A month-end close for manufacturers

In a service business, closing the month is mostly about the bank accounts. In a manufacturer, materials arrive, become work in progress, turn into finished goods and ship, often across the month-end line. If those movements aren't cut off properly, your monthly profit can swing wildly in either direction.

A reliable close routine fixes that. This article is part of our guide to the financial side of running a manufacturing business.

The routine

1. Bank, credit card and loan accounts reconciled

The foundation. Every account matched to the statement, every transaction categorized.

2. Receiving cut-off: goods in, bills not yet in

Anything received on or before month-end belongs in that month's inventory, and the matching supplier cost belongs in that month too, even if the bill hasn't arrived.

What it catches: On October 31, a Leduc shop received $42,000 of plate steel. It went into the inventory count, but the supplier's invoice wasn't entered until November 4. October showed the steel as an asset with no cost against it, and November took the whole hit. October's profit looked $42,000 better than it was, and November's looked $42,000 worse.

The fix: a "received, not invoiced" list from your receiving slips, recorded as an accrual at month-end and reversed when the bill arrives.

3. Shipping cut-off: goods out, invoices out

Everything shipped by month-end should be invoiced in that month, and its cost removed from inventory.

What it catches: finished units shipped on the 30th but invoiced on the 3rd (revenue in the wrong month), or units invoiced as a "bill and hold" that are still on the floor.

4. Work in progress valued at cost

For every open job: materials issued, labour hours and overhead to date. That total is your work in progress (WIP), an asset, not an expense.

What it catches: a big job started late in the month. Without WIP, its materials and labour are all expensed this month with no revenue, so the month looks like a loss. Next month it ships and looks like a windfall. With WIP, both months show the truth.

Job costing makes this step simple: the job report is the WIP schedule.

5. Inventory roll-forward

Opening inventory + purchases − cost of goods sold = expected closing inventory. Compare it to your perpetual records or cycle counts.

What it catches: a gap that grows month after month, usually from scrap that isn't recorded or receipts that aren't posted. Find it monthly, not at the year-end count. See inventory that matches your books.

6. Payroll cut-off

If a pay period straddles month-end, accrue the wages earned up to the last day of the month, along with vacation pay and the employer's share of CPP and EI.

What it catches: two-week pay periods make some months carry three payrolls and others two. Without an accrual, labour costs (and margins) jump around for no real reason.

7. Overhead check

Compare the overhead you charged to jobs with the overhead you actually spent. A large difference means your overhead rate is out of date. Maybe power costs rose, you added a lease, or the shop is busier or quieter than planned.

8. Accruals and prepaid costs

Utilities, equipment leases, insurance and property tax are spread across the months they cover, so one month doesn't carry a whole year's insurance premium.

9. GST/HST and source deductions

GST/HST collected and paid recorded, with the GST paid on imports included (see imports, tariffs and GST at the border). Payroll remittances confirmed as paid on time.

10. Review and report

Gross margin by product line, quoted vs actual on closed jobs, the cash conversion cycle, the borrowing base and the covenants. That's the monthly pack described in reporting for owners and lenders.

How fast?

Aim to close within 10 business days of month-end. After that, the numbers describe a month nobody can still act on. With good receiving and timesheet habits, most small manufacturers can get there within a few months of starting.

The bottom line

A proper month-end close is what turns bookkeeping into management information. If you'd like us to run the close and send you a one-page summary every month, see how we help manufacturers.