Closing the month by the tenth

A profit and loss statement is most useful while the month it describes is still recent. A close that finishes by the tenth business day gives an owner a profit and loss statement while there is still time to act on it, and it makes quarterly estimates, lender reporting and year-end much lighter. Here is how we run the close for owner-run businesses.

What "closed" means

A month is closed when every bank and credit card account is reconciled to its statement, every bill and invoice for the month is recorded, the balance sheet accounts tie to their support, and the period is locked in the accounting software so nothing moves after the reports go out. Anything short of that is a draft.

The ten-day schedule

The order matters more than the exact days. Reconciliations come before review, because a review of unreconciled books spends its time on bookkeeping errors.

The work that makes day one possible

A ten-day close depends on what happens during the month. Three habits carry most of the weight:

• Bank feeds categorized weekly. A month of uncategorized transactions on day one turns into a two-week close.

• Bills entered when they arrive. Waiting until the vendor is paid pushes costs into the wrong month and distorts the margin.

• Receipts attached at the time of purchase. A photo on the day beats a search through email in the second week of the close.

Accruals, briefly

Some costs belong to a month but arrive later: a utility bill, a subcontractor's invoice, the last days of payroll that fall in the next pay period. On an accrual basis, record an estimate in the month the cost belongs to and reverse it when the real bill arrives. Keep a standing list of the usual accruals so they are booked the same way every month. The goal is a margin that reflects the work of the month.

Payroll and tax deposits

Day six is also a check on payroll taxes. An employer on the monthly deposit schedule deposits the income tax withheld and the Social Security and Medicare taxes for a month by the 15th day of the following month, so a close that finishes by the tenth leaves time to confirm the deposit matches the payroll before it is due. Semiweekly depositors follow a shorter schedule, and state payroll and sales tax dates vary. Put every recurring deposit on the close calendar.

The reports that come out

A monthly package for an owner is short:

• Profit and loss for the month and year to date, with the same periods last year.

• Balance sheet at month-end.

• Receivables and payables aging.

• For project businesses, a job profitability report.

• A short note from the accountant with anything that needs a decision.

The note matters most. Numbers without a comment get filed. A line that says "Materials rose to 26% of revenue on the Carroll Street job; the change order hasn't been billed" gets a response the same day.

Locking the period

Most accounting software can lock a closed period with a password. Use it. A change to a closed month after the reports go out means the reports no longer match the books, and the difference often surfaces at year-end, when it is hardest to trace. If a correction is needed, record it in the current month with a note.

Where to start

If the books close in the third week today, move one step at a time. Start with weekly bank categorization and reconciliations by day five. Once those hold for two or three months, pull in the review and the reports, one step at a time, until the tenth holds.