For many organizations, the end of the month brings added pressure to finalize financial records accurately and on time. This process often requires coordination across various departments, including finance and accounting (F&A), operations, sales and payroll. When handoffs aren’t well coordinated, the risk of financial reporting delays and errors increases. The good news is that a few practical adjustments can make your month-end close far more efficient and manageable.

Create a consistent workflow

Gathering accounting data involves many moving parts throughout the organization. To reduce stress, adopt a consistent approach that follows standard operating procedures and uses detailed checklists to track responsible parties, deadlines and progress.

This minimizes the use of ad-hoc processes. It also helps ensure consistency and accuracy each month. When assigning tasks, it’s important to clearly divide responsibilities between team members to improve efficiency and ensure proper segregation of duties.

Implement effective review procedures

Too often, F&A teams spend most of their time during the close process on the mechanics. But dedicating time to review procedures is critical to maintaining effective internal controls over financial reporting. Examples of review procedures include:

• Reconciling amounts in a ledger to source documents (such as invoices, contracts or bank records),
• Testing a random sample of transactions for accuracy, and
• Performing variance analysis by comparing monthly results to prior periods, budgeted amounts and/or external benchmarks.

Results should be accurate, complete and reasonable in light of the reviewer’s understanding of the business, the nature of underlying transactions and expected relationships among financial data.
Without adequate oversight, the probability of errors (or fraud) in the financial statements increases. Timely review procedures help identify and resolve issues early, reducing the need for more time-consuming corrections later.

Encourage ownership and adaptability

Employees who are actively involved in the month-end close are often best positioned to recognize trouble spots and bottlenecks. So, it’s important to adopt a continuous improvement mindset.
One practical approach is to hold brief post-close discussions to identify what worked well and what didn’t. From there, assign responsibility for implementing changes to individuals with clear accountability and the authority to drive change in your organization.

At the same time, many F&A departments rely heavily on certain specialized staff to complete critical tasks each month. When those individuals are unavailable, it can delay the entire timeline. Cross-training employees on key steps can help minimize frustration and delays. It may also help identify inefficiencies in the financial reporting process and improve overall team flexibility.

Leverage automation tools

Your F&A department may rely on manual processes to extract, manipulate and report data. However, these processes can be time-consuming, increase the risk of human error and make it more difficult to maintain consistent internal controls.
Fortunately, modern accounting software can now automate certain tasks, such as invoicing, accounts payable management and payroll processing. In some cases, you may need to upgrade your current accounting software to take full advantage of these efficiencies. But even modest improvements — such as automating recurring entries or bank feeds — can substantially reduce the time it takes to close your books.

Focus on efficiency

A smoother month-end close can improve the reliability and timeliness of your company’s financial reporting. By refining your procedures and making smart use of available tools, your F&A team can spend less time chasing numbers and more time interpreting them. If you’d like guidance on improving your month-end close process, we’re here to help.

Many time-consuming accounting and bookkeeping processes — from transaction coding to financial analysis — can now be handled more quickly and consistently with the help of artificial intelligence (AI). Rather than replacing humans, AI-powered automation helps finance and accounting teams work more efficiently, reduce manual workloads, and focus on higher-value analysis and decision-making.

What AI automation can (and can’t) do

Over the past few years, AI capabilities have advanced rapidly. They’ve also become more affordable and accessible for businesses of all sizes. Tools that use machine learning and generative AI can now categorize transactions, draft reports, summarize financial data and flag unusual activity. This can lead to faster reporting, fewer errors and clearer financial insights.

However, AI still struggles with areas that require professional judgment, interpretation, and deep knowledge of tax rules, regulations and business strategy. That’s why the most effective accountants and bookkeepers treat AI as a support tool rather than a replacement for human expertise.

For example, AI-powered systems can often handle repetitive bookkeeping processes such as:

• Coding routine transactions,
• Assisting with or generating routine journal entries,
• Matching and reconciling bank transactions,
• Identifying anomalies or duplicate payments, and
• Assisting with forecasting models and budgeting inputs.

By automating these tasks, your team can spend less time on data entry and more time analyzing results, advising management and improving financial controls.

Where to start

For many businesses, the biggest challenge isn’t applying the technology — it’s knowing where to begin. Consider these practical tips to help ensure AI tools deliver real value:

Identify time-consuming manual work. Start by listing accounting and bookkeeping tasks that require significant manual effort. Examples include reconciliations, invoice processing, expense categorization and financial report preparation. Rank them based on time spent and complexity to identify the best candidates for automation.

