If you don’t have good bones, everything collapses.
I’m talking about your chart of accounts.
The chart of accounts is the skeleton of your agency and can provide either very meaningful numbers or numbers that really don’t tell you anything.
For those of you scratching your heads, a chart of accounts is a listing of all the accounts in the accounting system where you post revenue and expenses. It consists of ledger account names and numbers showing classifications and sub classifications.
Accountants almost never think strategically about the chart of accounts, yet it is the most important thing in your accounting infrastructure.
Tools such as QuickBooks are great, but using them out of the box doesn’t help your books tell the story you need. How can you expect to have an effective accounting effort when the basis of everything is built in an ad-hoc manner without truly looking at the unique needs of the business? To organize your chart of accounts you need to follow three steps:
- Think strategically – what do you want your chart of accounts to do? Talk to your accountant and include only relevant and scalable data.
- Keep it simple – One page is all you want to look at to see the relevant information.
- Purge – Don’t keep accounts that you don’t understand, accounts that haven’t been used or have less than $1,000 in them.
This might seem like a tall task, especially if you’ve been in business for a while, but it will help you get the real story from your numbers, at a glance.