Eleven months of steering blind

The case for it

Annual accounts are a compliance document. They arrive months after the period they describe, are prepared for the tax authority rather than for the owner, and by the time they are finalised the year they cover is unrecoverable.

A monthly close does not need that precision. It needs to be good enough to steer by while steering is still possible, which is a much lower bar and a far more useful one.

The routine

1. Bank reconciled, with nothing unexplained carried into the next month.
2. Sales and purchases fully recorded, including anything invoiced late.
3. Stock counted at least on the lines that materially move cost of sales.
4. Receivables and payables aged, so the cash position is visible and not just the profit.
5. Compared against last month, with a question asked about anything that moved more than expected.

Step five is the one that generates value. The first four produce numbers. The fifth is where somebody notices.

Four habits that make a close drag

• Entering a month of transactions in one sitting at month end.
• Cash expenses with no receipts, reconstructed from memory a fortnight later.
• Personal and business money moving through the same bank account.
• Stock never counted, so cost of sales is an estimate nobody trusts and everybody quietly discounts.

None of these is a software problem, which is why buying an accounting package rarely shortens a close on its own. The fourth is the most common and the most damaging, because it makes every gross margin figure in the business unreliable.

While you are at it

Records have to be retained for statutory periods that are longer than most owners assume, and the periods under GST, income tax and company law are not identical. Confirm what applies to your entity with your accountant, and store accordingly. Discovering a gap during an assessment is an expensive way to learn it.