As well as your balance sheet for that matter! You just need to change your Chart of Accounts.
The Chart of Accounts is the account setup for your financials, which you see as the categories that determine how income and expenses show up on your financial statements. This setup should reflect the information you need to make business decisions. Unfortunately, many business owners do not think they can change this.
Matt Hahne, an experienced EOS Implementer helping business owners transform their businesses, often encounters this misconception. “Way too many business owners believe that their chart of accounts is somehow fixed. That what their bookkeeper set up years ago or what they inherited when they bought the business is just ‘how it is’.”
Nothing could be further from the truth.
Your chart of accounts is a tool designed to help you understand your business and make better decisions. If it’s not doing that job, you have every right—and good reason—to change it.
Bottom Line:
- Your chart of accounts isn’t permanent. You can change it
- A confusing chart of accounts wastes time and leads to poor decisions
- Reorganizing it gives you clear visibility into what matters for your business
When Your Financials Work Against You
When I acquired my previous business, one of the first things I tackled was the chart of accounts. Over 20 years, the business had accumulated a long list of accounts. Many were duplicates, others were outdated. The result? Financial statements that were cluttered, confusing, and frankly unhelpful.
More importantly, I couldn’t see the numbers that actually mattered for running the business, especially production costs. Without clear visibility into costs and margins, how could I make good decisions about pricing or where to focus improvements?
The financials were technically accurate, but they weren’t useful.
What It Costs You
When your chart of accounts doesn’t match how you actually run your business, you pay a hidden price:
- Time waste each month trying to figure out what the numbers mean instead of using them to make decisions.
- Poor decisions because you can’t see important details like which products are profitable or where costs are too high.
- Missed opportunities because you can’t quickly spot problems or trends.
- …or even worse, you ignore the financials altogether when making decisions.
After reorganizing our chart of accounts, the difference was striking. We could see costs and margins more clearly. Understanding the financials took less time. We stopped wasting effort interpreting the numbers and started using them to run the business better.
You’re Not Married to Your Current Structure
Here’s what business owners need to understand: Your chart of accounts should serve you, not the other way around.
Yes, there are some basic accounting principles to follow. Yes, you need to maintain consistency for tax purposes and year-over-year comparisons. But within those boundaries, you have lots of flexibility to structure your financials in ways that actually make sense for your business.
Think about the questions you regularly ask yourself when running your business:
- Which product lines or services are actually profitable?
- Where are we spending too much?
- Are our costs going up or down?
- What’s affecting our margins?
If your current P&L and balance sheet don’t help you answer these questions quickly and clearly, it’s time for a change.
Making the Change
Changing your chart of accounts doesn’t have to be overwhelming. The key is thinking about what information you need to make better decisions, then working with your bookkeeper or financial professional to make it happen.
Remember: your financial statements exist to help you run your business better. If they’re not doing that, you have every right to change them. Don’t let anyone tell you otherwise.
