Is your month actually closed?

In most owner-led businesses, the month doesn't close. It just stops. The bank feeds get coded, someone runs a report, and everyone moves on to the next month. Then the profit changes, sometimes by a lot, when the accountant gets to the year end.

Three signs the month isn't really closed

1. The numbers arrive late. Last month's P&L lands three, four or six weeks after month end, after the decisions it should have informed.
2. Profit moves after you've read it. Last month's result changes next month, and again at year end.
3. Nobody can say it's right. Ask who checked the balance sheet, and how. If the answer is a shrug, the month isn't closed.

What a real close does

A real close is five steps, in order, every month:

• cut off the month, so every sale and cost is in the right month;
• reconcile every bank, card and payment platform to its statement;
• accrue what the ledger doesn't show yet, like wages owed at month end, leave, payroll tax and unbilled work;
• prove each material balance to the document that proves it, not just check it looks about right;
• tie out the profit three ways, then lock the period so it can't quietly change.

Knowing what was checked

The difference between a report and a closed month is knowing what was checked: what tied, what each balance was agreed to, what was journalled, and what's still open. Once you have that every month, it's hard to go back to a P&L that just appears.

Our free guide sets out the whole close: the steps, what proves each balance, the journals most often missed, and a ten-working-day calendar.

General information only, not tax, legal or financial product advice. Your registered tax or BAS agent handles tax and your activity statements.

Want to know where your business stands?

The free Financial Health Check: read-only Xero access for 48 hours, your score out of 100, your top three priorities and what each is costing you, and a 30-minute call. Request it here.

Keep reading

• A budget nobody reports against is just a guess
• Why your business needs a cash buffer, and how big
• Will you have enough cash in eight weeks' time?
• How much can I safely take out of my company?
• Have you outgrown a year-end-only accountant?
• Profitable, but no cash: where it goes
• All guides and articles