I don’t know about you, but month-end has always been a point in the month that requires planning, minimum disruption and usually a lot of headaches!
How many of you have dreamt of reducing your month-end down to less than a week? What if I told you that we had managed to reduce our month end to three days? Believable? Well, we managed it! It takes some careful planning ahead of time, discipline and clear processes and rules, but if you follow this guide you could find yourselves well on your way to a three-day month end too!
Advantages to a three-day month-end
The biggest advantage to having a three-day month-end is time! You can gain days back in your schedule! Imagine what you could do with those extra days.
Another huge benefit is faster decision making. If you have reduced your month-end to three days your reporting for management happens quicker, this means they have the information they need to make decisions much quicker.
You may see an increase in the morale of your finance department as month-end is no longer a long process or stressful time, full of late entries and adjustments. Instead, it will become much more efficient and your finance department will thank you for it.
Steps to reduce month-end processing
As mentioned there are several steps you need to take in order to make a three-day month-end actually possible.
Firstly you need to establish a cut off date. Once you have decided on what day this should be, ensure that you communicate this to all relevant departments so they are aware for their own planning. In terms of our sales ledger, we ensure all invoices are raised on the last day of the month and any credits, further invoices get added to the following month after this date. For our business this is relatively easy as we do not do one big invoice run at the end of the month, our larger invoice runs occur much earlier in the month. If you only invoice at the month-end, it may be time to look at invoicing earlier in the month, this can be beneficial to your month-end process and cash flow as you will be receiving cash much earlier.
For our purchase ledger, we use a cut off date of end day two at the latest. If you have not received an expected invoice at this point, accrue for it and move on.
Accruals will be your best friend. A quick month-end will only work with the use of accruals. You know your regular supplier invoices. Keep a check of the ones you haven’t received and create an accrual which you can reverse in the following month when you receive the bill. It is worth checking for any freelance/subcontract costs which you may not be aware of with operations. Get a figure off them for how much they have used and if you don’t have the invoice to match, accrue for the balance.
Change bill dates. If you can change the date of some of your supplier bills then do so. With regards to utilities I wouldn’t worry about accruing or splitting charges unless you have diverse usage month to month. Often the change from one month to the next is minimal and so not worth adjusting or accruing for. The main thing is you have a monthly charge in the accounts. If you have quarterly or annual utility bills then you will already be accruing for these anyway.
Set a materiality rule, for instance, £1000. Anything under this threshold does not need to be accrued or prepaid. The amount you set will be relative to your own business average and transactional value.
Automate and import as many transactions as possible. Set recurring journals monthly. Automatically import your bank and credit card transactions. Most accounts software packages have this functionality now, this alone will save so much time with your bank reconciliations as the transactions will already be entered, you just need to reconcile the balance. We also set up recurring bills and have connected many of our suppliers to our accounting system so bills are pulled through automatically.
The three-day plan
Here is what an ideal plan for the three-day month-end would look like.
Last working day:
Close off sales ledger
Calculate work in progress and finalise revenue
Top revenue figures can be reported to management.
Credit card reconciliation
Payroll entry – if you are lucky enough to have an outsourced payroll company, they should provide you this in a format which means you can import it directly to your software
Cut off for suppliers
Close purchase ledger
Accruals and prepayments
Nominal checks – checking for errors and duplications
Reconciliation of balance sheet figures
Budget checks/variances – This will help you to spot any potential missing costs and overspends.
Gather other operational month-end information for reporting
Close off your accounts so no further entries can be added.
If you can follow some of these steps you should be able to start reducing the time you spend on month-end preparation. It may take you some time to get down to three days but each step you take will get you closer to your ultimate goal. Three days may not ever be possible in your business but if this can help you to reduce and cut days out of the process then we have success.
Each business is different so don’t beat yourself up if 3 days is not achievable. Sometimes things go wrong or bank holidays/annual leave/operational issues get in the way and 3 days just is not possible, the point is to make the whole process more streamlined, less stressful and of course to give you more time back.
If you have any questions don’t hesitate to get in touch with us.