Re-Imagining Your Chart of Accounts
The chart of accounts is the backbone of your accounting records. It is a list of all of the accounts—bank, loan, asset, revenue, and expense—in your general ledger, which holds all of your accounting transactions.
Think of your chart of accounts as a collection of buckets that hold dollars of items related to your business. Each bucket should be meaningful and have a purpose. For example, if you have three checking accounts, you need three buckets on your chart of accounts to hold the transactions for each bank account. It would not make sense to have more or less than one bucket for each checking account.
While it’s standard to have certain buckets or accounts for assets, liabilities, and equity, the number of buckets you create for revenue and expenses can vary greatly from company to company. It’s a good idea to create and design your accounts for what your business needs for taxes, accounting, and decision-making purposes.
Let’s say you’re a hairstylist. Do you want your revenue to be in one big bucket? That’s all Uncle Sam requires. But for decision-making purposes, you may want to separate men’s and women’s services, or cuts versus color and other treatments, or both. In that case, you would have four revenue accounts: men’s cuts, men’s color, women’s cuts, and women’s color. This type of detail would help you see where your revenue is highest so you can better manage your supplies and target your marketing.
Having certain expense accounts matched to the tax requirements can reduce extra work at tax time. For example, separating travel costs—hotel and airfare—from meals and entertainment is a common practice, as is keeping meals and entertainment separate.
The goal is to make your chart of accounts work for you. If you accepted the default chart of accounts when you first set up your accounting system, it may be time to redesign and restructure the list so it better serves your needs.
Here are some additional considerations:
- What revenue or expenses do you want to monitor more carefully? Should they be broken out in more detail? You can also use sub accounts to group transactions.
- Is cleanup work required due to misspellings or other duplication?
- Have you interviewed all the financial information users in your company to see how they need the data organized?
- What spreadsheets could be eliminated if the chart of accounts was better organized?
- Does your chart of accounts support your budgeting process? If two people are responsible for controlling spending from one account, would it be useful to break it out?
- Do you have too many accounts? Or too few? (Most people have too many due to poor data entry hygiene.)
- Are you properly using other categorizing features in the accounting system, such as classes, divisions, and custom fields?
- What reports could produce better information for taking profit-focused actions in your business if the chart of accounts stored the transactions differently?
- How could key performance indicators be better linked to the chart of accounts?
These questions can help you begin thinking about how your chart of accounts can better serve you. After all, it’s your business, your accounting system, and your chart of accounts.
If you need help through this redesign process and organizing your financials, reach out to First Steps Financial to learn how our team can assist you. Click here for a free consultation.
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As a service-based business owner, managing finances effectively is key to growth and profitability. When looking for financial support, you may come across terms like "outsourced accounting" and "fractional accounting." While they may sound similar, they serve different purposes and offer unique benefits. Understanding the differences can help you decide which approach best suits your business needs. What is Outsourced Accounting? Outsourced accounting refers to hiring an external firm to handle bookkeeping and financial reporting tasks on an ongoing basis. This solution is ideal for businesses that need consistent, reliable financial management but don’t require a full-time, in-house accounting team. Key Benefits of Outsourced Accounting: Cost-Effective: More affordable than hiring an internal accounting department. Scalability: Services can be tailored to your business size and needs. Access to Expertise: Work with professionals who specialize in bookkeeping, payroll, and tax preparation. Technology-Driven: Many firms use cloud-based software like QuickBooks Online for efficiency and real-time reporting. What is Fractional Accounting? A fractional accounting firm provides higher-level financial strategy and decision-making support, often acting as a part-time CFO or controller. This approach is best for businesses that need more than basic bookkeeping but don’t yet require a full-time financial executive. Key Benefits of Fractional Accounting: Strategic Financial Oversight: Helps with budgeting, forecasting, and financial planning. Higher-Level Expertise: A fractional CFO or controller can provide insights beyond day-to-day transactions. Customizable Support: Businesses can engage a fractional firm for a few hours a week or month based on their needs. Growth-Focused: Ideal for scaling companies needing financial strategy without the full-time cost of an in-house CFO. Which One is Right for Your Business? The choice between outsourced and fractional accounting depends on your business size, complexity, and financial goals. Choose Outsourced Accounting if: You need reliable bookkeeping, payroll management, and financial reporting but don’t require deep financial strategy. Choose Fractional Accounting if: Your business is growing, and you need financial leadership, cash flow management, and strategic planning without the cost of a full-time CFO. The Best of Both Worlds Some firms, like First Steps Financial, offer both outsourced accounting and fractional CFO services. This allows businesses to start with outsourced accounting and scale up to fractional services as they grow, ensuring they always have the right financial support. Both outsourced accounting and fractional accounting firms can play a crucial role in your business’s success. The key is understanding where your business stands today and what level of financial expertise will help you achieve your long-term goals. If you’re unsure which option is best for you, First Steps Financial can help! Contact us today to discuss your needs and find the right financial solution for your business.
