Starting Strong: Part Two
In our last post, we advised starting the new year off with clean books, so you help you have a better handle on your financials can make better business decisions.
Our advice to start by analyzing your Chart of Accounts applies to every industry. But different industries have different key performance indicators (KPIs) and various regulatory requirements. As such, there is no single answer to how you should configure your Chart of Accounts (CoA).
Yet, there are some common best practices to follow:
- Keep your CoA in sync with how you want to see your financial statements. Map out your reporting requirements and your KPIs to help you determine the information that will be useful to see in those financials.
- Keep your CoA logical. You don’t need to number your accounts, but you do want to categorize them in a way that makes sense. The most common way to order a CoA is:
- Equity/Owner’s Draw
- Cost of Goods
- Keep your CoA scalable. As your business grows and changes, you are likely going to update your accounts to reflect that. While granularity is good, it can also be overkill. Office Supplies are just that. You don’t need different lines for pencils and paper clips. Still, you might want a separate line item for office equipment or other big-ticket items.
This may sound like a lot to take in. But it doesn’t have to be complicated.
The Right Productivity Tools
While Excel may do the trick for tracking income and expenses, today’s cloud-based accounting and bookkeeping software make organizing your CoA more manageable. More importantly, using bookkeeping software will make your CoA more useful! You might even look forward to reviewing your profit and loss statements each month!
Cloud-based tools allow you to incorporate other technology that makes your input and output more accurate. They also decrease the need for manual data entry. Integrating new tools into your processes may even save you money.
Software such as QuickBooks Online, Xero, and FreshBooks integrates with solutions like Dext or Bill.com, which “reads” your invoices and receipts to help increase your efficiency through process automation.
Now is an excellent time to start researching and perhaps even implementing those tools.
Do you need something that can help track inventory? Or is time-tracking more important to you? Make a list of the features your business will need, as well as the ones you would like to have. Then take some time to comb through your options, checking the reviews to ensure the add-ons will do what you need. This is one area where you want to get the most bang for your buck.
The Right Processes
With new tools come new workflows, which take time to hone. But it is worth the effort. Refining your process as you learn the new technology will ultimately help you drive consistency, remove redundancies, and identify other opportunities for improvement.
Seeing the workflows in action will help you find ways to increase your efficiency. Take some time over the next few months to consider your current processes and what changes you can make to have a solid start to the new year.
And remember – adding technology and automation to a broken process only gives you a faster, broken process.
Include Your People: THE KEY to Starting Strong
When making changes to any part of your company, keep your employees in the loop. Otherwise, the changes won’t last. Make sure they know and understand any changes you are making to policies and procedures. Keep the requirements and expectations clear across the board.
If you are implementing a new tool, make sure the employees who are using it have completed the available training for it. Even if it is an easy-to-use program, it helps to make sure everyone is on the same page. It is better to be safe than sorry. Start simple and give them time to adjust before implementing any iterations on your process.
In our next post, we will outline some clean-up best practices to enable you to start off on the right foot in the new year.
If you would rather have someone do this for you – give us a call. We’re happy to help.