Giersch Milwaukee Bookkeeping for Business
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What does it mean to close the books?

Some things can be enjoyed anytime, and some things have to wait until they are done. You can pour a glass of milk from the carton anytime, but if you’re heating up a frozen breakfast sandwich in the microwave, you have to wait until the bell rings, otherwise it will be cold in the middle.

Financial statements are like frozen breakfast sandwiches. They’re no good until they’re done. Did you ever peek into QuickBooks mid-month and panic until you realized that the monthly billings hadn’t gone out yet? Or been overjoyed at the profit until you realized that the second payroll of the month was not yet entered?

Your financials have to done before you look at them. And they’re not done until they’re closed. What does “closed” mean? Well, in bookkeeping, closing the books is a technical term which means that the numbers have all been tied out to the bank account, all economic activity is accounted for, and all transactions are classified correctly, or nearly enough.

You should close your books in this way every month. If there’s one discipline to really practice in your business, it’s closing the books and reviewing them every 30 days. Sure, there are a lot of excuses to keep them open: you’re waiting for information on a job, you have more billing to do, you’re tracking down receipts. There will forever be reasons not to close your books. But if you commit to closing them sometime between the 10th and the 20th of the following month, then you get into a rhythm in which you receive reasonably accurate numbers at the same time every month and you can use these figures to make better business decisions, which will lead to more profit.

When you close your books every month, the numbers you receive may not be perfectly accurate, but in the battle between timely and accurate, timely has to win. If accuracy wins, the books are never closed, or they’re closed when it’s too late to make a difference anymore, and then there’s an excuse not to look at them, and not looking at your financials is bad.

So best practices (and the Giersch Group) insist that you review your financial statements every month. This allows you to spot trends and issues that need immediate attention. In a small business or grassroots nonprofit, for example, cash management is extremely important. The bank account balance does not tell the whole story. Only a full set of financials in accrual accounting will give an accurate picture of the cash situation of your organization.

The other value of doing the monthly financial review is that it allows you to fix problems with your financials slowly, over time -- and that’s the way most problems are solved anyway. Say your chart of accounts on the Income Statement is redundant and has too many accounts, and your balance sheet has some mysterious long term assets and short term liabilities which you have no idea about, and perhaps there are some bank accounts listed on your books that have been closed for a year. Those issues are there because they never quite rose to the top of the “important stuff” list, and they never will. But when you review the books every month, you find that you can just take one or two issues at a time, and make a little progress each month. If you do this, by the end of the year you will have clean and clear books that you really understand, and don’t need your accountant to explain to you.

It’s your money -- why not get a good grasp of what you have? Reviewing your books every month will help you do this.

Giersch Group bookkeeping services guarantee you will receive your books by the end of the following month, with a summary dashboard, or you'll receive that month's books at a reduced price! Call or contact us online today and start reviewing your financials on a monthly basis.

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