What is month-end close?

Month-end close is a financial review process that ensures all of a business’s financial transactions throughout a month are properly recorded and categorized, and that revenue is recognized in accordance with established accounting standards, such as ASC 606. 

The process is typically driven by the finance and accounting team, with support from Revenue Operations and oversight from Financial Leadership. The consumers of month-end close reporting include the executive team and departmental heads, as well as the board of directors. A clear month-end close provides these stakeholders with an accurate view of the business’s financial state, which empowers them to make accurate decisions related to resource allocation, pricing, operational improvements, and more. 

Standardization of the month-end close process is critical as it allows finance and accounting teams to work more efficiently while also providing the business with consistent and reliable financial reporting over time. This consistency is crucial for leaders, as it makes it easier to uncover insights and reduces variability in the decision-making process.

As David Dolmanet, Director of Finance & Accounting Services at 512Financial, explains, “Successful companies establish clear roles, leverage automation, and treat the close as an ongoing workflow rather than a monthly fire drill.”

What does month-end close look like for different businesses?

As the month-end close process is a reflection of an organization's revenue and expense operations, businesses with different revenue models will develop their month-end close process in different ways.

SaaS

SaaS is one of the most effective business models for achieving revenue growth. But tracking that growth can be tricky due to subscription software’s complex payment structures.

Subscription payments often hold varied subscription terms, meaning that while some customers pay on a monthly basis, others pay quarterly or annually. At the same time, agreements can include custom billing dates, early payment discounts, and contract pause periods. To comply with ASC 606, accounting teams must track revenue and expenses across these varying terms, often at the scale of hundreds of unique contracts. 

Though many SaaS businesses are beginning to transition from subscription models to usage-based pricing, consumption models have their own financial complexities. Usage-based pricing requires teams to accurately capture, validate, and reconcile real-time consumption data across multiple systems, while also ensuring proper revenue recognition timing and handling usage threshold changes.

In addition to contract complexities, many SaaS businesses face challenges related to multi-currency subscription management. SaaS organizations often serve customers in different geographic regions, who desire to pay in their respective local currencies. For a successful month-end close, accounting teams need to perform accurate exchange rate applications and track foreign exchange gains and losses across different billing periods and payment terms.

To navigate these unique accounting challenges, SaaS businesses must build a scalable month-end close process that clearly tracks information such as contract start date, contract end date, ACV, and other attributes relating to consumption.

As David Dolmanet describes, the most frequent challenges SaaS businesses face are “issues related to revenue recognition and inconsistent monthly revenue data.”

By logging payment parameters into a cleanly formatted template, SaaS businesses will be better equipped to create proper accrual journal entries related to revenue, deferred revenue, accounts receivable, and unbilled revenue at scale.

Marketplace and platform businesses

Marketplace and platform businesses generate revenue by creating a network of transactions and capturing a percentage of value exchanged by platform participants. While SaaS businesses face challenges related to variability of payments in their month-end close process, marketplace businesses face challenges related to payment volume. 

Marketplaces often support tens of thousands of transactions per day, if not more. Recognizing fees for these transactions can be complex due to factors such as high-volume processing, timing between transactions and settlements, and refund handling. At the same time, marketplace businesses need to marry these high volumes of transactions between buyers, sellers, and payment processors.

As marketplace businesses design their month-end close process, it’s critical for them to be able to support massive data volumes and ensure system performance, under both average load and peak periods.

Hybrid 

Businesses that operate multiple business models, such as Shopify and Salesforce, can face challenges related to the complexity of managing numerous revenue streams. 

Per financial regulations, different revenue types follow different recognition rules, and therefore require separate accounting treatments. For example, while transaction fees are recognized when the transaction has been completed, subscription revenue is recognized ratably over the subscription period. To organize distinct revenue types in the month-end close process, teams must develop precise tracking methods for each revenue stream. 

To make matters more complex, hybrid businesses will often bundle multiple revenue types within a single contract. An enterprise software business, for example, may bundle license subscription payments with professional service fees. In such cases, Accounting must develop processes for recognizing each revenue type distinctly, as well as any volume discounts and customization that may be included in the contract. 