Don’t overinspect or oversupervise. Allow your leaders to make mistakes in training, so they can profit from the errors and not make them in combat. -Col. Glover Johns We had just hit the jackpot. A Chinese submarine crossed our path in an area where no one expected it to be. This should have been a massive win for U.S. intelligence, our ship, and us as SONAR technicians. But there was one problem: no one made the call. The submarine was only discovered in post-analysis days later. What should have been a career-defining success became a failure for our SONAR team due to hesitation and lack of confidence. One of my teammates saw the submarine—its frequencies matched, it behaved like a submarine, and all the indicators were there. But he didn’t speak up. He was afraid of being wrong. When this failure came to light, our team had a meeting to figure out what went wrong. The teammate who had seen it was devastated. He felt like he had failed the entire crew. Our immediate supervisor didn’t help—he picked apart every mistake, repeatedly asking, “How could you miss this? I’ve shown you this a million times!” After a few minutes of this, his boss stepped in. He asked how we were being trained. The answer was obvious to all of us. Our supervisor was a doer, not a teacher. He couldn’t stand to see mistakes, so instead of letting us learn, he micromanaged and took over. The result? We lacked the confidence and knowledge to make decisions because we had never been trusted to. At this point, you might think, “What a terrible leader!” And you’d be right—at least in this instance. But what you might not realize is that even good leaders fall into this trap. And you’re not immune to it either. If you have kids, I guarantee you’ve stepped in and done something for them because they were taking too long. If you run a business, you’ve likely taken over a task because you didn’t trust an employee to do it right. It feels like the right move in the moment, but it’s not. It is the easy way out. The answer is simple: real leadership requires patience. It’s easier to take over than to teach. So how do we break this cycle? It takes discipline. Step one: provide the right training. No one becomes an expert overnight, but they need a foundation strong enough to work from. Encourage questions and never make people feel stupid for asking. If they’re afraid to ask, they’ll be afraid to act. Step two: let go. You have to trust the people you train. Set expectations clearly and then step back. Resist the urge to jump in. Step three: debrief. Go over the work. Point out successes and failures. Then, instead of just pointing out what went wrong, show them how to do better. Follow these steps, and I guarantee you’ll build a team that has the knowledge and confidence to make the call. Written by: Marc Chianese, CPA Candidate
As a small business owner, keeping your financials in order is crucial—especially when it’s time to file taxes. Many small business owners come to us for cleanup services because they realize their books don’t reflect their actual business activity. Without accurate financials, you’re flying blind when it comes to planning, decision-making, and tax compliance. Here’s how we help small businesses clean up their books and get back on track: Step 1: Assess the Situation Our first step is to review your books and identify: What looks incorrect: We spot errors like negative balances, uncategorized transactions, or inconsistencies. What needs to be cleaned up: Issues like unreconciled accounts or miscategorized expenses. How to improve going forward: Suggestions to ensure your books remain accurate and useful. Common Issues We See in Small Business Books Here are some of the most frequent problems we uncover: Uncategorized transactions: These don’t show up in your financial reports, leaving you with an incomplete picture of your business. Bank and credit card accounts not reconciled: Without reconciliation, you can’t trust the accuracy of your financials. Large balances in the undeposited funds account: Often caused by customer payments not applied to invoices, leading to double-recorded income. Negative balances on the balance sheet: This usually indicates recording errors, like misapplied payments or incomplete loan setup. Inconsistent expense categorization: For example, telephone bills recorded under different accounts, making it harder to compare year-over-year trends. Step 2: Clean and Reconcile Once we’ve assessed your books, we tackle the cleanup process step by step: Categorize all transactions in holding: Ensuring they appear in your financials. Reconcile every bank, credit card, and loan account: Without reconciliation, there’s no confidence that your numbers are accurate. Apply customer payments to invoices: This prevents double-counting income and ensures your sales figures are correct. Review accounts with large balances: For example- A large sales tax liability may indicate payments are being recorded as expenses instead of reducing the liability. A negative loan balance could mean the original loan wasn’t recorded properly. Check for consistent categorization: We run reports to ensure, for example, that all telephone bills are categorized under the same expense account. Step 3: Build Confidence in Your Financials After cleaning up the books, you’ll gain: Accurate financials: Confidence that your reports reflect reality. Insights into past trends: So you can make informed decisions about the future. Ready for filing taxes: Avoid overpaying taxes by ensuring income is recorded only once. For instance, if customer payments are recorded as new income instead of being applied to existing invoices, you’ll overstate your revenue—and could end up paying taxes on double what you actually earned! Step 4: Prevent Future Problems We don’t stop at cleanup. We provide training and tips to help you: Keep your books accurate moving forward. Spot and fix issues early before they become major problems. Why Accurate Books Matter Accurate financials allow you to plan for the future of your business. Whether it’s forecasting cash flow, preparing for growth, or filing taxes, clean books give you the clarity and confidence to make smart decisions. Ready to clean up your books and take control of your financials? We’re here to help! Reach out to get started. Written By: Diane Roberts
