Your chart of accounts (CoA) is the list of headings (or homes) that your accounting package uses to categorise your business income and expenses. By grouping transactions in sufficient detail you can really understand whats going on in your business. For example rather than just recording marketing as a lump sum, break it down further eg Pay per click, PR, trade shows etc.
By breaking costs down into smaller components you can much more easily see the spend that is going on and as the cliché goes – you need to measure it to manage it. So having identified the right level of detailed reporting for your costs you can use this to set the budget. (Designing the layout of your CoA is so important that it is worth getting help on).
So how can the CoA save you cash? Well firstly with a computerized accounting system you can easily run a report that compares actual spend with budget – if spend is running higher than budget this will be shown by an unfavourable variance. And this should prompt you to investigate why this has happened ie why is spend running ahead of budget.
Also you can run a report that lists your costs and spend for the current month and year to date. What you do with this is as follows:
- get a cup of coffee or tea
- get a ruler and pencil
- slide the ruler over each cost and spend information and think really hard how this can be reduced, is it necessary?
- For those items that you think are too high – run a print out of all the transactions in that account. You may find some have been entered in error – but the remaining transactions should be scrutinized for wastage or over spend
- For those accounts that you have identified where savings could be made – start a system of re-negotiating and re-tendering to get better deals.
If you haven’t done this exercise before my guess is you will be able to reduce your overhead costs by at least 9% – good work!