Chart of Accounts Best Practices for Business Growth
The Chart of Accounts (COA) is the base from which all your financial information comes from. If not done correctly, and updated at least annually, you will not have sound information to make good business decisions.
As your business grows, it also changes. Things like inventory and cost of goods sold (COGS) fluctuate. Long-term loans are taken on or paid off. I think you get the idea; nothing in a business remains static. If your COA does not evolve to handle these changes you can find yourself in a financial mess.
The importance of the COA can be seen in the reports you’re able to generate. It feeds directly into your Balance Sheet as well as the Profit and Loss. If that information isn’t spot on it will affect your business decisions. How will you truly know what is bringing in profits, or even losing them? It’s hard to stop a leak that is draining your profits if you don’t have reliable information to quickly find it.
The reliability of the COA is also essential for automating your bookkeeping so it takes less of your time. Most bookkeeping is transferring to the Cloud these days with platforms like QuickBooks Online Bookkeeping. It is terrific for streamlining workflows with it’s capability to automate transaction categorization; but only if your COA is in good order.
Here are some best practices for designing and maintaining your Chart of Accounts:
Build it with the information that you, and your tax-preparer will need to make good business decisions.
Make good use of software features like tracking tags and classes for department or vendor details.
Give clear descriptions to each account and avoid renaming, deleting, or archiving them until the end-of-year closing is completed.
Perform annual cleanups to inactivate accounts that are no longer used, like closed bank accounts, or have been duplicated.
Implementing these best practices will keep things streamlined for you, your bookkeeper, and your tax preparer. It will also help you continue to enjoy growing your business knowing everything is running as it should; allowing you to easily make decisions based on reliable information.
If you need a hand getting your Chart of Accounts in prime running order as well as other bookkeeping tasks, use the following link to schedule your free consultation call today: https://calendly.com/eileencla520/30min
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