Setup for Success: Your Accounting System

Knowledge is power - in today's business world, everyone is scrambling to get more data, better data.  It's the competitive advantage, the thing that can give you an edge over your competitors. This is entirely true.  Effective analysis of good data can illustrate problems, show your strengths and weaknesses and show you where you have potential for growth.  The problem is that most people never think about that when they are setting up their business's financial systems, setting them up for failure.

Get started on the right foot 

Starting a new business can be hectic and confusing.  The last thing anyone wants to think about is setting up their accounting system. That's a mistake. A well thought-out accounting system structure can produce data that can answer any question you might have in the future, and can ultimately help you direct and drive the growth of your business.  It can also serve as the hub of all the tools your business uses to run: point-of-sale, inventory management, e-commerce, CMS.  If you pick the right accounting system and set it up properly, you'll be prepared to answer any question you might have about your business in the future. 

How to set it up right, the first time

We'll take you through four easy steps to make sure you have an accounting system that can serve as the basis for your business and give you the information you need to make the right decision, at the right time.

Step 1: Determine your system

Choose a cloud-based system that can connect to other applications, so that it can serve as the hub of your business "eco-system." Our favorite is Xero, but Quickbooks Online and others would also serve the purpose. 

Step 2: Determine data flow

Ensuring that information flows through your eco-system from a single point of data-entry is crucial to making sure you have clean, accurate data.  If your system requires you to enter information multiple times, you are just asking for inaccuracies to happen. Make sure whatever you pick has the capability to flow information to and from your system seamlessly.

Step 3: Determine your questions 

Making sure that you have the right information, in the right format, is really at the heart of making sure your system is set up properly.  The process for getting there starts at the end. You need to ask yourself what kinds of questions do you want to be able to ask your system. This will help you determine how you need to set up your system to break the data down to that level. 

Here are some typical questions that most businesses might ask: 

  • What are my sales, by location?
  • What is my profit margin?
  • What are my costs, by job or by client? 
  • What are my top-selling products or services? What are my worst? 
  • What percentage of my overall sales come from _____? 

These examples can get you started, but it pays to take the time to sit down and really think about what questions (at least initially) you have that you would like to answer. 

Step 4: Set up your system

When it comes to setting up your accounting system to prepare you for strong analysis, there are two key components: the Chart of Accounts and your tracking categories (for Xero) or classes (for Quickbooks Online). 

Chart of Accounts

Your chart of account is a major determining factor in how well you will later be able to analyze the data.  It's the basis for all your accounting data, and how you decide to break it up is key.

For example, if you decide not to break your sales data into multiple accounts and just record everything as "Sales" or "Revenue," you will have a tough time determining what categories or services those sales came from, which will make it difficult to see what your best or worst performers are.  The more detailed you are in your chart of accounts, the more granular you can get when you are analyzing that data.  Best practice is to, at a minimum, break out major lines of business into separate accounts - so, types of services, locations, etc. 

Tracking Categories (Xero) / Classes (Quickbooks Online) 

An alternative, or additional, method is to utilize tracking categories.  Xero allows you  to have 2 different tracking categories and Quickbooks Online allows you to use classes.  These give you the ability to track across accounts or within a single account, but more detailed.  For example, if you wanted to analyze your data by region and you have 4 regions.  You may not want to have four times the number of accounts in your chart of accounts, just so you can do that.  What you could do is to create a tracking category for Regions, with each region listed. Then every sale or expense could be "tagged" with that category, allowing you to run a profit and loss statement for each Region individually.

Using tracking categories, in combination with a well thought-out chart of accounts can allow you to analyze your financial data in an infinite combination of ways. 


Need some help getting started?

We can help with a Xero Setup or Conversion package