Standardize workflows. Automation works best when processes follow consistent rules. Review how transactions are handled across your accounting system and create standardized procedures. The fewer exceptions and workarounds, the easier it will be to implement AI tools effectively.

Clean up and centralize financial data. AI systems rely on organized, consistent data. If information is stored across multiple spreadsheets, software platforms or formats, consider consolidating it within your accounting system. Clean data leads to better automation and more reliable insights.

Evaluate technology options carefully. AI features are now appearing in many accounting platforms, including bookkeeping software, accounts payable tools and financial analysis applications. Before adopting a solution, identify the specific capabilities you need — such as automated transaction categorization, anomaly detection or predictive forecasting.

Test results before relying on automation. Before fully implementing an AI-driven process, verify the system’s outputs. Review samples of automated journal entries, reconciliations or classifications to confirm accuracy. Ongoing monitoring helps ensure the technology continues to produce reliable results as your business evolves.

We can help

When implemented thoughtfully, AI can significantly improve the efficiency and accuracy of finance and accounting operations. However, adopting AI automation often requires changes to processes, internal controls and reporting procedures. It may also affect how your external accountant approaches audits, financial statement preparation or advisory services. Contact us to explore ways AI-enabled automation can streamline your bookkeeping, improve financial reporting and strengthen your business’s financial processes.

When your financial statements arrive, it’s tempting to glance at the bottom line and move on. After all, you’ve got customers to serve and employees to manage. But your income statement is more than a report card. It can be a strategic tool to help you spot growth opportunities, tighten your execution and make smarter decisions that move your business forward.

Measure what matters

The income statement is a good starting point for analyzing your financials and identifying inefficiencies and anomalies. The following ratios are commonly used to gauge profitability:
Gross profit margin. This is gross profit (revenue minus cost of goods sold) divided by revenue. It’s a good ratio to compare with industry statistics because it’s typically calculated on a consistent basis, though the definition of cost of goods sold can vary between companies.

Net profit margin. This is calculated by dividing net income by revenue. If the margin is rising, the company is generally doing something right. Often, this ratio is computed on a pretax basis to accommodate differing tax rates.

Return on assets. This is net income divided by the company’s total assets. The return shows how efficiently management is using its assets.

Return on equity. This is calculated by dividing net income by shareholders’ equity. The resulting figure shows how well the shareholders’ investment is performing compared to competing investments. However, private companies should use this ratio with caution because their equity levels can fluctuate due to owner withdrawals or tax strategies.

You can use these profitability ratios to compare your company’s performance over time and against industry norms.

Dig deeper into the details

If your company’s profitability ratios have deteriorated compared to last year or industry norms, it’s important to find the cause. If the whole industry is suffering, the decline is likely part of a macroeconomic trend. If the industry is healthy but your company’s margins are falling, it’s time to identify internal factors and take corrective measures.

Depending on the source of the problem, you might need to cut costs, reevaluate staffing levels, automate certain business functions, eliminate unprofitable segments or product lines, raise prices or possibly conduct a forensic accounting investigation. For instance, a hypothetical manufacturer might discover that its gross margin fell due to rising labor costs from excessive overtime or because supplier prices rose faster than the company adjusted its pricing.

Build a winning game plan

In today’s volatile economy, it’s easy to blame shrinking profit margins on external pressures. But assumptions can be costly. Your income statement provides insight into your team’s performance, from your operational efficiency to pricing and spending. A careful review of your income statement — including revenue trends, cost drivers and operating expenses — often uncovers actionable opportunities for improvement. We can help you develop strategies to boost profitability and keep your business competing at the highest level.

Launching a start-up comes with no shortage of big decisions and fast-moving priorities. In the rush to grow, financial fundamentals can sometimes take a back seat — often with costly consequences. Some common accounting missteps that new business owners should avoid include:

Overlooking day-to-day spending. Starting a new business is exciting, and it’s natural to focus on generating revenue and building business relationships. But it’s essential to keep detailed, timely records of expenses, including receipts and invoices. This will help you properly allocate costs, price products and services, assess and improve financial performance, and claim tax deductions.

Skipping regular account reviews. Reconciling accounts involves comparing your records to your bank and credit card statements to identify and correct any discrepancies. Account reconciliation helps ensure your business pays close attention to expenses and available cash. It can also help prevent and detect fraud by third parties and employees.

Blurring the line between personal and company finances. When you own a business, you need to keep personal and business matters separate for financial reporting, tax and legal purposes. Maintaining separate bank and credit card accounts and clearly distinguishing between personal and business activities will help avoid confusion. These practices also make it easier to track business expenses and support accurate budgeting and forecasting.

