When was the last time you took a deep dive into your chart of accounts? If your answer falls somewhere between “never” and “what’s a chart of accounts?”, you're not alone. For many founders and operators, the chart of accounts is the skeleton in the startup closet — something only accountants seem to understand or care about. 

But here's what we tell every founder we meet: the chart of accounts isn’t a weird accounting quirk. It’s the first step to getting true visibility into your finances.

What’s a Chart of Accounts?

Let's demystify what we’re dealing with. The chart of accounts (COA) is essentially the backbone of your accounting system. It organizes every financial transaction your startup makes into categories—assets, liabilities, equity, revenue, and expenses. 

If your COA is a jumbled mess, making sense of them when it counts — like during a funding process or a tax audit — will be like finding a needle in a haystack. 

Why is reorganizing my COA important? 

At FlowFi, we tell founders reorganizing their COA is the highest-leverage thing they can do. It provides cleaner data for internal decision makers and tells a better financial story for potential investors. 

This turns your financial data from being manageable to actionable. 

A well-organized COA can illuminate the dark corners of your financial operations. It allows you to track revenue streams and expense categories with pinpoint accuracy. Want to know how much you spent on marketing last quarter? With a reorganized COA, it’s right there. 

A structured COA is also invaluable when it comes to financial reporting and compliance. Investors, auditors, and regulatory bodies all appreciate, and sometimes require, clean, well-organized financial statements. A coherent COA translates directly into coherent financial reports, which in turn can build trust and credibility.

How to Reorganize Your Chart of Accounts

Start by reviewing your current COA. Is it overloaded with unnecessary accounts? Are there redundant or outdated entries? Eliminate what you don’t need and consolidate similar accounts.

Once you’ve pruned the excess, implement a numbering system. A well-thought-out numbering scheme not only simplifies data entry but also enhances reporting capabilities. Typically, a COA numbering system follows a pattern. The first digit might represent the type of account (assets, liabilities, etc.), the next set of digits can indicate subcategories, and so on.

For instance, you might assign numbers 1000 - 1999 to assets, 2000 - 2999 to liabilities, and so forth. Within these ranges, you can further categorize. Current assets might occupy 1100 - 1199, with cash accounts at 1110 - 1119. This hierarchy ensures that every transaction has a home, and finding specific data later becomes a breeze.

The Practical Steps We Take at FlowFi

Reorganizing and numbering your COA might sound daunting, but it’s a manageable process if you break it down. FlowFi customers work with the top 2% of financial talent to get their finances in order – and this is how they tackle the COA:

1. Assessment and Planning: Begin with a thorough review of your current COA. Identify what’s working and what’s not. Define your needs and objectives. Are you planning for future growth? Do you need more detailed expense tracking?

2. Simplification: Remove unnecessary accounts. If you have multiple accounts for similar expenses, consolidate them. The goal is simplicity without sacrificing detail.

3. Design Your Numbering System: Develop a logical numbering scheme. Keep it simple and scalable. Remember, the numbers should make sense to you and anyone else who might work with your finances.

4. Implementation: Roll out your new COA. This might involve updating your accounting software and training your team on the new structure.

5. Review and Adjust: After implementation, monitor the new system closely. Be ready to make adjustments as needed. Flexibility is key, especially in the dynamic world of startups.

Looking for your own free financial review? We can help.

Companies are like high-performance vehicles, and your financial ops are the engine. Reorganizing your chart of accounts and implementing a robust numbering system is akin to fine-tuning that engine. It might not be glamorous, but it's essential for performance.