Segments in the Chart of Accounts (COA)

Find out interesting insights with Jon Naseath, CFO/Founder, Cantu Capital Inc

Moderated by Kate, Financial Technology Consultant at Hyperbots

Don’t want to watch a video? Read the interview transcript below.

Kate: Hi, Jon, thank you so much for joining us today. So let’s just dive right into the questions. So coming to the 1st question, why are segments like company code cost center code project code and important in a chart?

Jon Naseath: Absolutely  It really comes down to if you want to be able to see and if you’re thinking about your general ledger, then you have the. You can look at things as to how the company looks. How does this entity look? What’s this? Does cost center profitability as an example? And then you mentioned Project Code and Gl codes and others. I would. I would argue that company code. Certainly, you need to be able to see what is the full P and L. View, or at least what is the financials for that company. Also for the cost center. You know what’s the cost and expenses specifically to that department, or mark such as marketing, or it to help drive performance project code. It depends. It has, I would argue, it should be a large project, like a major initiative that you’re doing or a major development effort where you do need to have that project full P. And L. Because it’s a lot of work to maintain and to integrate that into your system? And then just the gl is what ties all those together across assets and liabilities and enables that full view across the different, all the business units that you’re talking about.

Kate: Okay, that’s understandable. Moving on to the second question, what are some best practices for naming conventions for these segments? And why standardization? Important.

Jon Naseath: Yeah, there, there’s just I’ll call them standard ways, like, as you said, default ways of being consistent is the main thing and making it. So that when somebody’s looking at these codes, they understand and kind of interpret what you’re talking about. So with company code as an example.Understanding as part of that you think about what is the syntax within the code. So it might be that there’s a country at the beginning like us, dot 0 0 1 could be. The country could be a company code for a US Entity. A cost center could be, you know you might put some letters that represent an example like Mkt. 0 0, 1 could be marketing. What do you want it to be able to be something, so that a human can interpret what these codes are doing in a sequential order of, you know, revenue and different departments can also be helpful? And then, when you’re doing a project code as an example, something that it’s again, I would suggest a major initiative you’re doing. But you want to be clear that these are the costs that relate to it for a given year. You might say this is Project Code Xyz, or whatever. But then put 24 at the end, like the year. Something represents what year it’s for so that you’re looking at your costs for a given period. It’s very clear how to distinguish. Even if it’s a major initiative program. You want to know that these are the costs for one year versus the next year in that example. I’ve used that before. But just consistency is the key thing and you know it should be easy enough to interpret how those codes are gonna map to. If you think about your management reporting aspects of summary of management reporting, and what periods they go to, and things like that.

Kate: Okay, yeah, I agree with you. So moving on, what are some common mistakes accountants make with these segments, and how can they be avoided?

Jon Naseath: Okay one example is they people are putting the wrong transaction to the wrong code. So misclassification of codes.And then if you do that. You know the thing that accountants hate is having to do reclassifications, because, you know, if you get an auditor coming in and say, Oh, that was done wrong, and then you have to later reclassify something. Whether that was because it was a mistake or because the business changed, and maybe the timing of how things were coded wasn’t accurate in time but having to do reclassifications is always painful and then redoing, and oftentimes if you’re in a big public company, you’ve reported numbers. You just don’t want to do that. It can create big problems for investors with redundant codes. So seeing that there’s actually something you can have. I like to call it blowing out your chart of accounts where you just have too many codes and reality is the accountant who’s trying to map things to the code. There’s no difference between A B or C from their point of view, or maybe the transaction would apply to all of them, so they’ll usually just pick one and then you end up having 2 other codes in that example that just aren’t used. So that’s if you’ve blown out your P. And L your chart accounts too much, then it’s kind of a waste of time. Also inconsistent coding. So if you have, say that I was describing some of the syntax before. if you use 3 letters, and then a number, or if you use 3 numbers a dash, then a number. You know, you just want to be consistent. So it’s clean and that’s hard over time. Things change. But doing the classic example in this is it? I’ve seen companies. I’ve been involved in companies where previously they had put all of their products into the chart of accounts into the GL and that might be good intent at the beginning when you only have a few products. But then they have, like dozens and dozens of products. Every time the product wants to reshuffle how they’re presenting their products you would need to update your chart of accounts to map to that. So I’ve seen problems from that before because you don’t remove the historical accounts. You just add new ones to it, if it’s problematic.

Kate: Couldn’t agree more, moving forward. How can organizations maintain the integrity of these segments in their ERP systems?

