Managing Professional Service Organizations – Chart of Accounts
Posted on: April 10, 2014 | By: Jim Bertler | Professional Services
Logan Consulting is excited to launch our Professional Service Organization Blog. This blog is the first in a series of articles on managing professional service organizations. We are going to start out with a discussion on the chart of accounts.
Your chart of accounts is one of the key elements in effectively tracking, reporting and analyzing the performance of a Professional Service Organization. Not only are all transactions coded to one of these accounts, but how your accounts are structured can assist in how you manage your business. In an Accounting Software or ERP package a chart of accounts can consist of a number of dimensions or segments. These dimensions or segments can be established for the unique needs of your business. Then, you have the ability to analyze your transactions based upon each dimension or segment.
Professional Service organizations operate in a way where they easily lend themselves to a structured chart of accounts. Each dimension or segment can correlate to a unique subset of the company and in turn how the organization is managed. Think of each manager within the organization and their area of responsibility. The chart of accounts can consist of a simple one segment account, usually referred to as the natural account (1000 – Cash). Or, a more common scenario is an account with multiple segments or dimensions that can further classify an entry. Company (multi-company environment), location/facility, department/division, and service line are all examples of items that can be tracked by segments or dimensions.
Through the use of a well-defined and thought out chart of accounts, a professional service organization can analyze and generate reports based upon any one or combination of these segments or dimensions. For example, an Income Statement can be created using the natural accounts. A consolidated report can then be generated for all companies, locations, departments and service lines. Just as easily, that same income statement can be generated for any individual segment or dimension, or combination of segments and dimensions. For example, for all operations in Chicago, or only Chicago and a specific service line like Engineering services.
When implementing a new accounting solution, the chart of accounts design for a professional service organization should be given adequate attention to meet the current and long term needs. It is advisable that at least two digits are used when establishing segments to allow for future growth and options. The mirroring of the financial data to the operations of the organization will provide the needed information to assist in the decision making of the company.
I hope this has given you some ideas on how you can improve the effectiveness of your analysis and reporting within your professional service organization. I welcome your feedback on how you are effectively using segments and your past experiences in this area. In future posts we will continue our discussion of ways to manage your professional service organization, but feel free to contact us with any questions.
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