the Reports section so they are easy to find at the top of the page.
Profit and Loss Statement
Accounts Receivable Aging
Accounts Payable Aging
Balance Sheet
Statement of Cash Flows
These reports come standard in your QBO account. All you have to do is open the report, adjust the parameters, and click Run.
You've done all this work to get to this point. The data is super powerful, if it's accurate and you know how to use it. By sticking to your finance dates and monthly close, your reports should be accurate. In the next blog, I'll tell you how to use them.
5. Lock down QBO
In QBO, you can make it so no one can enter or change a transaction before a specific date. This is an official closing.
You've done all this work to make sure your books are accurate. The last thing you need is to make some change that throws your accounts out of balance. While you can track down who made what changes, it's tedious and difficult. (Especially when you have linked transactions and one change cascades into several.) Prevent this by locking-down and password-protecting everything before a specific date.
Here’s a quick video on how to official close your books in QBO:
You can still make changes before the closing date after approving a warning or by entering a password. I usually enter in a password, so that no one can make inadvertent changes—it does happen and can be a mess to fix!
I turn off the closing feature when I’m cleaning up older books so that I don't have to enter a password over and over again. Be sure to remember to turn it back on though once you're done!
Recap: DIY Bookkeeping Month-End Closing Process
So those are the five steps of MEC. To recap, they are:
Have the weekly finance date
Reconcile your books
Prep sales taxes
Review your financial reports
Lock down QBO
Finishing your monthly bookkeeping will be much easier now. You understand what to do every week and every month. Repetition is key here. The more you do this, the more it'll make sense, and the easier it’ll get.
The steps I’ve outlined here are baseline, universal steps. Depending on your business, there may be others to complete.
I recommend completing your MEC in the first two weeks of each month. You can tack on the extra steps to your finance date. Once all of your transactions for the previous month post to your account and you have the bank and credit card statements, you can get started.
With repetition, you’ll understand more about your business, finances, and operations. You'll see how different lines relate and connect them to operations.
In case you haven't already, get the checklist here. Keep it nearby until this becomes second nature. That will take a while since it only happens once a month, but I'm confident you can do it.
