Monthly Close Process

The monthly close is when you finalize your books for the prior month, ensuring everything is accurate and complete. A consistent close process is essential for reliable financial reporting—and for building a company that can scale.

You might wonder: why bother closing the books monthly? Can't you just wait until year-end for accurate financials?

Here's why monthly closes are essential:

Timely Decision Making: You need current information to make good decisions. Waiting until year-end means making decisions in the dark for 11 months of the year.

Error Detection: It's easier to fix a mistake from last month than from last year. Monthly reviews catch errors while you still have context.

Investor Expectations: Your board and investors expect monthly financial reports. Missing or late financials erode confidence.

Operational Rigor: The discipline of monthly closes creates financial rigor that scales with your company.

Here's what you need to do each month to close your books properly:

Step 1: Reconcile Bank Accounts
Match every transaction in your accounting software to your bank and credit card statements. Look for missing transactions, duplicates, and timing differences.

Step 2: Review and Categorize Transactions
Go through all uncategorized transactions and assign them to the correct accounts. Ensure consistency with prior months.

Step 3: Reconcile Accounts Receivable
Review your AR aging report. Follow up on overdue invoices. Make sure AR matches what customers owe.

Step 4: Reconcile Accounts Payable
Review your AP aging report. Ensure all received invoices are recorded. Confirm you're capturing all accrued expenses.

Step 5: Record Accruals
Accrue for expenses incurred but not yet billed: legal fees, contractor work, etc.

Step 6: Depreciate Fixed Assets
Record monthly depreciation for equipment, furniture, and other capitalized assets.

Step 7: Amortize Prepaid Expenses
Spread the cost of prepaid expenses over the periods they benefit.

Step 8: Review Deferred Revenue
Ensure deferred revenue is recognized appropriately based on contract terms and work performed.

Step 9: Generate Financial Statements
Run your P&L, Balance Sheet, and Cash Flow Statement. Review for reasonableness.

Step 10: Variance Analysis
Compare actual results to budget or prior months. Investigate significant variances.

Many startups struggle with the monthly close. Here are common challenges and how to solve them:

Incomplete Transactions: When transactions from the last days of the month aren't recorded before the close. Solution: Set clear deadlines for submitting expenses and invoices.

Reconciliation Backlogs: Letting bank and credit card reconciliations fall behind. Solution: Reconcile accounts weekly, not just at month-end.

Missing Documentation: Not having receipts or support for transactions. Solution: Use expense management tools with receipt capture.

Inconsistent Policies: When categorization rules change. Solution: Document your accounting policies and train everyone who enters transactions.

If your close is taking too long, here are ways to speed it up:

Automate Reconciliations: Use tools that automatically import and categorize transactions.

Weekly Bookkeeping: Don't wait until month-end to reconcile. Do it weekly.

Standardize Processes: Document your close checklist and follow it consistently.

Prioritize Exceptions: Focus on significant transactions—don't waste time on $5 items.

Pre-Close Reviews: Do a preliminary close mid-month to catch issues early.

Hire Help: If close takes more than 10 days, consider outsourced bookkeeping.

Pre-seed: You can probably handle close yourself if you're disciplined.

Seed: Consider outsourced bookkeeping ($500-1,500/month) to ensure consistency.

Series A: You likely need a dedicated bookkeeper or controller to manage the close process.