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The Small Business Month-End Close Checklist

Month-End Close ChecklistMonth-End Close Checklist
min read
August 21, 2023

I have a question for you: Would you ever put a blindfold on, get in your car, and attempt to drive away?

No, of course not. 

With a blindfold on, you would never know if you were heading in the right direction, if you have enough gas to get to where you want to go, or if there are any warnings signs on your dashboard that you need to be aware of.

But that is exactly what you are doing if, as a business owner, you do not have a month-end financial and accounting closing process or template. A “month-end close” is an accounting procedure that a small business undertakes to reconcile the books, account for discrepancies, and streamline finances and accounting.

Having a month-end close checklist takes the blindfold off and lets you see where you are going. 

Bottom line: A month-end close checklist and recording process will make your small business life much easier.

Getting Ready to Do a Month-End Close

In order to create your own month-end close checklist, you will need to have the following information available:

·      Bank statements or bank account

·      Income and expenses totals

·      Inventory totals

·      Petty cash totals

·      Accounts receivables

·      General ledger

While the above list would be applicable to any small business, it is also true that different businesses and industries will have different entries that need to be accounted for. For example, a construction business would need to also have information at the ready regarding bonds and bonding, equipment leases, WIP (Work in Progress), contract revisions, and so on.

Why it Benefits Your Small Business to do a Month-End Close

Let’s not put the cart before the horse; to do this process every month, it really helps to have a clear understanding of why you should take the time and effort to do this.

And the answer is this:

If you tend to avoid (or want to avoid) the month-end close process because it seems complicated, or foreign, or time-consuming, fear not. It is, in actuality, a fairly simple process, and–even better—it will help you understand the state of your business finances much more clearly. Reconciling the books helps you get a handle on all of those critical things you need to know to stay in business—the state of your company’s finances, cash flow, accounts payable, etc.

The other benefit of doing a month-end reconciliation is that it will save you time and stress in the long-run. Putting off recording and reconciling your accounts can be overwhelming at the end of the quarter or, worse, the end of the year. What was this $479 receipt from Costco for? You won’t have to guess if you close out the books at the end of every month.

Your Month-End Closing Checklist

The way it works is this: At the end of every month, you would start your month-end close checklist by breaking out your accounting system—your Excel spreadsheets, QuickBooks, or whatever accounting software you use. If you use a CPA, he or she would of course also have this information readily available.

Once you have all of your financial information open and accessible, then the process is pretty straightforward:

There are five general areas that you need to concentrate on for your monthly close each month in order to be ready for the next month:

1.     Income, customer payments, and deposits

2.     Payments to vendors

3.     Accounts payable and receivable

4.     Account reconciliation

5.     Fixed assets and inventory

Let’s drill down into each a bit more:

1. Income and Deposits

You need to record all sources of customer payments, including:

·      Checks

·      Cash payments

·      Credit card payments

·      PayPal or other similar payments

·      Loan payments

By making sure that you have properly invoiced customers, you will be able to apply incoming payments against those invoices. The key reconciliation point here is to make sure that customer payments received are applied to the correct outstanding invoice.

Also, by recording monthly deposits of customer payments, you will be better able to reconcile your business’ bank statements at the end of the month, as well as at year-end. 

This step will let you see 1.) if any invoices are outstanding, and 2.) where your sales for the month, and the year, stand.

2. Payments to Vendors

Next, you will want to enter and record all payments you have made for the month to all vendors. Make sure you include all payments made by check, debit card, credit card, and cash. This process should also include double checking that you paid all outstanding invoices and bills.

If you use petty cash, it is important to keep records of those payments as well and reconcile those receipts with the balance in your petty cash fund. If they don’t even out, you are missing a transaction or a receipt.

3. Check Accounts Payable and Receivable

Once all income, payments, and deposits have been recorded, you need to make sure that your accounts payable and receivable match outstanding customer and vendor invoices. This is where discrepancies can easily show up and if they do, you need to double check invoices and payments and reconcile the two.

4. Account Reconciliation

All of these steps are important, but this one is especially so. Make sure that your business records match statements from outside sources, including:

·      Bank statements

·      Credit card statements

·      Loan statements

Does your recorded income match what your bank says you deposited? Do your credit card receipts match those of the card company? Were your cash income and deposits the same as the bank says they were? This sort of bank reconciliation is vital. 

If not, you need to find the problem. Is it a transaction error, or an entry mistake, or what? This part may be tedious, yes, but that is why this process is called a reconciliation.

In addition, this part of the process should include reviewing and updating your general ledger, balance sheet, and Profit & Loss Statement (P&L Statement).

5. Fixed Assets and Inventory

Fixed assets are things like real estate, cars and trucks, and other similar large assets. Fixed assets may have depreciation or you may sell or donate them. Record any changes.

Inventory is different. Not all businesses need to (or want to) count inventory every month, but doing so is a best practice. For starters, tracking inventory monthly allows you to better see your inventory shrinkage, that is, loss due to theft, breakage, spoilage, etc. 

In addition, doing inventory monthly allows you to see what is selling and what needs to be re-ordered.

Once you have entered, recorded, and reconciled all of these financials, you should run a monthly Profit & Loss statement and a month-end balance sheet. These are an up-to-the-minute snapshot of the financial state of your small business. They will be useful to you of course, but also to other stakeholders in your orbit.

Closing Entries

At the conclusion of this process, you need to “close entries,” that is you need to transfer revenue and expense account balances to your income summary account. Then, take the balance in your income summary and transfer it either to:

·      The capital account, if yours is a sole proprietorship or partnership, or

·      The retained earning account, if yours is a corporation

This will set both income and expenses back to zero for the new month.

And Down the Stretch They Come!

While it will take a bit of effort to get this month-end close process and checklist in place, it should be worth it. For starters, it will be easier as you go forward, and more importantly, by taking the blindfold off, you will be off to the small business races.

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