Fundamentals of a Monthly Close Process: A 101 Guide
The workday of a winery owner is a labyrinth of ledgers and balances. With a solid monthly close process, you can navigate this maze with confidence and emerge with a fine vintage of financial clarity.
A well-structured monthly close facilitates timely financial reporting and gives you a deeper understanding of your business' performance.
What Is the Monthly Financial Close Process?
Say your winery just wrapped up a busy month featuring several events — a wine release party, a harvest festival, multiple private tastings, and perhaps a new distribution partnership.
You've sold wine directly to consumers, added new members to your wine club, and entered agreements with distributors. Expenses have also accumulated — event costs, marketing campaigns, staffing, equipment repairs after an intense harvest, and investments in new vineyard technology.
During the monthly close, you would:
Record all sales transactions: Document every bottle sold, whether through your tasting room, online store, distributors, or at events.
Update inventory levels: Adjust your inventory to account for sold products, new production batches, and any losses due to spoilage or breakage.
Reconcile bank statements and accounts: Match your recorded transactions with bank statements, credit card accounts, and merchant services to confirm all payments and deposits are accounted for.
Review expenses and accounts payable: Categorize and record all expenses, from event costs and marketing to operational overheads and vendor payments.
Analyze financial statements: Examine your income statement, balance sheet, and cash flow statement to assess performance and financial health.
Prepare regulatory reports: Compile necessary data for compliance reporting, such as to the Alcohol and Tobacco Tax and Trade Bureau.
What Makes the Monthly Close Process Important?
In the CPG industry, margins are tight and compliance is strict, so precise financial records are nonnegotiable.
A disciplined monthly financial close helps you:
Identify trends: Spot increases in production costs or shifts in sales volumes. If the cost of grapes rises or a particular product outsells others, you can spot these trends promptly.
Monitor cash flow: Keep track of receivables and payables to ensure you have sufficient liquidity for upcoming expenses, such as purchasing supplies or funding marketing campaigns.
Optimize pricing strategies: Analyze profitability by product line to adjust prices or promotions accordingly.
Control expenses: Identify areas where costs are escalating and implement measures to reduce overheads.
Understand reporting obligations: You're required to submit detailed reports on production, labor, inventory, and taxes to regulatory bodies. Accurate monthly closes mean you're reporting the correct figures and avoiding penalties.
With reliable financial data, you can:
Expand wisely: Determine if you're ready to enter new markets or invest in additional production capacity.
Invest appropriately: Purchase new equipment or hire staff based on solid financial projections.
Plan for seasonality: Understand sales patterns to manage inventory and staffing intelligently.
Enhance investor confidence: Accurate reporting can strengthen relationships with investors and lenders.
Neglecting the monthly close can lead to cash flow problems, compliance issues, inaccurate financial statements, and missed opportunities. Staying on top of your finances positions your business for long-term success.
Best Practices for an Effective Monthly Close
Keeping financial documents well-organized is foundational to an effective monthly close. Develop a checklist outlining each step of the monthly close, and assign responsibilities to team members to ensure accountability structures are in place.
Standardizing procedures creates consistency, making it easier to identify discrepancies and maintain accuracy over time. Use cloud-based accounting software to track expenses, labor, sales, and inventory in real time.
Technology Can Be Your Friend
Embracing technology can revolutionize your monthly close process by automating repetitive tasks and minimizing errors.
Automate data entry and integration with:
WGits integrates your e-commerce platform with QuickBooks Online, seamlessly importing online sales data from your winery's website.
A2X connects Shopify to QuickBooks Online, ensuring transactions are recorded accurately for CPG brands selling online.
To streamline complex accounting tasks, use:
FinOptimal automates accruals and journal entries and manages fixed asset schedules. It's particularly useful for handling depreciation of equipment, such as barrels and fermentation tanks.
While automation handles data entry, tools such as Xenett assist in reviewing that data. These tools flag inconsistencies and potential errors, but it's essential to have a skilled accounting professional to provide the final review and sign off on the data. A finance expert can also offer insights and ensure outcomes align with business goals. Technology enhances efficiency, but expert guidance brings strategic value.