How to build a scalable month-end close checklist

Now that we have an understanding of what month-end close is and why it’s important, let’s walk through how you can implement a scalable month-end close process for your organization. 

1. Design and document your process

The first step to implementing a scalable month-end close workflow is to establish a clear blueprint for your process. 

Begin by standardizing your close calendar. Create a rolling calendar that defines fixed deadlines for each close activity and clearly maps dependencies between tasks. This will allow teams to work backwards from critical reporting deadlines.

Next, use a RACI matrix or similar model to define clear role assignments for each close task. With role assignments in place, you can specify mandatory review points throughout the close process with predetermined review thresholds for key metrics. Review thresholds are helpful as they allow your team to spend time investigating outliers rather than reviewing every transaction, ultimately enabling you to prevent critical errors while also increasing workflow efficiency.

Finally, document your process so that new team members can understand the workflow. Include screenshots, system access requirements, and links to relevant files/reports in your documentation, and maintain it in a centralized repository that's easily accessible and version-controlled.

2. Automate revenue and billing recognition

Accurately recognizing revenue and billing is the core function of month-end close. As you design your process, it’s helpful to leverage automation and tooling to streamline your workflow. 

Revenue recognition systems, for example, review revenue sources automatically while applying ASC 606 rules based on predefined contract parameters and performance obligations. This helps eliminate manual calculations while maintaining a clear audit trail of all revenue timing and allocation decisions.

Organizations processing subscription revenue benefit from creating automated daily checks that compare subscription payments against billing records. Daily checks can quickly identify and resolve discrepancies in pricing, quantities, start and end dates, and contract terms before they impact the month-end close.

Businesses that run consumption-based pricing, on the other hand, must establish real-time usage data validation rules that monitor usage. Specifically, implement automations that flag anomalies in consumption patterns, ensure completeness of data across all services. In addition to automation, it’s helpful to maintain a clear audit trail of any manual adjustments or corrections to usage calculations.

3. Systematic account reconciliation

Revenue and billing processes often take place across a number of tools and systems–banks, payment processors, and more. To scale your month-end close process, it’s critical to connect these systems and validate records across data sets.

Track transactions by setting up direct bank feeds that automatically important and categorize transactions daily, rather than waiting until month-end. Ongoing feeds relieve you from having to reconcile every transaction manually at month-end.

On a similar note, create automations that compare your payment processor reports and bank deposits. Set up alerts for any timing differences or discrepancies over a set threshold, helping you catch and resolve issues immediately.

Once your systems are integrated, it’s critical to create processes that track payment discrepancies across platforms. Run daily aging reports that automatically flag overdue accounts and unexpected balance changes. Define clear categories for different aging buckets, such as 30/60/90 days, to help prioritize collections and identify potential revenue recognition issues. 

4. Standardize journal entries

As your business grows, standardizing month-end close account tracking is critical for scalability. By predefining accounts, calculations, and supporting documentation, accounting teams can increase efficiency while also delivering consistent month-end close results.

Teams can start by creating a library of standardized journal entry templates with predefined accounts and supporting calculation logic. This can be used for regular monthly transactions, eliminating manual recreation and reducing errors from month to month.

Additionally, organizations can set up their accounting systems to automatically calculate and post accruals based on predefined rules and actual data. This removes the need for manual calculations and ensures consistency.

To track internal expenses, teams can automatically distribute shared costs, such as overhead or personnel expenses, across departments or product lines using consistent allocation rules and up-to-date activity data. For prepaid expenses or deferred revenue, develop a standard framework for common adjustment entries, with clear rules for timing, amounts, and supporting documentation requirements to ensure consistent treatment.

5. Launch a scalable reporting process

The way in which month-end close results are distributed to the rest of the organization is one of the most important aspects of the process. 

Configure your financial system to automatically generate standard financial statements using predefined templates and mapping rules. Following a template will not only eliminate manual compilation and formatting, but it will also ensure presentation is consistent across periods.