Getting worker status wrong. How much control do you exercise over the people who work for your business? Are your workers an integral part of your operations? Misclassifying employees as independent contractors can have serious legal and financial consequences. Make sure you understand the differences between employees and contractors and categorize them appropriately. If you don’t follow the rules, the IRS, the U.S. Department of Labor and a state tax agency might challenge the status of your workers. Some state rules may be stricter than the federal ones.

Being unprepared for tax obligations. Because many start-ups run at a loss, at least initially, some owners forget to set aside money for taxes. This can lead to cash shortages and other financial difficulties when tax time rolls around. Failure to make timely federal and state tax payments can result in penalties and interest charges. And don’t forget about payroll, sales and property tax obligations. Even if your business operates at a loss, these taxes may still be due.

Neglecting formal accounting systems and controls. Entrepreneurs must select and consistently apply an accounting method that best fits their business needs. Many fledgling businesses start off using cash- or tax-basis accounting, then graduate to accrual-basis reporting as they mature. But lenders, franchisors and investors sometimes require accrual-basis financial reporting from the get-go. Working with an experienced accountant can help you evaluate these requirements, select affordable, user-friendly bookkeeping software and establish consistent processes for recording business transactions.

It also pays to invest upfront in simple internal controls — such as locks on file cabinets, regular software updates, network backups and antivirus programs — to help prevent theft and fraud. Start-ups with valuable intellectual property, such as patents, secret recipes and proprietary software, should consider protecting these assets by implementing network security policies, filing appropriate legal protections, and requiring employees and contractors to sign noncompete agreements, where legally permitted. Additional internal control measures can be implemented as your business matures.

Fortunately, these common accounting missteps are preventable if you take proactive measures to avoid them. Building a strong financial foundation begins with seeking guidance from experienced bookkeeping and accounting professionals. In addition to helping you design and implement sound financial systems and controls, we offer interim CFO and bookkeeping services to support your business while you recruit and onboard the right talent for your finance and accounting department. Contact us to learn more.

 

Your income statement indicates whether your business is profitable — but it doesn’t always explain why. For many small businesses, traditional cost accounting can mask where time and money are really being spent. Activity-based costing offers a practical way to understand the true cost of the work you perform, helping you make better decisions about pricing, profitability and operational efficiency.

How does activity-based costing work?

With activity-based costing, you assign costs to specific activities based on the resources they consume. Think of activities as the building blocks of your operations — such as setting up equipment, processing invoices, completing service calls or performing quality checks. Implementing activity-based costing generally involves four steps:

1. Identify activities. Create a list of tasks your company performs to deliver a product or service. Define each activity in such a way that there’s no overlap and everyone understands what’s included.
2. Allocate resources. For each activity, identify the resources used, such as materials, equipment time, labor hours and subcontracted services.
3. Calculate the per-unit cost of each resource. Choose a standard, measurable unit for each resource and calculate the cost per unit. For example, if a box of 100 screw anchors costs $30, the per-unit cost is 30 cents per anchor. For labor, the unit is typically an hourly wage or fully burdened labor rate.
4. Determine resource consumption and allocate indirect costs. Estimate how many units of each resource each activity consumes, then multiply by the per-unit cost. Indirect costs — such as rent, equipment leases, administrative salaries and software subscriptions — are allocated using reasonable cost drivers, such as square footage, machine hours or transaction volume, to arrive at the total cost of each activity.

What insights can activity-based costing provide?

Activity-based costing can provide meaningful insights into what’s working — and what’s not. For example, if a job or service line is consistently less profitable than expected, whether from excessive labor time, inefficient processes or underutilized equipment, it can help pinpoint where costs are accumulating. This approach can help management identify inefficiencies early and take corrective action before margins erode.

You may also uncover spending patterns that lead to better purchasing decisions and improved cost control. From a strategic standpoint, activity-based costing provides a clearer picture of which products, services and customers contribute most to profitability — and which may need to be repriced, redesigned or discontinued.

Estimating and pricing can also improve with activity-based costing. By breaking work into well-defined activities, businesses can build more accurate estimates and adjust them more easily when scope changes. Activities essentially become flexible line items that can be added, removed or refined as projects evolve.

Is it right for your business?

Activity-based costing is designed to supplement, not replace, your traditional accounting system. It works best for businesses with multiple offerings, significant overhead or processes with varying complexity. While the methodology can seem intimidating at first, modern accounting and project management software can significantly reduce your data burden. Contact us to discuss whether activity-based costing is a good fit for your business and how it can be implemented in a practical, scalable way based on your operations, goals and resources.