Adam Sand walks through a yes/no checklist for setting up a chart of accounts in QuickBooks for roofing businesses. A proper chart of accounts separates your income and expenses so you can actually see where your money goes and fix what's broken.
Foreign. Essentially we're talking about the piggy bank, right? The money. That's your chart of accounts, which is a piggy bank of piggy banks. But you want to ask yourself, is your chart of accounts easy to read? Easy to read meaning that it uses natural language, right? It's good to have the indexing, and we're going to get into that. But do you know what those things are like when you look at it, right? Do you know what each one of those lines means? Or is it codes and abbreviations? That is not easy to read in QuickBooks. It'll make it, you know, from a structure, a user interface perspective, it'll make it easy to read the. What's there. The second thing you're looking for is does it provide monthly clarity? Like, does your chart of accounts show. Create monthly clarity? Because sometimes you want to know money that you've collected that technically isn't yours yet. So this is like deposits, right? And you want to know, like, how much of this money is not actually my money yet. So. So there's monthly clarity that you're looking for. When you look at this on a monthly basis, a way to do that can be consistent and logical indexing. And so what I mean by that is you do want to have a index of numbers, right? That allows you to kind of categorize it so you can be like 1, 0, 0, like 1/undreds are incomes. Like 1, 00, 1/0 is deposits, 1, 0020 is final payments or something like that, right? So you have like an income account. But then maybe your 500s are like your cost of goods sold. So that could be like 2020is labor, 2,0030is materials, 2030is subcontractors, 2,0050is permits. Right? Or something like that. So indexing, so that you can kind of see like, what are your 500s? What are your 1000s? What are your 200s? It also helps you make a decision as to where to put a new account, because sometimes you're going to add a new account, such as bad payments roofs that never pay you, right? So then you can kind of say, like, bad debt is a new account because they're. When you get large enough, you budget for bad debt. Like, you don't just assume that you're gonna have all these things and at the end, using your net profit, they actually account for usually 0.5 to 1% bad debt, right? Or 0.2 to 0.5% is actually more realistic. But 0.2 to 0.5 percent of debt, of revenue is bad debt. Then are all accounts presented? So this can mean like, sometimes you have not enough accounts. I know. I don't want everybody to think that their chart of accounts needs to go to such granular detail that all of a sudden it can just be hard to think of like, you know, because if you have like software and then CRM as two different accounts, that would not be good. That'd be splitting it up too much. But then you might also have not enough and you might be dumping things into miscellaneous fields. Right. And our bookkeeper literally does not have a miscellaneous. She will almost never put something in a miscellaneous because it just creates this bucket where things go. And then you kind of look at it, you go, ah, miscellaneous. And you kind of like out of sight, out of mind. So you want to make sure all accounts are presented. Also, whenever you're viewing your chart of accounts, you're not filtering it out. Right. Is another way to kind of look at that. Then do you have alignment in your revenue and cost of goods sold? And this isn't just alignment in the chart of account itself, but how you look at it and how your bookkeeper, your accountant, your cfo, how you look at it. And this can filter all the way down to operations. So I recently had this debate with a member of my own team, which is where we're elevating our use of ClickUp and our project management and we're creating these buckets where we can log time for account management or just like emails, like, where do you log time when looking emails? No one's going to go and turn off their timer, turn on their timer, write an email, stop the timer, timer and say they wrote an email to this client. Like, that has to go into an admin bucket. But is it admin for revenue generating activity or is it administrative for like, I'm building SOPs to make my job better. So having clear alignment around revenue and costs of goods sold could mean like, are we aligned on where commissions goes? If we're paying a base rate to our salespeople, does that go in cost of goods sold or below the line in overhead? People will argue about this quite a lot. I personally believe the cost of goods sold is your materials, your labor, your permits, your dump, not commissions. But I have, I have business owners who will argue with me until they're blue in the face that commissions goes into cost of goods sold. I would argue that if you ever did E Commerce and sold a roof through Rufal, you would have no commissions. And if you're bundling your commissions in, you're going to have a false sense of profit. You're going to think that job was more profitable, but it wasn't. You just didn't have commissions. So that's why I like commissions below the line, because the rufl Tech product is below the line. So just are we aligned on what is revenue, what is cost of goods sold and what is not cost of goods sold? Then there's returns and discount clarity because you're again, this is just about clarity around it. Clarity is kindness. So when we do a discount or sorry, when we do a return of our material and then we get $200 back or $2,000 back, then are these returns going back to cost of goods sold or are they being categorized separately? And the same thing goes with discounts. So just is there clarity on our chart of accounts in regards to that? So this is a big thing.