Jon Naseath: Yeah, it really comes down to data governance so you need to have consistency and integrity of the chart of account segments. I think one of the best ways of doing that is, having an owner, you know, having role-based access controls, controlling, who has authority to update that oftentimes that comes down to the job of the controller and that’s kind of one of the main jobs. The controller by definition is to control which accounts are going to be called what things, and try to maintain some consistency even though the business is changing and enabled. So you can do historical reporting on the new views but just define the standardized naming conventions doing regular audits and making sure that things are consistently showing up. I mentioned in a previous discussion about the budget to actual reconciliation. So if you’re doing a budget or a forecast, and how those map to your chart of accounts that will flag if your forecast, where you’re gonna look at the business is consistent with your I’ll call it historical way of looking at the business in your chart of accounts. So just doing those budget versus actual reconciliations is helpful and then automating validation rules. So that as you’re entering entries into the system they’re coded correctly and there are different reconciliations, and controls you can put in place in most ERPs.

Kate: That was really insightful. I totally agree with you. Moving forward with the next question, what role does technology play in managing these segments effectively?

Jon Naseath: Yeah,  I describe the main role as helping flag or raise inconsistencies for you to be able to see them, and either preventative controls or detective controls right? It’s gonna prevent you from coding it incorrectly upfront or if you’re on the FP and a side, and you’re seeing inconsistencies, it can flag things for you that you can then work with the accountant to clean up so automated detection. It may help generate the codes automatically based on whatever the transaction was, it can suggest different codes for you, for the Gl or the call center. you know, just there’s a lot of times of manual errors that can happen, and it can help prevent those as you’re coding things. Data integrity. Again, the ERP system looks for duplicates, looking for missing values, or something that was hard coded wrong, and then dashboards again. It’s always funny to me, cause the situation is when you have, like a senior executive that really wants to see the real-time accounting dashboards of what’s happening but with accounting you’re always in the process of trying to catch up and you know, book the transactions at one of the companies I’m working with right now. The accountant got pulled into something else, and he’s 3 months behind in booking the accounting. It’s a smaller company, but the executive wants to see his dashboards, and the numbers are just wildly off, so if management’s making decisions based on these historical numbers that are wildly off that’s problematic. So technology can help keep you consistent and help book things in real-time as they’re happening. So that you’re just kind of managing by exception as opposed to having to book everything manually.

Kate: Understood. So we have almost reached the end of our interview. Can you provide examples of how errors in segment coding can impact financial reporting?

Jon Naseath: You know well, not only I’ll call it not only impact the financial reporting, but impact your whole business like if you’re in a public company, and you’re coding something to the wrong place. Then you report those numbers. Investors make bad decisions, and usually, then lawsuits can happen because they’re like, oh, that was intentionally misstated and we made investment decisions based on whatever. So I remember just kind of this tight schedule of closing the books, and then rushing to get all the books closed, and then at the month end, accounting financial preparation done. So you can produce investor analyst reports for a public company and there was this army of like 30 or 40 investor analysts just waiting to dive in and find any anomalies in what you just reported and I remember just once or twice. I don’t remember if it actually happened, but I remember the fear was always like, if we miss something, then they’re gonna call you on it because it’s wrong. You have to say, oh, that was an error, that’s just bad for the team. So we avoided making errors but you end up with misstated financial statements. You have compliance issues that auditors would find and an inaccurate profitability analysis, like, what is the profit? What is the forecast? What’s your guidance going to be for the next quarter that you’re gonna give? All those are off? If your core things have been coded incorrectly.

Kate:  So the last question for today, what steps would you recommend to an organization looking to improve its COA segment management?

Jon Naseath: Yeah, the 1st thing that I’d call out is verifying the historical accuracy and knowing what numbers you can rely on, I’ve been in a situation where a company hadn’t had proper controls around their accounting historically when I was brought in, and we tried, and previous to my joining the owners had made different business decisions based on well, they frankly they bought the company that I was then brought in to help them manage, based on these inaccurate accounting numbers. And so then, when I came in and figured out what actually was happening, and why they didn’t have enough cash at the end of each month. It was because of these basic accounting errors which I’ll say could have been avoided. So you know, just implementing standard close process standard controls in place naming conventions around what codes need to be what? And making sure that they’re coded correctly and used consistently. Leveraging technology, I’d call out specifically AI nowadays a lot of the ERP systems, you know, when I started my career, different ERP systems were different Oracle sap like QuickBooks.They all kind of competed on feature functionality but nowadays they’re also similar in their core functionality. So there are other tools that can help leverage. What’s there get your clothes faster, better, cheaper, and less costly. Regular training, making sure that the team, and specifically, I’ll call it business rules, make sure that your different team has the same business rules that they’re following when they’re coding things. Usually, I’ll have like. if there’s an accounts payable clerk, there’s a 1 page, something that they use as guidance to know how to code, what, and where. As an example and then putting in place the appropriate review mechanisms. As I mentioned before. if you’re in a big public company and your numbers are going to. Investors are making investor decisions in real-time. You have a series of reviews and a series of controls in place literally, like number by number, checking and automated, checking, manual checking, and having a binder for each close to show what you checked and that you signed off on everything. Just those are standard things when you’re doing accounting closes for big public companies. But I’d argue what I spent a lot of my subsequent career doing is implementing those similar sorts of controls for smaller companies that aren’t big in public because someday they might be, and regardless of whether you’re public or you have investors looking at your numbers every day you, should you? You want to have clean numbers so that your management can make good decisions and grow the business. So consistency completeness, accuracy, all your classic accounting things that auditors will look for later. Make sure those controls are in place. Don’t rely on just your auditors telling you when you should fix things, get them clean so that your management can make good decisions from the start.

