The 12-Step Monthly Close Every Small Business Should Run

A monthly close is a fixed set of steps that turns a month of activity into finished financial statements. Whether you do it yourself or someone does it for you, the process should be the same every month.

The checklist

• Import and categorize all bank and credit card transactions
• Record all customer invoices and apply payments received
• Enter all vendor bills and record payments made
• Reconcile every bank, credit card, and loan account to its statement
• Reconcile merchant processor and marketplace payouts to gross sales
• Post payroll journal entries and reconcile payroll liabilities
• Record depreciation and amortization
• Review accounts receivable and payable aging for stale items
• Adjust inventory and cost of goods sold
• Accrue or defer revenue and expenses as needed
• Review the balance sheet for anything that looks wrong
• Review the P&L against the prior month and budget

Why the order matters

Reconciliations come before review because you can't evaluate a P&L built on unreconciled data. The balance sheet review comes before the P&L review because most income statement errors show up first as odd balances on the balance sheet.

How long it should take

With clean feeds and a consistent process, a business with a few hundred transactions a month can close within five business days. If your close takes longer than two weeks, something in the process is broken and worth fixing.