For those in finance and accounting, the transition from December to January means the struggle of year end close. Year-end refers to the processes undertaken at the conclusion of the accounting period. In this time, books are closed for the final time in the calendar year and any necessary adjustments and reconciling entries are made to present an accurate financial picture of what occurred over the past 12 months.For public companies, this can mean year-end filing requirements, while private companies may be required to provide financial reporting to executives or directors. Regardless of the close procedures used throughout the rest of the year, year-end close is often the largest and most laborious process and getting through it successfully means putting a game plan in place.
The mountain that is year-end can seem overwhelming, but the right strategy can make the climb as easy as possible. Keep these tips in mind when planning your strategy for the end of yet another year.
Year end is a big ordeal in accounting departments, and there's no room for error when it comes to properly closing your books. Instead of wishing and hoping, do what is necessary to prepare your team.
If you've had any employee turnover during the year — a likely scenario, particularly for larger companies or companies on a growth trajectory — now is the time to educate them on what the year-end closing process looks like, including how year-end may differ from month or quarter-end closing procedures, what reporting is required, and what kinds of due dates are anticipated.
Training doesn't end when a new person is hired or a new process or software product is implemented. Instead, it should be a continual process, and this means making sure everyone is prepared for any challenge that may arise. If possible, use a combination of best practices and past experience — problems that arose during past close periods and how they were rectified, for example — to best keep your team up to date.
Year-end processes and workflows can be complex to keep track of. Using a workflow automation platform can help your department stay on track and keep the process moving on-schedule.
Make a Countdown
A countdown guiding the close process may feel a bit like the doomsday clock, but knowing how much time remains and what needs to be accomplished before time runs out can be a very important part of time management. To make sure no one on your team is ignoring what the road ahead has to offer, whether willingly or accidentally, maintain a countdown that will keep everyone focused on the goal at hand.
For many companies, there will be major tasks that will need to be completed before the year actually comes to an end. This can mean setting up templates, populating current data, setting up scenarios in a financial database software, or even organizing paperwork. To the extent possible, build these kinds of tasks into your timeline can guarantee a smooth start to your process as soon as the end of the year comes to pass. Further, some companies may have deadlines related to year-end reporting that are not flexible. In these cases, a countdown shouldn't cease to exist when the year ends, but should encompass the entire spectrum of deadlines and required tasks.
A countdown until year end can make it seem like the heat is on, but in reality, it's a great way to stay organized while keeping an eye on the prize. When the prep work is done and your team knows exactly what to expect and when to expect it, you can navigate close with ease.
Keep Calm and Reconcile
In accounting, few things are as important as ensuring numbers reconcile. Even the smallest variances can be problematic, throwing your books out of balance and creating serious issues in completing the close in a timely manner.
No matter how well you plan ahead, there can be hiccups in your close process. Numbers will be reported wrong, entries will have typos, invoices will get lost, or account numbers will get mixed up. Even the best controls in the world can't prevent mistakes — and that's why reconciliation is such an important part of the close process.
In order to ensure your books are complete and accurate, all numbers must reconcile, all debits and credits must balance, and all accounts must reflect accurate numbers corresponding to revenue and expenses.
When you're confronted by a problem that seems impossible to solve, whether it's accounts that don't tie out or debit and credit balances that don't reconcile, it's easy to get frustrated. However, at the end of the day, it's important to keep calm and keep reconciling. There's always an explanation for why numbers don't match, from human error to incorrect invoices, but a proper approach to reconciliation can ensure each and every number you report is accurate.
For larger companies with a significant volume of transactions, reconciliation can be a labor intensive process that can be a challenge to approach by hand. Under these circumstances, the right document management software can be a significant asset in keeping each and every detail of your business straight.
Keep Your Chart of Accounts Accurate
In accounting, your chart of accounts is a critical part of properly organizing and reporting on the different revenue streams and expense categories that affect your business. However, it's not uncommon for a chart of accounts to spin out of control after a while. Throughout the course of the year, adding new accounts can be a big part of being as accurate as possible.
The creation of both parent and child accounts can be used to break out new revenue streams, separate out things like one-time payments, properly document expenses on a more granular level, or anything else that requires a unique entry that doesn't naturally fit into any existing account.
