Hey everyone, Russell Benaroya from Stride Services. What is month end close and who really cares about it?
Month end close is the act of putting a nice bow around your financials, such that the expenses in the prior month period match the revenue that was earned during that period. So expenses incurred in the period match the revenue that was billed in the period. And when your expenses in the period match your revenue in the period, then you have this very pure, accurate view of profitability in your business.
Now, how do you get that? Well, oftentimes at the end of the month end, there are some adjustments to make for timing differences. For example, if I pay payroll on the 5th of the month, but it was for the 20th of the prior month to the 5th of the next month, I need to make an adjustment, that even though I didn’t pay out the cash till the 5th of the month, I incurred two thirds of the expense in the prior month. So I need to make an adjustment to get that entry into the prior month. Got it? Exciting stuff. 😉
The month end is all about those adjustments. You want to make sure that your bank account is reconciled, making sure all your credit card information is captured in your general ledger. And, that all of the expenses that need to be recognized in that period are recognized.
Great. So who cares about it? Well, you care about it, because you want to sit down with your investors or with your accounting team or with an acquirer, and have confidence that the financials that you’re representing are accurate.
Waiting too long to do closing work like quarterly or longer, creates a lot of uncertainty unnecessarily. So try to close your books monthly. And get on a cadence of having that monthly review call to have the confidence that your financials accurately represent how your business is doing.