March is the time when most businesses start collecting and turning over their documents to their accountants to prepare their taxes. For some businesses, it is pulling out a shoebox of receipts, for others it may be a scramble to bring their books up to date. In either case there is a certain level of financial “madness” that happens in March. There is a simple way to avoid the rush and improve your business at the same time.
The antidote to financial March Madness is simple—it’s setting a monthly closing date.
This may seem like accounting-talk, and maybe not that important. A closing date is simply a deadline by which all entries need to be made for the previous month. All large companies have a closing schedule and it is important for small businesses too. Getting the books updated is often a low priority for business owners when there are fires to fight and customer calls to return. They know there is at least one closing date they will meet—the end of the year to file their taxes. Because they haven’t been keeping their books up monthly via a closing schedule, businesses are scrambling in March to get everything updated.
We like to have a closing date that is no more than one week after the end of every month. So for example, in February, we’d like to have the books closed by the first week in March. There are a few benefits to having a closing date:
Ability to course-correct: Having your books closed timely allows you to review what happened in the previous month and make changes before another month passes.
Accountability: If the bookkeeper knows someone will be reviewing the books by a certain date they will have them done by then. And, if that someone is the CFO or other consultant, it provides a level of accountability to the business owner to hold their feet to the fire and review performance for the prior month.
No changing history: When the books aren’t closed, it is easy to make entries in prior periods. This is one of our pet peeves because it changes the history. A closing date sets the financial statements in stone so that they do not change when you run them each month. For example, the results for February stay the same whether you run the report in March or in June. It sounds simple but it is important when you are analyzing the books.
Setting a closing date may sound overly simple, but keeping to a closing schedule will create a rhythm and consistency in the upkeep of your books. Find a date that works for you, whether it is one week or two weeks after the last day of the previous month and stick to it. It will not only help you get better information for your business but you will find a monthly closing date will also help you avoid the rush of March Madness.