What is a "close"?
Accountants will tell you the "close" is the process of reconciling, processing, and journals at the end of each month.
However for startups, it means getting clean set of accounts to make decisions with. This means entering all your available information, collating it into a usable format, and going from there.
This will definitely happen once per year for taxation purposes, however needs to happen more frequently if you are to make financially informed decisions to do with running the startup.
Why is a Close important?
It's important that the financial information is divided into the right periods, and cut off activities appropriately. This probably means a series of adjustments, so that when you look at say last month in your accounting system, the numbers only relate to that period.
Things can get out of whack if bills are not entered, customers are not invoiced on time, there is work in progress, or some expenses have been used but not billed.
In short, without a close, accounting information wont be accurate.
Accurate accounting information provides better insight to make financial decisions. Startups can engage with their Directors, Mentors and Lenders more often and with greater confidence.
When accounting information is accurate and detailed, more timely analysis can occur. Founders can know their numbers better, and feel less in the dark about the financial progress the startup is making.
How Often Should Startups Close?
For any early startup we recommend closing the books at least quarterly, together with keeping an ongoing business metrics dashboard.
For more mature startups we recommend having the books closed each month to provide information to board meetings, and future forecasting.