Closing Our Books

What does it mean to close our books?

Closing the books at the end of each period (month, quarter, or year) ensures all transactions have been accurately recorded and reconciled in the accounting software. This process helps lock in financial data and prevent retroactive changes that could impact our financial reporting.

Why is closing our books important?

Proper financial management is critical to our growth strategy. By maintaining accurate records and regularly closing the books, we ensure that our financial data aligns with our operating plans. This gives us a clear picture of cash flow, allowing us to make informed investment decisions and manage our burn rate effectively.

Monthly Close Process

We aim to close the books by the 5th of each month, immediately after bank statements become available. This ensures that our financials are up-to-date for accurate budgeting and forecasting in Causal (FP&A tool,) the platform we use to track our budget against actuals in QuickBooks Online (our accounting software).

Tools We Use:

• QBO: For managing general ledger and financial reporting.
• Airbase: For processing vendor payments and managing expenses.
• Justworks: For payroll management.
• Google Drive: For storing documents (Shared Drives>GrowthOps>Financial Operation>YEAR).
• Causal: To track and compare our actuals against our budget.

Steps in the Closing Process (Reviewing Process):

1.Revenue Accounts

Our revenue accounts are categorized into several key areas:

• Subscription: Our primary source of recurring income, divided into three subaccounts:

  • Lenders-Subscription: Subscription fees paid by our lending partners.
  • Real Estate: Fees from real estate-related services.
  • Subscription-Utility: Subscription fees from utility-based clients.
• Transaction Fees: Income generated from transactions, broken down into:
  • Contractors: Fees charged to contractors from services rendered.
  • Lenders-Transaction Fees: Fees earned from lending-related transactions.
• Grants: Funds received from government or private grants, typically tied to specific projects or goals.
• Services: Revenue from non-subscription-based services provided to clients.
• Discounts Given: Reductions applied to invoices, tracked as a separate account to monitor discounts provided.

Review Process

Each month, we ensure that revenue recognition has been correctly applied across all categories. This involves verifying that every invoice issued has been properly recorded and paid for the month. We compare the planned revenue from our sales/revenue team with what is reflected in the books. If any discrepancies arise, we determine whether it is an accounting issues or a miscalculation in revenue forecasting. By addressing these discrepancies promptly, we ensure that our monthly revenue aligns with the budget projections, maintaining accuracy and preventing gasp in expected income.

2. Expense Accounts

Our expense tracking is primarily automated through Airbase, Justworks, and our Amex card, streamlining the process of categorizing and recording expenses.

Review Process

Each month, we follow these steps to ensure accuracy in expense reporting:

• Airbase: We review all pending invoices and transactions in Airbase to confirm that expenses are correctly categorized before syncing them with QBO. This includes checking the Airbase clearing account for any discrepancies or unmatched items.
• Justworks: We pull detailed reports from Justworks to verify payroll and benefits expenses. Each line item is reviewed to ensure it aligns with what is recorded in QBO.
• Amex Card: The Amex account is reconciled monthly by reviewing all transactions imported into QBO, ensuring there are no duplicate entries.

Final Reconciliation

We reconcile the Airbase clearing account and the Amex card within QBO, ensuring all expenses are properly recorded and matched. Any inconsistencies are investigated before finalizing the expense accounts for the month.

3.Bank Reconciliation

Each month, we download bank statements and reconcile them with the transactions recorded in QBO. This ensures that all bank account balances match the entries in our books, helping to identify and resolve any discrepancies.

Process Overview

• Bank statements are retrieved and compared with QBO to ensure every deposit, withdrawal, and transfer is accurately recorded.
• Any discrepancies, such as missing or duplicate transactions, are identified and corrected.

Document Storage

Once the reconciliation is complete, all bank statements are securely stored in Google Drive under Shared Drive>Strategic Growth> Financial Operations> YEAR folder (for the current year).

4.Closing the Books

After reconciling all accounts, we follow QuickBooks Online’s process to officially close the books for the month. This ensures that the financial data is locked in, preventing any retroactive changes.

Review Checklist Before Closing

• Balance Sheet Review:
  • Bank accounts: Ensure all cash accounts are reconciled.
  • Loans and Credit Cards: Confirm loan balances and credit card statements are fully reconciled.
  • Liability accounts: Verify balances in tax, payroll liabilities, etc.
  • Accounts Receivable (AR) & Accounts Payable (AP): Review balances to ensure invoices and bills are updated.
• Profit and Loss (P&L) Comparison: Check the P&L statement with previous periods to spot discrepancies and confirm accurate categorization.
• Cash Flow and Payroll Review: Examine cash flow, verifying alignment with P&L and cash balances. Payroll accounts and tax liabilities should match provider reports (e.g., Justworks).

Final Step: Locking the Books

Once all reviews and reconciliations are complete, we lock the books by setting a passcode in QBO to prevent retroactive changes.

See instructions on how to close the books.

5.Update Actuals in Causal

After the books are closed in QBO, we update Causal with the latest actual data from the P&L and Balance Sheet reports. This process is crucial for tracking our financial performance against the budget. Only update the QBO P&L and Balance Sheet data in the Operating Model-avoid rolling forward other models such as headcount or Kresge budget.

Once updated, verify the checksum section of the Operating Model by comparing it with the P&L data in QBO. This step is vital because we rely on Causal to monitor our budget and maintain accurate financial forecasts.

Quarterly/Annual Closing

The quarterly and annual closing processes are similar to the monthly close, bur may involve external reviews and additional reports.