Why You Need Monthly Accounting
By Dave Hickey F.C.A.
Moving from an annual set of accounts and tax returns to a monthly process can look daunting (twelve times the work?!) and many business leaders may consider it more trouble than it’s worth.
There are real benefits to knowing your profitability, cashflow and financial position throughout the year.
- Having up to date financial information allows you to deep dive into any anomalies, complete some trend analysis and plan for the future.
- It also allows you see if you’re on track against your budget or plan and make changes that may be required.
Remember 2020 lockdown?
Three years ago, this month economies across the world came a juddering halt as COVID-19 lockdowns were implemented. Thousands of businesses in Ireland were faced with huge uncertainty not least of which was how long they could last and what supports were available to them. Many had only a vague idea of their cash position and the rate at which that cash would be consumed over the coming months.
Those who prepared even rudimentary monthly accounts were in a position to take required actions sooner, based on their financial intelligence, reducing the worry on business owners in already stressful times.
What is a Monthly Accounting Process?
A monthly process doesn’t have to be as strict as an annual set of accounts. For example, we don’t recommend doing a lot of accounting adjustments each month. A “soft close” might look like:
- Reconcile all bank accounts
- Complete and send any invoices
- Load bills received for payment
- Quick check if anything is missing
- Adjust for any significant prepayments or accruals (e.g. rent, rates, insurance)
Done at the start of each month (for the previous month), it could take as little as an hour and be really useful when it comes to analysing the reports you can get from your accounting system.
Monthly Analysis & Reaction
Businesses which report monthly are giving themselves an important opportunity to identify “blips” in their business to which they can quickly react.
For example, if cash receipts are down in the current month vs. a prior month, would you know why this is happening? What if a major customer started to limit orders because of dissatisfaction with your services? What if a supplier raised prices and you were not aware of it in time to call them or move to a new supplier? What if an employee was stealing from you?
Reviewing overall profitability as well as by product or service will help you keep your business on track.
Performing monthly accounting also means you can stay ahead of the Tax Man by accurately predicting your current period and year end profitability (for tax and VAT). This will allow you to make more accurate decisions putting money away for VAT and other taxes.
The other important reason to report monthly is to track the seasonality that may occur in your business and to understand whether seasonality is impacting you differently currently vs. prior months or years.
Using the right tools
There are a lot of easy-to-use accounting software packages available to help businesses of all sizes review their financial metrics as well as their quality, service or other KPI’s.
DHKN provides an outsourced accounting service to clients which can provide them with relevant, accurate and timely financial information delivered in an easy-to-understand format, customised to your business.
For more details on this service please contact me at dhickey@dhkn.ie.
