Month-end close: what it is and how to do it
Keeping your books up to date isn't the same as closing them every month. Here's what a monthly close involves and why it changes the quality of your decisions.
Many SMEs only close their books once a year, when the annual accounts are due. For the rest of the year, the P&L they look at is incomplete: depreciation, spread costs, unrecorded invoices or pending reconciliations are missing. That makes it impossible to know how the business is really doing.
A monthly close solves this: every month, the books are complete, reviewed and ready to analyse.
What a monthly close is
It's the set of tasks done at the end of each month so the accounts reflect what really happened in that period: everything is recorded, in the right month and for the right amount. The result is a reliable P&L and balance sheet every month, not just at year-end.
The steps of the close
- Record all the month's documents: invoices issued and received, receipts, payroll and Social Security.
- Reconcile banks and cards: check that every bank transaction is recorded and balances match the statements.
- Reconcile customers and suppliers: review outstanding balances and make sure payments are matched to the right invoices.
- Depreciation: record the monthly wear of machinery, vehicles, IT equipment or fit-out.
- Accruals and prepayments: spread costs paid in one go (insurance, extra salary payments, annual licences) and income invoiced in advance across the months they belong to.
- Inventory and work in progress: where relevant, estimate the change so the month's margin is real.
- Final review: accounts with unusual balances, items to clarify, and comparison with last month and with budget.
- Monthly report: P&L, balance sheet and cash position, with the key points explained for management.
Why it's worth it
- You decide with last month's data, not last year's. If margin drops in March, you see it in April, not the following year.
- No surprises at year-end. Adjustments are already done, and corporate tax can be estimated in good time.
- More reliable tax returns: VAT and withholdings come from reviewed accounts.
- A better relationship with your bank: you can send up-to-date information whenever they ask, without a rush.
- The basis for management control: financial KPIs and a cash flow forecast are only useful if they start from closed books.
How long it should take
With a good system, the close should be ready within the first ten working days of the following month. If it takes longer, it's usually because documents arrive late or reconciliations are done by hand.
Tools like Holded, with bank feeds and digital invoice capture, cut that time considerably.
In-house or outsourced?
A proper monthly close takes method and some experience, especially with accruals, depreciation and review. Many SMEs prefer to outsource it rather than dedicate a member of staff to it; you can compare the costs in our article on what an in-house accountant really costs.
In our accounting management service we close your books every month and send you a report with results, balance sheet and cash. If you'd like to see how it would work for your company, tell us about your case.