The month-end close: a checklist for small businesses

Why close the books every month?

A monthly close turns a pile of transactions into figures you can act on: profit for the month, cash, what customers owe and what you owe. Done every month, each close is small and mistakes are found while they are fresh. Left to the end of the year, the same work becomes a long search through old paperwork.

It also keeps you ready for the dates that do not move. GOSI contributions are due within the first 15 days of the following month, and the VAT return by the last day of the month after the tax period. A closed month gives you the figures for both without a rush.

What is cut-off, and why does it come first?

Cut-off means putting every sale and purchase in the month it belongs to. Goods delivered on the last day are sales of this month even if the invoice goes out tomorrow, and goods received this month are costs of this month even if the supplier's bill arrives next week. Everything else in the close depends on getting this right.

• Invoice every delivery and every finished job of the month before you close.
• Record every goods receipt of the month, with or without the supplier's bill.
• Check that credit notes for returns of the month are issued and recorded.
• Leave anything that belongs to next month out of this month.

How do you reconcile the bank?

Match every receipt and payment in your books with the bank statement for the month, line by line. What appears on the statement but not in the books, such as bank charges or a customer transfer, must be recorded. What is in the books but not yet on the statement, such as a cheque not yet cleared, is listed as a reconciling item.

At the end, the balance in your books plus or minus the reconciling items must equal the bank's closing balance. Do the same for cash: count the cash on hand and compare it with the cash account, and for shops, check that each shift's takings reached the bank.

What should you check for customers and suppliers?

Review the list of what customers owe, oldest first, and the list of what you owe suppliers. Each customer payment should be matched to its invoice, and each supplier bill to what was ordered and received. Old balances that no one can explain are the first sign of a posting error, a missing credit note or a payment on the wrong account.

• Customers: match payments to invoices, chase overdue amounts and note any balance in dispute.
• Suppliers: match bills to purchase orders and receipts, and check for bills you expect but have not received.
• Both: compare large balances with the customer's or supplier's own statement.

How do stock and payroll fit into the close?

Stock must agree with what is on the shelves and be valued at cost, so post the results of the month's counts and any damaged or expired items before you close. Payroll must be in the books too: salaries, allowances, deductions and the employer's GOSI contributions for the month, together with any end-of-service and leave provisions you keep.

If a payroll run or a stock adjustment is posted after you have read the month's profit, the figures you acted on were wrong. Keep both inside the close, not after it.

How do you check VAT at month end?

Compare the output VAT in your ledger with the VAT on your sales invoices and credit notes for the month, and the input VAT with the VAT on supplier invoices you are entitled to deduct. Any difference points to an invoice in the wrong period, a wrong VAT rate or a purchase without a valid tax invoice.

Even if you file quarterly, a monthly VAT check means the quarter's return is the sum of three months that already agree. It also builds up the VAT payable in your cash forecast, so the payment due by the last day of the month after the quarter is no surprise.

What is the month-end checklist, step by step?

Follow the same order every month and tick each step. The order matters: cut-off first, because every later check relies on it, and the review last, because it is only worth reading figures once everything is in. Most small businesses can close in two to five working days with this routine.

1. Complete cut-off: invoice all deliveries and work of the month, and record all goods received.
2. Reconcile every bank account and the cash on hand with the month's statements and counts.
3. Review what customers owe, match payments to invoices and chase overdue amounts.
4. Review what you owe suppliers, and match bills to orders and receipts.
5. Post stock count results, damage and expiry, and check the stock value.
6. Post payroll, the employer's GOSI contributions and any leave or end-of-service provisions.
7. Post accruals, prepayments and depreciation for the month.
8. Check output and input VAT against the invoices of the month.
9. Review the profit and loss and the balance sheet against last month and the budget.
10. Lock the month so no further changes can be posted to it.

What should you look for in the final review?

Read the profit and loss and the balance sheet side by side with last month. Every large change should have a business reason you can name: a big order, a price increase, a new hire. A figure you cannot explain is a figure to check before anyone uses it, not after the report has gone to a partner or the bank.

The same law that requires the journal also requires the books, correspondence and documents to be kept for at least ten years, and VAT records are kept for at least six years. A tidy monthly close, with the documents attached to the entries they support, keeps you ready for both.

How DynamoOS helps

In Dynamo Finance, sales, purchases and payroll reach the books as they happen, so month end is a review of figures that are already there. You reconcile payments against the bank statement, see overdue amounts by age, check supplier bills against what was received, run the profit and loss and balance sheet for any period, and let the Saudi Arabia pack prepare the VAT return.