Oh the Joys of Bookkeeping - Questions to Get You Started

Okay, I’ll admit it, bookkeeping is boring, even for us accountants. Entering numbers into a system is time-consuming and can make even the most experienced accountant yawn. However, when done right, maintaining a clean set of books can be a huge advantage for you as a business owner. Staying on top of your books not only provides valuable insights into what’s working versus what’s not, but it can also help you identify tax breaks you might otherwise miss.

Understanding Your Chart of Accounts

One of the foundations of good bookkeeping is your chart of accounts. Before diving into best practices, let’s define what exactly your chart of accounts is.

There are five main account categories:

• Assets – What your business owns

• Liabilities – What your business owes

• Equity – Contributions from the owners (including yourself)

• Revenue – Money your business brings in

• Expenses – What your business pays out

Pretty simple, right? While these main five accounts (Assets, Liabilities, Equity, Revenue, and Expenses) never change regardless of the size of your business , there can be endless sub-accounts under each. Together though, these accounts and their sub-accounts form your chart of accounts. Bear with me - ha!

Customizing Your Financial Statements

Your chart of accounts directly feeds into your financial statements. As a small business owner, you have a lot of flexibility in how you structure them. A common mistake I see is businesses creating way too many sub-accounts, often modeling their chart of accounts after large public companies. It's what's best practice after all? Not so fast. Too many sub-accounts can make managing your books overwhelming. And when it's time to analyze your financial statements or optimize tax deductions, excessive complexity can make things even harder. No wonder so many small business owners dread bookkeeping.

The Right Questions to Ask

When setting up your bookkeeping and chart of accounts, I always advise my clients to start by asking: What do you want to learn from your financial statements?

Of course, you need to know how much money is coming in versus going out. It’s also crucial to understand how much you own versus how much you owe. But beyond that, many business owners feel stuck.

To help you, I’ve put together a series of key questions you can ask yourself. Answering a few of these will not only help you refine your chart of accounts but also gives your CPA or bookkeeper a much clearer direction, should you decide to outsource:

• How do you want to segment your customers to identify which ones are most profitable?

• What are your fixed versus variable costs? Can some be grouped together to simplify bookkeeping?

• Which costs are directly tied to core operations, and which are considered overhead?

• How can you track the impact of pricing or promotional strategies on inventory and sales?

• What industry benchmarks should you compare your business against? What financial data will help you measure success?

• What are your current revenue streams? What do you want them to be in 1–5 years?

• What operational metrics (like employee productivity or customer satisfaction) could complement your financial data to give a fuller picture of performance?

  
  

  If you found this article helpful or know someone who might benefit from learning about managing their books, feel free to share it! At J’s Limited, our mission is to make financial education accessible and affordable for everyone.