Insights
What happens during month-end close at your agency?
During month-end close, your accountant matches every account to its statement, moves fees and costs into the month the work happened, and locks the month. For your agency, that turns a list of bank transactions into a profit figure you can price and hire from.
Mohammad Azam, Aprecity Consultants · 6 min read
Why your numbers move after the month has ended
You open last month's report twice and see two different profits. Or the report arrives five weeks late, after you have already set a price or made a hire.
Both come from the same cause. Nobody closed the month. Transactions were recorded, but nothing was checked, moved to the right month or locked.
A report from an open month is a draft. Decide from it and you are deciding from numbers that will change.
What the close does to one month
Take a creative agency whose books show $82,000 of fees and $61,000 of costs before the close. That reads as $21,000 of profit.
The close then finds four things.
| Adjustment | Effect on profit | Profit after |
|---|---|---|
| Before the close | None | $21,000 |
| Prepaid retainer for next month, $12,000 | Down $12,000 | $9,000 |
| Freelancer bill not yet received, $7,500 | Down $7,500 | $1,500 |
| Annual software paid this month, $6,000 | Up $5,500 | $7,000 |
| Work finished but not invoiced, $4,000 | Up $4,000 | $11,000 |
These figures describe a creative agency chosen to show the arithmetic. They are not a client result.
Closed profit = fees earned in the month - costs that belong to the month
The month made $11,000, not $21,000. No cash moved and nothing was hidden. The close put each fee and cost in the month it belongs to.
Price or hire from the $21,000 and you spend $10,000 of profit the month never made.
What your accountant does, in order
- ( 01 )
Reconcile every account
Match each bank account, card and loan to its statement. Anything unmatched is missing, doubled or in the wrong place.
- ( 02 )
Check what clients owe you
Go through unpaid invoices one by one. Find the ones sent twice, never sent, or paid but not marked off.
- ( 03 )
Check what you owe
Add bills for work done this month that have not arrived, such as freelancers and media.
- ( 04 )
Move fees and costs to the right month
Hold prepaid retainers back until you deliver them. Spread annual costs across the months they cover.
- ( 05 )
Review, then lock
Read the report against last month and question every large change. Then lock the period so the numbers cannot move.
What to ask for when it is done
A closed month should reach you with three things. A profit and loss, a balance sheet, and a short list of what changed and why.
Ask one question each month: which account did not reconcile? If the answer is none, you can decide from the report.
If the close takes longer than you can wait to make decisions, look for what holds it up. It is usually missing receipts or bills nobody has coded.
What changes
Last month's profit stops moving. You compare one month with the next and know the difference is real.
Your pricing, your hiring and your own pay then rest on figures that have been checked. Tax season becomes twelve closed months, not one long clean-up.