The end of the fiscal year can be highly stressful for financial officers and corporate executives. The year-end closing procedure is time-consuming and sometimes brings unpleasant surprises. Particularly in times of economic downturn and short staffing, year-end closing often exposes data inconsistencies and financial anomalies that require a great deal of effort to resolve. Too often the process involves wading through confusing reports, identifying improper accounting treatment of transactions and making adjustments to comply with GAAP, tracking down missing receipts, interpreting poorly identified payments, fixing data entry errors, and cursing the lack or improper use of controls and automation.

A September 2022 survey by Gartner indicated that year-end closing is a major headache for finance executives. Eighty-six percent of survey respondents said they wanted a faster close, sixty-eight percent wanted a cheaper close, and sixty-four percent wanted an error-free close.

Fortunately, there are steps companies can take throughout the year to make the year-end close a less tedious and painful experience.

What Is Year-End Closing?

The year-end closing process is the last stage of the accounting cycle at the end of a calendar or fiscal year. It begins with a review and verification of all the components of the company’s general ledger. This includes all income, expenditures, assets, investments, and so forth. Adjustments are made as needed to ensure an accurate reflection of all the company’s financial activities during the year. This may involve some forensic accounting to determine the cause of an error and the necessary fix.

Once the finance team has confidence that their work reflects fair and proper accounting, they prepare a year-end financial statement. At a minimum, this includes a balance sheet, an income statement, an equity statement, and a cash flow statement. The year-end statements will be used by company executives, lenders, business partners, and investors to determine whether the business is financially sound and in compliance with regulations. It is also used for purposes of tax calculation and audit support.

Once the year-end close  is completed, final adjustments to the upcoming year’s financial plan are made.  The data gathered for the year-end statements should help company decision-makers identify areas for improvement as well as opportunities for growth. The company’s short-term and long-term goals can be adjusted to put the company on the best course for success.

Why Is Year-End Closing Important?

Besides indicating the financial health of a company, year-end closing is important for other reasons:

Ensuring Good Financial Management

The year-end close ensures the transactions for the year reflect proper cutoff at the beginning and end of the year, an accurate representation of the financial situation, completeness of the liabilities of the company, and an assurance that the assets presented exist at the proper value.   A thorough examination of company financial records and reconciliation of discrepancies helps the business maintain its profitability and good reputation. It also helps the company create realistic forecasts and budgets for the next year, thus preventing financial mistakes that could have serious consequences.

Complying with Legal Requirements

Each company must comply with taxing and governing authorities wherein accurate financials are required to submit annual filings. A proper year-end close is critical to a successful unqualified financial audit as may be required for the entity.

Informing Investors and Lenders

Public companies are required to file an annual report for their investors. The year-end close process provides the data for this report. Prospective investors such as venture capitalists review the annual report as part of their due diligence in determining whether the stock is a good investment. Banks and other lending institutions also review these reports to help them decide if lending to the company is a good credit risk.

Steps to a Successful Year-End Close

Different businesses may have industry-specific or company-specific procedures as part of their year-end closing procedures, but the following steps are common to most companies:

1. Create a Plan

List all the activities necessary for year-end closing and make assignments for each task. Build a schedule of completion and reporting deadlines. Make sure each assigned group or individual understands the assignment and agrees to meet the due dates.

2. Collect Any Outstanding Receipts and Invoices

Gather all the documents needed to reconcile accounts and close the books for the year. Don’t forget employee expense claims and travel reimbursements. Double-check with the various departments to make sure everything has been submitted.

3. Reconcile All Financial Transactions

Compare all recorded transactions with the corresponding receipts, invoices, bank statements, credit card statements, etc. Make appropriate adjustment entries for any discrepancies discovered.

4. Reconcile Assets

Compare physical stock with inventory records. Reconcile all cash accounts and prepaid expenditures. Enter any needed adjustments.

5. Adjust and Close Accounts Payable and Accounts Receivable

Reconcile the amounts paid and the amounts received with the accrual figures. If any balance remains, make appropriate adjustment entries.

6. Accrue Receivables and Payables

Record any outstanding receivables as debits on the balance sheet and as credits on the income statement. Record any outstanding payables or unpaid debts as accrual expenses or liabilities on the balance sheet.

How to Make the Year-End Close Process in the Coming Year Smoother

A painless year-end close should be a year-long process, not a frantic scramble in the final days. Two elements are key to a stress-free year-end closing:

First, company leaders need to know precisely where the company stands, and exactly where they want it to go. At Preferred CFO, we call the historical, year-end closed financials the “tail lights” of the car and financial forecast the “headlights” of the car.  Surely, an operator of a business would not seek to operate the business without the equivalent of the tail lights and headlights working together providing for deliberate strategic maneuvering to accomplish short and long-term goals.

Second, the company needs to keep constant tabs on its financial status, with efficient processes for monthly and quarterly closes. At the end of every month, the financial team should reconcile all bank statements, ledgers, assets, liabilities, accounts payable, and accounts receivable. Any discrepancies or anomalies should be resolved immediately. Treating each month-end close as though it were preparation for an audit can keep the company in athletic position, prepared for any challenge or opportunity that might arise.

Another factor in easing the closing process is technology. There are many options available to reduce the amount of monotonous hand entry and human error.

It may also be a good idea to examine and assess accounting processes from time to time. Perhaps there are tasks that could be streamlined or eliminated. There may be new regulations or recommended practices that should be followed. Or some employees may need training to improve their efficiency and accuracy.

In Summary

With the right people, processes, and technology in place and working together, the year-end closing can get to a point where it is not much more work than a month-end closing. Catching and fixing errors on a continuous basis makes it much easier to have an efficient, accurate close process at the end of the year.

To learn more and get help with your financial issues, we invite you to contact Preferred CFO and schedule an appointment today.

About the Author

Wayne Vance SaaS CFO

Wayne Vance


Wayne Vance has over 20 years of SaaS industry experience in both Silicon Valley and Silicon Slopes, including raising over $100M in public and private funding, participating in and facilitating 10+ acquisitions, and helping complete a $1.8B sale of Omniture to Adobe.

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