What the month-end close is

The month-end close is the set of steps that turns a month of recorded transactions into financial statements you are prepared to stand behind. When the close is done, the month is final: reported, locked and not edited again without a dated correcting entry.

Without a close, books are permanently "mostly right". Every report carries an asterisk, and nobody can say whether a number changed because the business changed or because someone recategorized something.

The standard close, in order

1. Cut-off. Make sure every transaction dated in the month is in the books: bank and card feeds synced to the last day, invoices issued, bills entered, payroll recorded.
2. Categorize and clear suspense. Every transaction in a real account; uncategorized and suspense balances at zero.
3. Reconcile every bank, card, loan and payment-processor account to its statement.
4. Reconcile subledgers — accounts receivable to the open-invoice list, accounts payable to the unpaid-bill list, payroll liabilities to the payroll provider's report.
5. Adjusting entries — accruals, prepaid amortization, deferred revenue, depreciation.
6. Review — compare to prior months and budget, explain every large variance.
7. Report and lock — produce statements, send them, and lock the period.

How long it should take

Early-stage companies with software doing the categorization can close in three to five business days. Ten business days is a reasonable outer limit. Much longer, and the numbers arrive too late to change any decisions — and the next month has already started piling up.

Who does what

Even at a two-person company, split preparation and review when you can: one person prepares the reconciliations and entries, another reviews them before the period locks. It catches the honest mistakes, and it's the basic internal control investors and auditors look for.

The close checklist

Write the checklist down and run the same one every month. Each item has an owner, a due day (e.g. "business day 2") and evidence — a reconciliation report, a tie-out, a note explaining a variance. Next month, start from last month's checklist and its notes; most months look like the one before.