Monthly closing is an essential practice to ensure the financial health and administrative organization of any company.
This detailed process consists of recording and reviewing all financial transactions from the previous month , checking calculations, identifying any discrepancies and correcting inconsistencies.
More to this, the final view is clearer and structured by giving an understanding of the firm’s financial situation. It has helped in conducting strategic analyses for use in decision making for the future.
In the following article, we shall investigate what a monthly closing is, its importance, and how it is done efficiently while using technology to help with such processes.
What is Monthly Closing?
The monthly closing goes beyond compiling financial inflows and outflows. It consists of a detailed balance of accounts , functioning as a thermometer of the company’s economic situation.
Its main objective is to accurately determine the profits or losses of the period , in addition to identifying possible financial problems, such as inconsistencies or cash deviations .
More than a retroactive analysis, the monthly closing provides valuable information for strategic planning , allowing the company to identify growth trends, control costs effectively and make investment decisions with greater security and assertiveness.
What are the main benefits of monthly closing?
Financial Predictability
Provides an advance view of cash needs, allowing you to plan payments and avoid financial surprises.
Risk Reduction:
It helps to identify inconsistencies, fraud or operational errors, strengthening the company’s financial security.
Audit Support:
It simplifies the guidance of distinctive reports and allows the performance of audits, whether internal or external, making sure extra transparency and compliance with policies.
How does the Monthly Closing work?
The monthly closing is carried out through integration between the company’s finance department and accountant. The process generally follows these steps:
Step 1: Document Gathering
The finance department collects invoices, payment receipts, bank statements and financial reports.
Step 2: Analysis and Conference
These documents are sent to the accountant, who carries out a thorough check and organizes the information appropriately.
Step 3: Dice Roll
All data is correctly captured, and the accountant will enter this verified information into the accounting system.
Step 4: Monthly Balance Sheet Generation
From the analyzed data, there arises a monthly balance sheet that reflects the financial health of the company.
What Information is Required for Monthly Closing?
To ensure an effective monthly closing, it is necessary to map the following items:
- Current and Non-Current Assets Represent the company’s assets and rights, such as inventory, investments and equipment .
- Current and Non-Current Liabilities: These include financial obligations, such as supplier payments and long-term loans .
- Net Equity : Indicates the amount left for shareholders after deducting financial obligations.
Who is Responsible for the Monthly Closing?
Although the accountant is often accountable for preparing the financial declaration, the finance department plays a important position in organizing and imparting the important data.
With using incorporated control gear, it is viable to automate facts recording and analysis, making the method faster and extra correct.
The Importance of Monthly Closing
The practice of monthly closing is essential for several reasons:
- Results Monitoring: Allows you to evaluate the evolution of financial performance each month, providing a clear view of the company’s financial health .
- Problem Identification: Facilitates the detection of deviations and inconsistencies in financial records .
- Basis for Strategic Planning: The data generated is essential for budgetary adjustments and for making strategic decisions, such as investments and expansions .
- Accounting Compliance: Ensures that information is aligned with legal and regulatory standards.
Important Financial Indicators for Monthly Closing
For financial professionals, the monthly closing is an opportunity to analyze indicators such as:
EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization):
It measures running earnings earlier than hobby, taxes, depreciation and amortization, and is crucial for assessing the enterprise’s cash technology potential.
Net Margin :
Indicates the percentage of net profit in relation to total revenue, allowing you to understand efficiency after all expenses.
Return on Assets (ROA) :
Evaluates how the company uses its assets to generate profit.
Return on Equity (ROE) :
Measures the pass returned generated for shareholders based totally at the equity invested .
Current Liquidity Ratio :
Checks the company’s ability to pay its short-term obligations with available assets .
Total Debt :
Analyzes the ratio between debt and equity, indicating the level of financial leverage .
Operational Cycle and Financial Cycle :
Evaluates the time it takes for the company to transform investments in inventory and receivables into cash .
Interest Coverage Ratio:
Measures the company’s ability to pay its financial expenses with operating profit .
Revenue by Customer or Product:
Allows you to identify the main revenue generators and assess dependence on certain customers or product lines .
Revenue Growth Rate:
Tracks the increase or decrease in sales over a period, offering insights into commercial performance.
These indicators help to understand the company’s financial health and operational efficiency.
What is the Relationship Between Monthly Closing and Strategic Planning?
The monthly closing is a key piece for strategic planning, providing essential data for:
- Financial Projections : Allows you to estimate future income and expenses more accurately, enabling more assertive financial management .
- Trend Analysis: Helps identify seasonal patterns and variations in performance, helping to anticipate changes and adapt strategy accordingly .
- Resource Allocation: Facilitates decision-making based on concrete data, optimizing resource allocation and avoiding waste.
Practical Tips to Optimize Monthly Closing
- Create Checklists: List all the necessary steps to avoid forgetting anything .
- Empower your Team: Provide training on the use of financial tools .
- Implement Automated Routines: Use technology to reduce time spent on repetitive tasks.
Conclusion
The monthly closing goes far beyond simply fulfilling accounting obligations; it has become a vital strategic tool for the financial success of any company.
This practice allows you to continuously monitor financial performance, identify areas that require adjustments and, most importantly, make more informed and assertive decisions.
By adopting advanced technologies that integrate financial data and automate processes, companies not only gain in accuracy, but also accelerate decision-making and optimize resource management.
With an efficient financial management structure adapted to market needs, your company will not only be ready to face challenges, but also to explore opportunities and build a solid and sustainable financial future.