How to Organize Your Business Finances
Getting your finances organized in a clear and concise manner can help you better assess profitability and return on investment. The first place to start is your Chart of Accounts (COA).
The Chart of Accounts is the template that organizes and categorizes all the financial information for a business including your income, revenue, expenses, assets, and liabilities. Think of it as the master database from which your financial statements are generated. The same categories and corresponding amounts listed in the Chart of Accounts are what appear in your statements of profit and loss (aka income statement) and balance sheet.
If you are a user of Quickbooks or other accounting software, a Chart of Accounts is automatically generated for you. A bookkeeper or CPA may also have their own standard COA that they use for all clients.
Not too many business owners give a lot of thought to the construction of their COA. Most consider it the territory of financial professionals. This creates a problem when management needs to make important strategic decisions such as hiring new employees or modifying their product or services.
To make smart, objective decisions, you need data to guide you. If you can’t easily pull the information from your Chart of Accounts, this process becomes a lot more complicated.
Opportunities for Improvement:
The organization of your COA is a balancing act. One one hand, your finances need to be organized in such a way to make critical management decisions. On the other hand, your numbers must be organized to fulfill your tax and compliance obligations. For example, if there is a special category of tax-deductible expenses, you want to make sure those numbers are accounted for.
Take a look at your Chart of Accounts and get more familiar with how your finances are organized. Compare the data in your chart of accounts with questions you have about your business. Are you considering hiring a new person? Are you worried you are paying too much in taxes? Do you want to focus on more profitable areas of your business?
Make a list of information that will help you better answer these questions and discuss them with your accounting and financial advisors. Your goal is to optimize your COA to best benefit all users of your financial information (management, your CPA, and other financial stakeholders).
If you aren’t sure where to start, contact us for a free consultation. Firm Numbers provides clients with industry-specific Charts of Accounts including the legal industry, professional services, nonprofits, e-commerce, small manufacturing, and real estate and construction. Let us help you answer the most critical questions for your business.