Prioritize Consistency
Consistency in your monthly financial close process builds trust in your financial data and helps prevent errors.
Regular closing dates: Close your books on the same day each month to create a predictable rhythm and facilitate timely reporting.
Consistent inventory counts: Perform physical inventory checks regularly — monthly, biweekly, or weekly for high-turnover items — so records always match actual stock levels.
Consistency enhances accuracy and improves efficiency, so you can spend less time closing the books and more time growing your business.
How to Overcome Common Challenges
Addressing challenges proactively keeps your monthly close on track.
Dealing With Time Constraints
Balancing daily operations with financial duties is often tough, especially during peak seasons, such as harvest or holidays, when demand surges and resources are stretched thin.
Setting deadlines and delegating tasks can significantly ease the burden. Assign specific close-related duties to capable team members with clear expectations and feedback mechanisms in place.
Aim to focus on accounts and activities that significantly affect your financial statements, such as cash flow, inventory levels, major revenue streams, and significant expenses. If a new product sells rapidly, make sure sales and inventory data for that item are accurately recorded and analyzed.
You should also plan ahead for busy periods and adjust schedules accordingly. If the harvest season consumes most of your team's attention, consider closing the books earlier or allocating extra resources during these times.
Making Sure Data Entry Is Accurate
At Balanced Business Group, we reconcile every account on the balance sheet to maintain data integrity. Accuracy forms the backbone of trustworthy financial reporting.
Checks and Balances
Establishing a dual review system enhances accuracy. Have a second person review critical entries and reconciliations, particularly for significant transactions or complex accounts. When recording bulk wine transfers or high-volume sales to distributors, an additional review can catch errors that might otherwise be overlooked.
Utilize validation tools by leveraging accounting software features that flag unusual entries, discrepancies, or deviations from set thresholds. If an expense entry seems abnormally high — such as equipment repair costs exceeding typical amounts — the system can alert you to double-check the entry.
Regular Reconciliations
You should perform reconciliations consistently.
Bank reconciliations: Match your internal records with bank statements, merchant accounts, and credit card statements regularly to catch discrepancies early.
Inventory reconciliations: Compare physical counts with recorded inventory to identify wastage, shrinkage, spoilage, or recording errors and adjust records promptly.
Accounts receivable and payable: Reconcile customer invoices and vendor bills so all amounts are accurate and up-to-date.
Fixed asset verification: Regularly verify the existence and condition of fixed assets, updating records for acquisitions, disposals, or impairments.
Continuous Training
Invest in your team's development:
Skill development: Invest in ongoing training for your team on the latest accounting standards, software updates, and industry best practices.
Awareness of common errors: Educate staff on frequent mistakes to watch out for, such as transposed numbers, incorrect account coding, or misclassified expenses.
Feedback mechanisms: Encourage team members to report issues or uncertainties, nurturing a culture of transparency and continuous improvement.
Error analysis: When you spot mistakes, analyze the root cause and implement measures to prevent recurrence.
Improving Communication Across Teams
Good communication reduces errors and contributes to a collaborative environment where everyone works toward common goals.
Use integrated software where all departments can input and access relevant financial data. Centralizing information reduces misunderstandings and duplication of effort. Aim to find tools that let you implement real-time updates to refresh information instantly. When you make a sale in the tasting room, it should immediately reflect in your inventory and sales records, aiding in accurate recordkeeping.
Develop a responsibility matrix that clearly defines who's responsible for each department, task, deadline, and deliverable. Clarity is necessary for accountability, and it prevents last-minute confusion during the hectic monthly close period.
Mastering the Monthly Close Process for Financial Success
Mastering the monthly close empowers your business with accurate, timely financial information that drives success.
At Balanced Business Group, we're dedicated to helping winery owners and CPG brand founders optimize their financial operations. Our finance services and accounting services are tailored to meet the unique needs of your industry.
Interested in how technology can further enhance your processes? Check out our article How to Use ChatGPT for Accounting and Finance for innovative insights.
Get in touch for personalized financial consulting services. We can help make your monthly close process efficient and accurate.
