Closing Time
Dear Erin,
Hey, real quick… it’s the last day of the month, which in Finance terms means it’s the end of a financial period. Also means you’ve got some work to do in the next couple of days.
In business, you measure yourself financially in months, quarters and years. Your “fiscal year” is whatever 12 months in a row you choose; it doesn’t have to be a the calendar year. Our fiscal year is Sep 1 - Aug 31, which aligns to the USA Wrestling year and pretty closely tracks with the school year. Others choose Jul 1 - Jun 30; many are fine with the Jan 1 - Dec 31. It all depends on what makes sense for your business. Once you choose, quarters are simply every three months.
Regardless, month-end is month-end, whether it is the first month or the eighth. I have to report my monthly financials to my Executive Director, Board President and Treasurer every month. You may not need to do that (yet). Even without the internal reporting requirement, it’s an important discipline to close the books properly every month in a timely fashion. I can tell you that before I had to create the monthly reports, I would let things back up and do all the finance work for a couple of months in a weekend-long marathon to catch up just in time to get the financial reports to the board… that is no fun and a bad habit. Also not-so-good financial management; led to some mistakes for sure. Get in the habit now of doing it right, doing it regularly and doing it on time.
So, what needs to be done? Make sure you’ve recorded all transactions from the prior month in your financial system, whether it’s a hand-written check register, a spreadsheet or an accounting system like Quickbooks. Balance your checkbook to the bank statements. Enter all the transactions on your credit card statement separately into your spreadsheets or accounting system; it does no good to simply acknowledge the total balance on the card. Break it down so you know what you spent and why. (I promise you you’ll forget if you have to figure out months into the future.) Record in your system money you owe and money people owe you.
The end result should be: balanced checkbooks reconciled to your bank account and an accurate set of financial statements: Statement of Financial Position (in for profit lingo that’s a Balance Sheet), Statement of Activities (aka an income statement, profit & loss statement or simply P&L), and a Statement of Cash Flows. The first shows how much you are worth, the second shows how much you are making and the third shows you how fast you are generating or burning cash.
It can all feel complicated when you are just starting out; it can even feel like overkill when you are still small. That’s okay - you’ll grow into it as your business (and your skills) grow. You may not be able to easily create the three financial statements monthly just yet. Fine.
For now… balance the checkbook at the end of every month. Start there! And put it in your calendar for the rest of the year: set aside a half day per month on one of the first five business days of each and every month to sort out your financials from the prior month. In so doing, you’ll not only stay on top of it, but you’ll also have an opportunity to fix anything that might have gone awry, such as a lost check, a grant expected but not received or a bill that’s come due that may have slipped your mind.
Goodbye January. Hello February!
love, Mom
