As a winery owner, you wonder why your chart of accounts is important. Wait, you don’t? Well, sometimes you do but you have many other demands on your time and energy, so you may not. When an accountant says “chart of accounts” most people quickly lose interest. That’s understandable. So why, you may ask, should winery owners think about their winery’s chart of accounts?
What Is a Chart of Accounts?
First, let’s get an understanding of what we mean by “chart of accounts.” Accounting Coach defines a chart of accounts as “a listing of the accounts available in the accounting system in which to record entries.” That seems simple enough. You need to record the financial activity of your winery for management and compliance purposes. Accounts are buckets used to collect similar information and logically summarize that information. Stated simply, accounting is the process of sorting and organizing financial activity into buckets.
Capturing Management Information
It’s important that your accounts capture the financial information you need to manage your winery. While the list can be long, here are a few examples of questions you can answer using the information summarized in your accounts:
- How much cash will our business activities provide?
- How much cash do we need to cover our expenses?
- What are our costs to produce a bottle of wine?
- How much should we charge for our wine?
- Is it better to sell our wine direct to consumers or through distributors?
- Is our tasting room profitable?
- What is our marketing investment by marketing channel?
- Which marketing channels are most cost effective?
- How much are we investing in our employees?
- Are our employee benefits cost effective?
- How profitable is our winery?
- Is our winery growing and how fast?
- Is the value of our winery increasing over time?
Having the information available to answer these and similar questions helps you manage your winery. Managing your winery becomes less like work and more like fun! Over time, having good management information will help your winery become more profitable and valuable. Knowing your financial information is accurate and timely will give you freedom to work on more enjoyable aspects of your business. You will have more time for your family and other interests.
Capturing Compliance Information
Compliance with government rules is not a popular subject with winery owners, or business owners in general. But peace of mind is important to business owners and knowing you are protected from civil and criminal penalties helps you sleep better. A well-designed chart of accounts lays the groundwork for your winery to comply with government requirements in an effective and efficient manner.
Too Much Information – Common Chart of Accounts Mistakes
As accountants, we see business owners create too many accounts when designing their chart of accounts. We prefer minimizing the number of accounts in your chart. A cluttered chart of accounts obscures information rather than highlighting and emphasizing what’s important. If you need to analyze transactions on a deeper level, modern accounting systems are capable of exporting transactions to worksheets where the transactions can be analyzed in more detail.
Speaking of exporting and importing transactions, account numbers for your accounts are essential to efficiently doing so. Some accounting systems allow you to create accounts without account numbers. On the surface, this may seem simpler than dealing with account numbers, but is more complex in the long run. Account numbers offer an additional means of organizing accounts in a logical, efficient manner.
Using a generic chart of accounts is another common mistake business owners make. A chart of accounts designed for an automobile repair shop will not be adequate for management of a winery and vice-versa. It’s true that all businesses share common characteristics, but in many industries, using an industry-specific chart of accounts will provide better management and compliance results. For example, a wine industry-specific chart of accounts allows you to more easily compare your winery with other wineries.
At first glance, setting up your chart of accounts to collect the information needed to answer your management questions and comply with government rules may seem overwhelming. Don’t worry, we’ll take a deeper dive into your winery’s chart of accounts in future articles. In the meantime, please contact us if you need help or additional information.