Kate: So much, Jon. That was a really insightful conversation. Thank you so much for your insights. It was really nice to have you today with us here and thanks a lot. Have a nice day.

Jon Naseath: You, too, have a great day. Thanks.

Managing and scaling the Chart of Accounts(COA) in QuickBooks online

Find out interesting insights with John Silverstein, VP of FP&A at Extreme Reach

Moderated by Emily, Digital Transformation Consultant at Hyperbots

Don’t want to watch a video? Read the interview transcript below.

Emily: Hey, everyone, this is Emily, and I’m a digital transformation consultant at hyperbots. I’m pleased to have John Silverstein on the call with me, who is the VP of FP&A at Extreme Reach. So thank you so much for joining us, John.

John Silverstein: No problem. Thank you for having me.

Emily: So, John, the topic that we’d be discussing today is managing and scaling the chart of accounts in Quickbooks online. The 1st thing that I ask you is, what are some of the key considerations when setting up a chart of accounts in Quickbooks online for a small business?

John Silverstein: Yeah, when setting up the chart of accounts for QuickBooks online, it’s critical to be simple and logical. But you also need to look forward a little bit to the growth of your business. Look at your business model and the industry standards because you want to be aligned with how that’s going to be, and how you can look at your financials compared to either other companies, or if you eventually go for a sale or you acquire another business. It’s good to be in line with that. So assets, liabilities, equity, revenue, expenses. You want to make sure that those are broken out into the proper categories for that industry and that it also meets your regulations. You wanna enable the account number early. This is a big mistake. I see a lot in the smaller businesses that they just name, and their names are all over the place, and they change over time. So it’s hard to trace and understand the data. As it moves. And so it’s if you enable the account number, and it’s easier to integrate into work with other systems. As you and your business grow. So it’s important to implement that as early as possible. It. It creates a little bit of extra work, but it’s not that much.

Emily: Got it. So, John, as a business grows, how can it maintain an effective chart of accounts in QuickBooks online without having to move to a more complex ERP system?

John Silverstein: Yeah, it’s surprising how flexible and how good and what rigor and things you can get into QuickBooks online if you enable the right things. So it’s important to work with your accountants, and if you don’t have one internal, but if you are the accountant and things that you look at and leverage. You know the platform of QuickBooks like classes, locations, and the other dimensions that are there. So you don’t have to overcomplicate. I see a lot of companies that don’t enable classes until it’s too late. And again, it gets really hard. And you’ve overcomplicated your chart of accounts to try to do something that really could have been solved by classes or locations and things like that. So it’s also important to try to understand what those dimensions are. It goes back to the 1st question about industry and things that you do. So segment the data. You have to think about how you’re gonna measure and monitor the business review and monitor and make sure that that chart of accounts is always in line with how you’re gonna do it. If there are any redundant accounts close or inactivate them, make sure they’re properly categorized. Use sub-accounts, use a hierarchy that helps out. And you can go pretty far with QuickBooks online. I’ve been in companies that have made it to that 100 million dollar mark on QuickBooks. So it. It does scale more than what many would expect.

Emily: Got it. Got it. So any common mistake, John, that you’d have seen small businesses make when setting up their chart of accounts in Quickbooks online?

John Silverstein: Yeah, one of the things is there, the biggest thing. And this goes across the board. Any system has too many accounts, and they don’t enable the other dimensions and things. So then you try to use an account for everything, account per vendor, account per customer, and things like that Just remember that there’s reporting and things that can get you there without having to break it out in your chart of accounts that overcomplicate it, and then there are more mistakes, and it causes a lot of confusion as you bring in new people Or you might have to have another accountant or other people look at it, or your management looks at it and things, and it gets more confusing, and it even makes it harder for audit as well, and it creates a lot of clutter.