Key stakeholders should receive a standardized reporting package template that automatically populates with the latest financial data, metrics, and variance analyses. Executive leadership, in particular, should receive comparisons between actual results and forecasts, highlighting any significant variances based on predetermined thresholds. 

Departmental leads should be fed real-time reporting on key metrics such as MRR, churn, CAC, and LTV. Automating this reporting removes the need for manual calculation and enables self-service access for stakeholders.

Leveraging technology and automation

Accounting practices such as month-end close may be referred to colloquially as “managing the books,” but in modern workflows, there are very few books involved. Rather, leading teams leverage a network of advanced systems to execute the month-end close process. 

The powerhouse of the month-end close process is an automated reconciliation system, a specialized platform that automatically matches transactions across systems, identifies discrepancies, and maintains audit trails. Automated reconciliation tools relieve accounting teams from having to track transactions manually, increasing not only efficiency but also scale and accuracy. 

Equally critical to the month-end close process is the Enterprise Resource Planning (ERP) system. ERPs systems serve as the system of record for the business, centralizing financial transactions and providing a single source of truth for reporting. With robust automation capabilities, they also enable teams to automate routine journal entries and enforce consistent accounting rules. 

For teams looking to dive deeper into financial reporting, Business Intelligence (BI) solutions are critical. When powered with data from your financial systems, BI tools can be used to generate real-time dashboards, variance analyses, and custom reports, allowing your team to uncover richer insights than financial systems alone. 

If using multiple systems for month-end close and related reporting, it’s important to ensure that all tools have access to the same data set. Implementing a robust integration framework that automatically syncs data between key systems, such as billing, CRM, and ERP, will reduce manual data wrangling and reconciliation work. 

Eric Fiegoli, Co-Founder and Managing Partner of Exbo, describes that “when selecting close automation tools, companies should prioritize workflow automation, ERP integration, and reconciliation automation to enhance efficiency and accuracy. Investing in the right technology early prevents inefficiencies and costly system overhauls as the business expands.”

Measuring the success of your month-end close process

Though consistency is important in your month-end close, it’s also crucial to monitor your process and adjust when necessary. According to David Dolmanet, a healthy month-end close process accomplishes three things: 

1. It scales in timing, quality, accuracy, and repeatability even during periods of intense growth and increasing complexity
2. It accommodates increasing levels of sophistication, such as new departments, revenue streams or business lines, without seeing material increases in the extension of the close date or a degradation of data quality
3. It defines people, processes, and owners of each key element of the close process, so that issues can be identified and isolated quickly

As accounting teams evaluate their month-end close process, it’s important to measure both close predictability and team efficiency. Key KPIs to track for predictability are close cycle time, days to report delivery, number of adjusting entries, and reporting accuracy. When evaluating close cycle time in particular, Dolmanet advises teams check whether the subtasks of the close, such as revenue info, payroll journals, expense information, are occurring at the same time each month with data arriving in a consistent format. Reliability of these milestones throughout the close process are a good indicator that financial reporting will be produced consistently and accurately.

When assessing team efficiency, track performance metrics such as tasks completed per person, overtime hours, number of manual interventions required, and close activities completed on schedule. These results will help you identify opportunities to optimize resource allocation and improve training. It’s also helpful to monitor process metrics such as percentage of automated vs. manual entries to uncover aspects of the process that could be automated.

“Those that struggle with month-end close often lack defined processes, resist automation, and rely too heavily on individual team members instead of scalable systems.“ —David Dolmanet

Building a month-end close process for the future

Your month-end close process will likely change over time as your business evolves. The incorporation of additional revenue streams, or a pivot in pricing model, may necessitate amendments to your month-end close workflow. If you do change your month-end close process, it’s important to maintain consistent communication to all key stakeholders and establish clear escalation paths for any major adjustments. 

Once adjustments have been implemented, ensure all month-end close documentation is updated accordingly, and enroll any impacted stakeholders in training to ensure they’re comfortable with the new process.