Mastering the Month Closing

Jul 13, 2022

When it comes to the progress of your company, how can you be sure of your performance? That you’re moving closer to goals? Are you certain that key stakeholders are receiving the insights they need to make smart decisions?

The monthly close process is essential for delivering actionable insight and information – and you might be surprised by some of the common mistakes organizations make in the process. Read on to understand best practices and the processes you need to master the month closing.

What are Month Closing Reports?

Monthly closing reports are used to summarize the company’s financial activities for the past month and can be used as a basis for budgeting. These reports can also help in determining if there was any profit or loss during the period, the relationship of receivables and payables, assessing inventory levels, measuring capital spending and more. There is no “one way” to report out the closing month. Every industry, business, and leader is unique.

Why are Month Closing Reports Important?

Many businesses, especially in small and mid-markets, don’t close out the month with a succinct but comprehensive financial report. For many, their thinking is that they generally have a sense of their financials. Some leaders just don’t have an interest or appetite for the stuff of financial review (more on that in a bit). So rather than receive reports in a way they can use, they simply skip receiving reports.

Not having a month-closing report is, frankly, a mistake. Especially in today’s volatile economy, there are inflationary pressures, energy costs, supply chain issues and more that are significant headwinds. Not knowing where you are on the map and where you might be headed leaves your company vulnerable.

The purpose of looking back on the month previous is to better plan for the month and months ahead. Cash forecasts, for instance, are essential to any business. Identifying trends in cash flow eliminates guesswork or being blindsided by the “unexpected” that, with the right reports, may not have been so unexpected at all.

Larger and public companies have a responsibility to report to investors, boards, banks and other involved entities on what’s happening month to month. This helps them invite and respond to questions about preparedness, readiness, sustainability, contingencies and other business realities.

Let’s look at an extraordinary example: Coinbase, a platform for buying, selling and managing digital currency like Bitcoin, had to freeze hiring in the summer of 2022 after the cryptocurrency market plunged into decline and uncertainty. So abrupt was the decision that job offers were rescinded. While we can assume Coinbase has robust monthly reports, this illustration points to the importance of knowing at the moment what’s going on in your business, industry and market.

Often, questions about the value of month closing reports come from people who simply aren’t receiving the reports in a way they most value.

The Importance of The Right Reporting To The Right Audience

There are a few ways to consider what your monthly reporting should consist of, and a key lens to consider is who are the reports for.

Some CEOs want granular details, but many others want simple and informative. Up and down arrows will suffice for many.

Their board or executive team, however, will want to know the details of those arrows. Investors will want details to the details. Quarterly and annual reports can do a lot of heavy lifting on the fine strokes, but the point is that your monthly report needs to accommodate different audiences.

• A hybrid approach to reporting that marries macroeconomic data with company-specific data helps deliver basic but essential insight. Here’s how we did compared to last month, here’s where we’re trending, and here’s how that compares to others in our space. Many busy executives will most value this information.
• Measuring Key Performance Indicators, especially those related to a strategic goal, are key. This obviously connects to goals and planning, but highlights on the progress of those KPIs are valuable monthly insights. Department leaders and managers need these to make better decisions.
• Financial leaders in the company will be interested in how the company is handling stress. Is there enough cash on hand and how is it trending? What’s the climate for lending and investing, and how is the company positioned?
• Operations officers and stakeholders want to understand the costs of materials, freight costs and energy costs.

And so on, depending on your organization, industry and more.

The Broader Role of the CFO

It’s up to your CFO to understand the different audiences and entities involved, what they need most and why where reporting is concerned, develop those reports accordingly and finally present insights appropriately.

Take a quick glance back at all those responsibilities. Spit out a monthly P&L and email it to others is not the stuff of a quality Month Closing report.

As ever, beyond the basic and understood financial expertise, make sure you have confidence that your CFO understands how to understand people. They should be asking investigative questions of leaders, managers and others to be able to coordinate monthly reporting that is meaningful. They should be able to meet the needs of various audiences and possess communication skills to not get lost in the weeds of spreadsheet rows and columns. What separates the excellent CFO from the others is their ability to get their minds around the information and be able to use that information in an actionable way, developing a strategy and a vision for the organization to carry out with confidence.