However, continually adding to a chart of accounts often devolves into chaos, leading to a messy system that doesn't align with the revenue and expense tracking needs of an organization. Before diving head first into the close process, take time to make sure your chart of accounts is up to date and accurate. Ensure all of your employees understand which accounts correspond with which activities to make sure all details are included in the right places for the most accurate final outcome possible. As a part of this process, confirm that:
- All account types, including income, liabilities, assets, and expenses, correspond to reporting requirements
- All accounts are named correctly in a clear, easily understood manner
- No duplicate accounts exist
- Inactive, unused, or duplicate accounts are removed
- All entries related to each account are correct and accurate based on account type and designated purpose
Review Employee Data
In virtually every company, a large portion of the expenses associated with doing business are related to employees. Things like payroll, benefits, and expenses can cost tens or even hundreds of thousands of dollars a year for a small to mid-size business, adding a significant amount to operating expenses. It's easy to assume that the payroll department is properly categorizing all associated costs, but there is a chance that key details related to employee compensation and benefits aren't being handled properly.
As a part of your close process, make auditing employee records an important part of your checks. With so many components that make up employee-related costs, errors can be costly, both in terms of accurate reporting as well as potential problems with how taxes or benefits are being accrued and paid. For example, incorrect tax and insurance deductions can be result in problems both internally and externally, like triggering penalties and other additional expenses that may have been avoidable with a thorough review process in place.
For companies that require travel and entertainment, expense claims are also a common part of employee costs. However, due to the small dollar values that usually correspond to these kinds of transactions, it's common to push expense requests through without much thought. Nevertheless, incorrect employee reimbursements can cost a significant amount of money, cutting into the bottom line unnecessarily. While closing, take time to go over costs that have been expensed to the company, both to determine worthiness as well as to make sure no invoices were processed twice or that expense caps weren't exceeded.
Make Time for Housekeeping
Regular housekeeping is a key element in keeping any accounting or finance organization running smoothly, but this is more true than ever during accounting year end. Without a strong understanding of the events of the year and easily accessible supporting documentation to support entries and invoices, your numbers are essentially meaningless. Unfortunately, for some companies, this can mean piles of paperwork to properly sort, organize, and categorize before the year comes to an end.
If the idea of handling an immense amount of paperwork by hand sounds exhausting, you're not alone. That's why many savvy accounting and financial reporting teams are making the switch from paper to digital. An accounting automation system with document management takes the hassle out of keeping track of documents, making it easy to sort, save, edit, and manage all information that relates to the course of business. An option that enhances workflows by streamlining document searches, improving the approvals process, and linking documents together by order, invoice number, or any other important criteria, the right accounting automation software can save time and money throughout the year, setting the framework for an efficient and error-free close. With the use of automation, accounting operations can be as organized as possible. The primary benefits of automation include:
- Improved searching and organization capabilities with reduced room for error
- Increased relationships with vendors and partners
- Reduction in penalties due to missed or delayed payments
- Faster approval cycles
- Fast access to information to support entries for audit queries
- A better perspective on incoming and outgoing cash flows
Data backups are also an important step in preparing for year end. Keeping information secure is an essential part of maintaining accurate records, and keeping comprehensive periodic backups is highly advised to prevent data loss from breaches, computer malfunctions, or human error. Be sure your backups include any ERP data, and that the data being backed up is correct and reconciles to any support stored using a document management solution.
Make Your Year-End a Success
In a perfect world, all information across your systems will tie out, reducing the need for drawn-out reconciliation processes. The more meticulous you are in your organizational choices, like data storage and backup generation, the easier it is to prevent errors.
Year-end close isn't a time any accountant loves, but it's a necessary part of the business cycle — and it doesn't have to be as hard as it sounds. The right accounting automation solutions, like document management software, can improve organization and enhance efficiencies, offering a way to save time without compromising on accuracy. Providing a way to make sure your team is as organized and prepared as possible, accounting automation can be the missing link in the chain you need to take the pain out of closing. Instead of looking toward year end with fear and apprehension, put the right tools and practices in place to make this year's close the best one yet.