Do NOT set up your chart of accounts in QuickBooks on your own!

And for the love of all things bright and beautiful, do NOT follow the suggested template they give you. If you want to do your own bookkeeping, that’s great, but at least get help for setup. And while we’re on the topic, don’t let your tax accountant set them up either (with rare exceptions).

The keys to making QuickBooks an effective tool for your business are good setup and consistent, accurate data entry. Trust me now, thank me later. Better yet, live in blissful ignorance of the challenge of restructuring your chart of accounts because you got it right the first time.

When you’re thinking about your financials, keep things as simple as possible, there’s plenty of difficulty without having 250 accounts.

Keep direct costs separate. You want quick access to that information. That’s the single most important piece of information you have for analyzing what’s working and what isn’t at the speed of commerce. In QuickBooks, direct costs are called “Cost of Goods Sold.” You can call an account anything you like (feed, vet, etc) but if you set the account type to COGS, QB will use it in your gross margin calculation everytime you produce a profit and loss.

Structure your accounts like your business. If you ranch, you probably have land, labor, feed, infrastructure/equipment, and administration costs that get allocated to enterprises. Never think that overheads are truly FIXED. Overheads can be changed, they just don’t change as a function of your production level. If you sell a swather, your overheads changed. And you just took a big load off the backs of your cows.

Make sure you can track enterprises. In QuickBooks these are called “classes.” You might farm, run cows, yearlings, sell some hunts, etc. The right setup lets you look at these activities individually.

Don’t set up your QuickBooks for taxes. You file taxes annually (quarterly at most), but you need business information every day. If you set up QuickBooks to serve your business, you’ll have the numbers you need to run your business AND to do your taxes. If you set up QuickBooks for taxes, you won’t have the info you need to run your business. There may be a few things that are helpful for taxes. It’s a small number, so keep it simple.

When your chart of accounts makes sense and it’s appropriately simple, make certain that expenses are coded correctly throughout the year. If you have 27 different accounts that all kind of sound like the same thing, data entry is very difficult. Educate yourself and your team. Code them in real time. Funny enough, the print on receipts and your memory of what you bought and why fades over time. Review these together on a weekly or monthly basis to ensure they’re correct before the ink and memories fade.

QuickBooks is powerful. But like all things tech it’s GIGO – garbage in, garbage out. You need information that you can use to make management decisions, not a side hustle as a forensic accountant.

If you find yourself in the middle of a QuickBooks nightmare, call for help. I had given up on the usefulness of QuickBooks years ago, then a good friend/mentor helped me to see the light. My prior experience wasn’t a good representation. Walter is always gracious and kind when he’s setting me right. And I love to hear him ask, “Can I give you some advice?” My life is about to get easier.

www.ranchrightllc.com