Automate/AI: The Dreaded Month-End Close

I often think of what novelist F. Scott Fitzgerald said decades ago: “The test of a first-rate intelligence is the ability to hold two opposing ideas in mind at the same time and still retain the ability to function.”

Put into the context of your world, e.g., your month-end closes, accountants have to hold a hundred ideas in your mind and still function! But it doesn’t have to be that way. How? First, simplify the process with a checklist, and then automate the processes as you grow. It’ll free up your mind to do all kinds of other, more productive things – like maybe even a good night’s sleep!

The month-end close can be a very complex, sometimes stressful, process, especially for companies who haven’t fully optimized their MEC processes. I can tell you horror stories about very good companies who simply did not have a well-thought-out process. (One company had five different checklists for their month-end close. I won’t name names, but trust me, they are out there…)

How it’s supposed to work

The goal of a month-end close is to have an accurate balance sheet and income statement. Why is this important? For regulatory compliance purposes for one. But especially for young companies seeking investments, or mature companies who are looking for a buyer, MEC reporting and transparency is critical to their success. Investors want to know how their money is being utilized.

The infographic below shows how the month-end close process is supposed to work:[i]

Month-end close how to: First, have a checklist:

Smaller organizations with an accounting staff of one or two should use a spreadsheet like MS-Excel to create a checklist (or write to me and I will send you one). All other organizations, from SMB to mid-sized to enterprise, should use an automated financial close management software product.

Let’s look at the checklist. (I call it a “MEC Check.”)

Having a bunch of tasks on a checklist means that there will be lots of communication back and forth between the key players in the month-end-close process. This is usually done manually, via email or Slack or Teams, but it is a necessary (and time-consuming) element that must be done. The list below has nearly 100 items on it, and includes the person responsible, as well as a reviewer, and other elements that must be taken into consideration for the close process.

Disclaimer: Normally I don’t advise using Excel when an automated system exists, but in the case where your company has only a couple of accountants, Excel (or Google Sheets, etc.), works just fine. Here’s what the MEC checklist might look like. (Reminder: I can send this to you if you are interested.)

A checklist is critical for a month-end close. Spreadsheets are a good start, but ultimately you need to automate.

The second thing: Automate.

Once you’ve grown beyond a couple of people on your accounting team you should definitely automate the close processes using a MEC software platform. I’ll provide a recommendation for a brand that I like, but first let’s look at what makes good close software.

MEC automation software should be a cloud-based tool, and help navigate the month-end close in the following ways:

• Manages and tracks accounting teams throughout the month-end close process remotely.
• Creates a tailored close checklist, folder structure, and linked reconciliation workbook, all saved in cloud storage.
• Automates manual tasks such as reconciliations and trial balance tie-outs to ensure faster (expect 30-40% on average), and more accurate financials.
• Ensures that audit documentation is readily available at all times.

Check it out: Utilizing MEC automation tools and a bit of good experience, I was able to help one of my clients reduce their month-end close time from six weeks to just five days!

The benefits of automating month-end closes:

• Faster reporting: As mentioned above, MEC automation speeds up close times by a third or even more. This means that your management can receive tied-out financials much quicker due to improved team communications and automated tie-outs and reconciliations. It’s also crucial for regulatory compliance.
• Less back-and-forth communication: MEC automation provides better visibility into the status of your financials during the close. The system also serves as a central repository for any documents or support needed during month-end, so the days of searching your inbox for that misplaced invoice are over.
• Documentation of procedures: By incorporating each of your checklist procedures and reconciliations into the system, MEC automation will establish an organized process each month. The collaborative checklist and reconciliations, equipped with and assignee and sign-off capabilities becomes more than a workflow tool, it’s a powerful enforcer of internal controls for you, which will help you focus on higher level work vs. the mundane and repetitive aspects of your month-end closes.

My recommendation: FloQast

The month-end close software that I recommend to many of my clients is FloQast. FloQast is a cloud-based tool designed to help you close your books faster and more accurately. It assists in collaboration, timing and provides transparency to you. Basically it checks all of the boxes in the above requirements.

I’ve been recommending – and using – FloQast for years. Here’s why I like it as a month-end close automation system:

• A single “pane of glass” to manage month-end close processes.
• A month-end close checklist & reconciliation workpapers that are tied into accounting systems and cloud storage.
• Provides other tools (i.e. transaction matching, close analytics, collaboration) to augment the close and reporting.
• Creates standardization and consistency.

Automate and optimize month-end close processes – and make your life easier!

Bonus!

Integrating your accounting system not only helps improve tasks like shorten month-end close, but it also helps retain your people! According to the survey of a little over 200 accountants taken in October 2022, companies that offered an integrated technology solution to their accountants were 80% more likely to retain those employees.[i] 

The Bottom Line

I strongly recommend that my clients use checklists for their month-end closes. At a minimum use a spreadsheet (I will be happy to send you a template for free). But ideally, use an automated month-end-close tool. This will remove the “swivel chair computing” element in your accounting processes, which, if not done, will pretty much prevent your company from scaling.

If you’d like to learn more about automated month-end close processes or tools – or any type of back-office automation, please reach out to me, I will be happy to help.

All my best,

Kim

[i] Accountants 80% More Likely to Stay With Firms That Offer Integrated Tech: Weekly Stat (cfo.com)

[i] https://floqast.com/blog/what-is-the-month-end-close-process/