Checklist of Period-End Financial Accounting Actions for Small Business Owners

As a small business owner, you wear many hats. From managing operations to marketing your products, the list of responsibilities can feel endless. However, one crucial area that deserves your attention each month is your financial accounting. A well-organised month-end financial process not only keeps your business compliant but also provides valuable insights into your financial health. In this post, we’ll explore essential month-end financial accounting actions that you should take to ensure your business stays on track.

1. Reconcile Bank Statements

The first step in your month-end checklist is to reconcile your bank statements. This means comparing your bank account records with your internal financial records. Look for discrepancies, such as missing transactions or errors in data entry. By doing this, you can catch any mistakes early and ensure that your financial statements are accurate.

Step 1: Gather Your Documents

• Obtain your bank statement for the period you want to reconcile.

• Collect your accounting records, such as your cash book or accounting software reports.

  
  

Step 2: Compare Transactions

• Start with the opening balance on your bank statement and compare it with your records.

• Check each transaction listed on the bank statement against your records.

• Mark off each transaction that matches in both documents.

  
  

Step 3: Identify Discrepancies

• Note any transactions that appear in your records but not on the bank statement (e.g., outstanding cheques).

• Identify any bank transactions that are not recorded in your books (e.g., bank fees, interest earned).

  
  

Step 4: Adjust Your Records

• Add any transactions from the bank statement to your accounting records that are missing.

• Adjust your records for any errors, such as incorrect amounts or missed entries.

  
  

Step 5: Calculate the Adjusted Balance

• Start with your adjusted cash balance from your records.

• Add any deposits in transit and subtract any outstanding checks.

  
  

Step 6: Verify the Final Balances

• Compare the adjusted balance from your records to the closing balance on the bank statement.

• If they match, your reconciliation is complete!

• If they do not match, recheck your calculations and transaction matches.

  
  

Step 7: Document the Reconciliation

• Keep a record of the reconciliation process for future reference.

• Note any discrepancies and how they were resolved.

  
  

Step 8: Repeat Regularly

• Make bank reconciliation a regular part of your accounting process (monthly is recommended).

• This helps maintain accurate financial records and catch any errors early.

2. Review Accounts Receivable

Next, take a close look at your accounts receivable. This involves checking which invoices have been paid and which are still outstanding. Follow up with customers who haven’t paid yet, and consider offering discounts for early payments to encourage timely transactions. Keeping your cash flow healthy is vital for your business's sustainability.

Reviewing accounts receivable (AR) is a crucial process for maintaining a healthy cash flow in any business. Here’s a detailed guide to help you effectively review AR.

Step 1: Gather Necessary Documents

• Accounts receivable aging report

• Customer invoices

• Payment records

• Credit policies

  
  

Step 2: Analyse the Aging Report

• Sort accounts by age (e.g., current, 30 days, 60 days, 90 days overdue).

• Identify trends in overdue accounts.

• Calculate the percentage of overdue receivables.

  
  

Step 3: Review Customer Accounts

• Check payment history for each customer.

• Assess credit limits and terms set for customers.

• Evaluate the reasons for overdue payments.

  
  

Step 4: Communicate with Customers

• Reach out to customers with overdue accounts.

• Inquire about payment issues or disputes.

• Negotiate payment plans if necessary.

  
  

Step 5: Adjust Credit Policies if Needed

• Review credit terms and limits based on customer payment behaviour.

• Implement stricter credit checks for high-risk customers.

  
  

Step 6: Write Off Uncollectible Accounts

• Identify accounts that are unlikely to be collected.

• Follow company policy for writing off bad debts.

  
  

Step 7: Monitor and Report

• Regularly review AR reports to track progress.

• Report findings to management for strategic decision-making.

  
  

Step 8: Implement Improvements

• Develop strategies to improve collection processes.

• Consider investing in AR management software for efficiency.

  
  

By following these steps, you can effectively review accounts receivable and improve your organisation’s cash flow management.

3. Assess Accounts Payable

Just as you review what’s owed to you, it’s equally important to assess what you owe. Go through your accounts payable and ensure that all bills are accounted for. Pay any outstanding invoices to avoid late fees and maintain good relationships with your suppliers. This step is crucial for managing your cash flow effectively.

