By: Michael Gallagher, Deputy District Director
North Dakota District Office
When going on a trip, it doesn’t do much good to review a map if you have no idea where you want to go. You seldom plan a trip without knowing how much time you have to get to your destination and how much money you want to spend to get there. If you are like me, it is also helpful to have a map that shows key locations along the way; the number of miles between certain points; and the type of road you will be traveling on.
The same is true in business. Your record keeping system is the map that tells you how far you are, what key points of interest are currently to be found in your business and helps give you some idea of how far and how long it will take to get where you want to go.
If you’re going to develop an effective map (recordkeeping) system for your business, where do you begin? The best idea is to review those stops along the way that will give you the information you need to make decisions. This is usually done by developing a Chart of Accounts. A Chart of Accounts is no more than a complete listing of all of the accounts; assets, liabilities, equity, revenue and expenses that you have in your business.
At a minimum, you will have to track those accounts necessary to complete your tax returns at the end of the year. If you are a sole proprietorship, the Schedule C is a good place to look for the accounts you will need. Other forms of organization require information on assets, liability and equity accounts as well.
If you use an automated system, there are generally accounts already provided in the software you purchased. You should carefully review these accounts to see if they provide the information you need or if they list many unnecessary accounts that will clutter the system.
It may be wise to review sample chart accounts for the industry. Many industries provide a standard that will offer the necessary information specific to the type of business you are operating. Helping to establish your recordkeeping system or in reviewing your current system is a great way to invest your money with your CPA. The initial fee for this effort may save you money in the long run if your CPA helps to develop a system that allows them to prepare tax returns or audited/reviewed financial statements at year end. As the business owner you will want to take an active role in setting the system up as you will want to know where to look in your records for key pieces of information necessary to effectively manage your business.
Although we cannot endorse a specific product, business or organization, trade associations are generally an excellent resource for information on your specific industry. It may benefit you to take a few minutes and do some research on the internet to find if there is an association that represents your type of business.
The important point is that you need to know where you are going before you start tracking your efforts. If you want to know if a specific product or groups of products is selling and offering a contribution to margin, you have to track the sales, purchases and inventory for those products. If you want to know if your building is costing you too much, you need to track all the costs associated with that building. Only by carefully evaluating where you want to go can you develop the steps and processes necessary to get there.
For tools to track your business activity visit the Service Corp of Retired Executives Association (SCORE) website at www.score.org To find an SBDC counselor that could assist you in your effort visit their website at www.ndsbdc.org For free on-line training, podcasts and other helpful tools visit SBA’s website at www.sba.gov.
Mike Gallagher has been a Business Development Specialist for the U.S. Small Business Administration since 1984, and the Deputy District Director since 2005. A graduate of the University of North Dakota, Mike is a Certified Public Accountant and a former business owner and educator. He can be reached at firstname.lastname@example.org.