In the past 2 years, I’ve helped 75+ SMB owners grow with clear finances.

The key, you might ask?

One foundational tool that guarantees success: a well-structured Chart of Accounts.

Here’s what it looks like.

And here’s how to create yours in just 5 easy steps—even if you know nothing about accounting.

• Step 1: Set up your structure

• Step 2: Assign account numbers

• Step 3: Customize it

• Step 4: Keep it simple

• Step 5: Review and update it regularly

But first, what is a Chart of Accounts (COA)?

It’s the backbone of your financial system—a list of the accounts your business uses to organize its every transaction.

While that may not sound like much, it makes tracking and reading your financials 10 times easier.

Alright, let’s get into it.

Step 1: Set up Your structure

To get started, you’ll need to come up with a schema for sorting each of the individual accounts your business uses. The easiest way to do this is by choosing broad categories. Each category will be called an Account Type. I like these 5.

1. Assets: Resources owned by the company

2. Liabilities: Obligations to creditors

3. Equity: Owner’s interest in the company

4. Revenue: Income from business activities

5. Expenses: Costs incurred in the process of earning revenue

These broad categories can then be divided into subcategories, or Account Names, for more detailed tracking and analysis.

For example, using my 5 Account Types, I would make a separate account for Cash under Assets.

Here are some of the most common accounts for each category.

From there, write a brief description for each account. It should include the types of transactions that belong under that account name. Then, be sure that everyone who will be using the COA understands and agrees to stick to the structure that you set moving forward.

Step 2: Assign Account Numbers

Each account in your COA should have a unique number for easy identification that also rolls up to its parent Account Type.

A typical numbering system might look like this:

• Assets: 1000-1999

• Liabilities: 2000-2999

• Equity: 3000-3999

• Revenue: 4000-4999

• Expenses: 5000-5999

The key is to keep ranges broad enough to allow for future expansion of the business.

Here’s what yours might look like should you choose to expand your numbering system just a bit.

Step 3: Customize It

Your business is unique. Your COA should be too. Feel free to add or remove accounts based on the nature of your operations.

The best way to do this is by thinking about the types of transactions common in your business. Are you mainly handling payroll and being paid on retainer? Or do you work with a bunch of different suppliers placing large orders every month?

Whatever the nature of your business, you’ll need to take a step back at this point to make sure that your COA provides an easy-to-follow structure for future reporting.

This is also the time to think about whether or not your accounting needs will be changing as the business grows. Make any updates you can now to stay on top of your books.

Step 4: Keep It Simple

Details are important for keeping transactions straight, but don’t overcomplicate your COA.

You’re more than welcome to break down your COA by department, product line, or add an extra subcategory between the main account types and individual account names. But for many businesses, this can be overkill.

Too many accounts make tracking clunky and confusing.

Step 5: Review and Update It Regularly

Your COA shouldn’t be set in stone. Review and update it regularly to make sure it stays relevant and useful.

As your business evolves, so too should your Chart of Accounts.

If you need help building your COA or have any questions, feel free to reach out.

As always, I’m happy to help.

Putting It All Together

Here are your top takeaways from this week’s post.

1. A well-structured COA is the one foundational tool you need to set your business up for success. Without one in place, keeping transactions straight is 10X harder and more prone to errors.

2. You can put yours together in 5 steps—no accounting background required. First, you’ll need to split transactions into broad categories. Then, group individual accounts by category and assign a numbering system.

3. Your numbering system should consist of broad ranges that allow the business to grow within the structure you set.

4. Whether you subdivide your COA further is up to you, but keeping it simple is likely your best bet.

5. Set time aside to review and update your COA regularly to ensure that it stays relevant to the business. Otherwise, your books will start to get messy.

Hungry for More?

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2. Shoot me an email with your questions or requests for what you’d like me to write about next.

‘Til Next Time,

Connor