Step 1: Gather Necessary Documents

Collect all relevant documents related to accounts payable, including:

• Invoices from suppliers

• Purchase orders

• Contracts with vendors

• Payment terms and conditions

  
  

Step 2: Review the Accounts Payable Ledger

Examine the accounts payable ledger to ensure all transactions are recorded accurately. Check for:

• Correct amounts

• Proper categorisation of expenses

• Timeliness of entries

  
  

Step 3: Verify Outstanding Invoices

Cross-check outstanding invoices against received goods or services. Confirm that:

• Goods/services were received as per the invoice

• Invoice amounts match purchase orders

  
  

Step 4: Assess Payment Terms

Evaluate the payment terms offered by suppliers. Look for opportunities to:

• Negotiate better terms

• Take advantage of early payment discounts

  
  

Step 5: Analyse Aging Reports

Review accounts payable aging reports to identify overdue payments. Focus on:

• Identifying trends in late payments

• Prioritising payments to avoid penalties

  
  

Step 6: Conduct a Cash Flow Analysis

Examine cash flow to ensure that there are sufficient funds to meet accounts payable obligations. Consider:

• Projected cash inflows

• Upcoming payment schedules

  
  

Step 7: Review Internal Controls

Assess the internal controls related to accounts payable processes. Ensure that:

• There are checks and balances in place

• Approval processes are followed

  
  

Step 8: Prepare a Report

Compile findings into a report that includes:

• Summary of accounts payable status

• Recommendations for improvement

• Action items for management

  
  

Step 9: Discuss Findings with Stakeholders

Present the report to relevant stakeholders, including:

• Finance team

• Management

• Department heads

  
  

Step 10: Implement Changes

Based on feedback, implement necessary changes to improve accounts payable processes. Monitor the impact of these changes over time.

4. Update Your General Ledger

Your general ledger is the backbone of your financial accounting. At month-end, make sure all transactions are recorded accurately. This includes sales, expenses, and any other financial activities. An updated general ledger will provide you with a clear picture of your financial position and help you prepare for tax returns.

A general ledger is a comprehensive financial record that contains all of a company's financial transactions over a specific period. It serves as the main accounting record and is crucial for the preparation of financial statements. The general ledger is organised into accounts, which categorise transactions into assets, liabilities, equity, revenues, and expenses. Each account records debits and credits, ensuring that the accounting equation (Assets = Liabilities + Equity) remains balanced. This ledger is essential for tracking the financial health of a business, facilitating audits, and providing insights for decision-making.

5. Prepare Financial Statements

Once your general ledger is updated, it’s time to prepare your financial statements. This typically includes your income statement, balance sheet, and cash flow statement. These documents are essential for understanding your business's performance and making informed decisions moving forward.

Step 1: Gather Financial Data

Collect all relevant financial data for the period you are reporting on. This includes:

• Transaction records

• Bank statements

• Invoices

• Receipts

  
  

Step 2: Organise Financial Records

Sort and categorise the collected data into appropriate accounts. Common categories include:

• Assets

• Liabilities

• Equity

• Revenue

• Expenses

  
  

Step 3: Prepare the Trial Balance

Create a trial balance by listing all accounts and their balances. Ensure that total debits equal total credits to verify that the ledger is balanced.

Step 4: Adjust Entries

Make necessary adjusting entries for accrued and deferred items. This includes:

• Accrued revenues

• Accrued expenses

• Deferred revenues

• Prepaid expenses

  
  

Step 5: Prepare Financial Statements

Using the adjusted trial balance, prepare the following financial statements:

• Income Statement: Summarises revenue and expenses to show profit or loss.

• Balance Sheet: Displays assets, liabilities, and equity at a specific point in time.

• Cash Flow Statement: Shows cash inflows and outflows over the reporting period.

  
  

Step 6: Review and Analyse

Review the financial statements for accuracy and completeness. Analyse the results to understand the financial position and performance of the entity.

Step 7: Finalise and Distribute

Finalise the financial statements by obtaining necessary approvals. Distribute the statements to stakeholders, such as management, investors, and regulatory bodies.

Step 8: Maintain Records

Keep a well-organised record of all financial statements and supporting documents for future reference and compliance purposes.

6. Analyse Financial Performance

With your financial statements in hand, take some time to analyse your business's performance. Look for trends in revenue, expenses, and profitability. This analysis can help you identify areas for improvement and inform your strategic planning for the upcoming month. Analysing financial performance is essential for understanding a business's profitability, efficiency, and overall financial health.

Here are key steps to conduct a thorough analysis:

Step 1. Review Financial Statements

- Income Statement:

Examine revenues, expenses, and profit margins to assess profitability.

- Balance Sheet:

Analyse assets, liabilities, and equity to understand the company's financial position.

- Cash Flow Statement:

Evaluate cash inflows and outflows to gauge liquidity and cash management.

Step 2. Calculate Key Financial Ratios

- Profitability Ratios:

Such as gross margin, net margin, and return on equity (ROE) to measure earnings relative to sales and equity.

- Liquidity Ratios:

Like current ratio and quick ratio to assess the company’s ability to meet short-term obligations.

- Leverage Ratios:

Such as debt-to-equity ratio to evaluate the level of financial risk.

Step 3. Perform Trend Analysis

- Compare financial data over multiple periods to identify trends in revenue, expenses, and profitability.

- Use percentage changes to highlight growth rates and potential areas of concern.

Step 4. Benchmark Against Industry Standards

- Compare the company's financial ratios and performance metrics with industry averages to identify strengths and weaknesses.

- Analyse competitors to understand market positioning.

Step 5. Conduct Variance Analysis

- Assess differences between budgeted and actual financial performance to identify areas for improvement. - Investigate significant variances to understand the underlying causes.

Step 6. Consider Qualitative Factors

- Evaluate external factors such as market conditions, regulatory changes, and economic trends that may impact financial performance.

- Analyse management effectiveness and operational efficiency. By systematically applying these steps, one can gain a comprehensive understanding of a business's financial performance and make informed decisions based on the analysis.

7. Review Inventory Levels

If your business involves selling products, reviewing your inventory levels is a must. Check for any slow-moving items and consider strategies to clear them out, such as discounts or promotions. Keeping your inventory in check helps prevent overstocking and ensures you have the right products available for your customers.

Reviewing inventory levels is crucial for effective inventory management. Here are the key steps to follow:

Step 1. Gather Inventory Data

Collect accurate data on current inventory levels, including quantities, locations, and item details.

Step 2. Analyse Sales Trends

Examine sales data to identify patterns and forecast future demand. This helps in understanding which items are moving quickly and which are slow.

Step 3. Set Reorder Points

Establish reorder points for each item based on lead times and sales velocity to ensure stock availability without overstocking.

Step 4. Conduct Physical Counts

Perform regular physical counts to verify the accuracy of recorded inventory levels and identify discrepancies.

Step 5. Use Inventory Management Software

Implement inventory management systems to automate tracking, reporting, and analysis of inventory levels.

Step 6. Review Supplier Performance

Evaluate supplier reliability and lead times to ensure timely replenishment of stock.

Step 7. Make Adjustments

Based on the analysis, adjust inventory levels, reorder quantities, and stock policies to optimise inventory management. By following these steps, businesses can maintain optimal inventory levels, reduce costs, and improve overall efficiency.

8. Set Financial Goals for the Next Month

After reviewing your financial performance, it’s time to set goals for the upcoming month. Whether it’s increasing sales, reducing expenses, or improving cash flow, having clear financial goals will help you stay focused and motivated. Write these goals down and refer to them regularly to track your progress.

9. Prepare for Tax Obligations

As the month comes to a close, it’s also important to prepare for any upcoming tax obligations. Set aside funds for taxes and ensure that you have all necessary documentation ready for your accountant. Staying organised will make tax returns much less stressful.

10. Document Everything for your Financial Period-End checklist

Finally, make sure to document all your month-end processes. This includes keeping records of reconciliations, financial statements, and any correspondence with customers or suppliers. Having a well-documented process not only helps you stay organised but also provides a clear audit trail if needed in the future.

and finally....

In conclusion, taking the time to complete these essential month-end financial accounting actions can significantly impact your small business's success. By following this month-end checklist, you’ll not only keep your finances in order but also gain valuable insights that can help you make informed decisions. Remember, consistency is key. Make these actions a regular part of your monthly routine, and you’ll be well on your way to achieving your financial goals. Happy accounting!