Emily: Got it, got it. So how can businesses create a flexible and scalable chart of account structure that supports growth?

John Silverstein: Yeah. The best way to do this is to make sure that you have a numbering system that allows for the expansion. And to do, add-ons and things, and to make sure that you’re you, you can change the names without affecting other reporting and things you don’t want to leave gaps between you. You need to leave the gaps in between the account numbers, so you can add accounts and easily use sub-accounts to track more detailed information. So you can have the details when you need to answer certain questions and have it at your fingertips. Make sure that you have that available, and then you plan on growing. So you have those spaces and things, and then this approach will allow you to keep it simple but also have detailed financial analysis and reporting.

Emily: Okay, why, exactly, is it important for different businesses to regularly review and optimize their chart of accounts in QuickBooks online?

John Silverstein: Yeah, it’s critical to ensure that the accounts reflect how your business is today. If you’re selling new things, maybe your models change. Maybe you were initially transactional or your pricing wasn’t, it was more value pricing and things like that. Or, yeah, when you’re smaller you might have more to give. But as you grow and things, it’s critical that you have the information. There, the accounts reflect your current business operations. What does your cost structure look like, are you in? Is everything in the house? Are you doing things yourself? Are you outsourcing those types of things? You must have that at your fingertips. You also don’t want to have to roll up many redundant accounts or account hierarchies even to try to get an answer in your financials, so make sure that you continue to look at it. So you know which accounts to use when you’re answering the questions that you have on your finances, and it also alleviates the errors of things going to too many different places. And then you have to try to figure out how to map it all back together.

Emily A: Got it. Got it. So, John, can you explain the role of AI in maintaining charts of accounts, integrity, and QuickBooks online?

John Silverstein: Yeah. So AI, and this is something that’s gonna have a significant impact. Going forward is on the chart of accounts because it can keep that integrity, it can also have the knowledge to recommend and detect errors between how? What’s posting? To which accounts, and as long? It can make sure that the definitions are consistent on what’s going on, and it can recommend even when you should create a new account and break it out. It could also tell you that you have duplicates or missing entries. So AI algorithms, it’ll enforce consistency in accounting. It’ll make it easier to do analysis, it’ll make it easier to be compliant. You’ll have clarity on where things should be booked, and why. It can also have predictive analytics to suggest. Hey, you need a new account. You need a subaccount. This is a hierarchy and to go into the patterns of transaction history to recommend that. You can also have real-time data validation. So your book closes and things will be faster and more accurate. This is critical as you go through to make sure you have consistent financial data.

Emily: Got it so little bit about ERP migration, John. So how can I help a business that is considering migrating from Quickbooks online to, let’s say, a more complex ERP system like NetSuite?

John Silverstein: Yeah. So if AI could help you start getting there, the more you’re aligned with how the bigger Erps work and you have classes already set up. You have the things set up in QuickBooks online that are more aligned with NetSuite. It’s easier to migrate, and your process is if and flows. If they’re proper and doing the same things as some of these other Erps, it may make it better data, integrity, and continuity, and easier to go through the conversion without having to do a lot of data cleanup it also can automate your reconciliations and validations through the migration to make sure that everything’s in sync it’ll save a lot of time. Reduce the errors. Maybe the Erps will get a little bit worse. 3. Letter acronym. It will become a little more doable and foreseeable to go into an ERP that makes more sense for your business without a huge lift in cost and time.

Emily: Understood. And just one last question, John. So what are some best practices for using QuickBooks online as a growing business? And you know, when should a business consider moving to a more robust or more? Do you know the nuance?

John Silverstein: Yeah. So the one thing I would say is that you need to try to get as much structure as possible in QuickBooks with numbering systems. Reviewing the chart of accounts. A lot of this structure and things and controls in QuickBooks tend to be manual in the process where you have to do manual reviews or have AI review it. Now you have that option. But you didn’t in the past be a business should consider moving to a more robust ERP when they’re getting into more complex workflows and complexities like consolidations and things. If you have multi-entity management QuickBooks, don’t really. It’s a separate entity and roll-ups are hard and complex. They’re getting a little bit better, but it doesn’t. It’s not made for that when you get into some of the currency and other things that you might face as a larger enterprise. Quickbooks aren’t made for that, or designed for that. So if you need more sophisticated reporting, you need to have more data too. It’s probably better to move on to a tool like Netsuite.

Emily: Got it. Got it. Thank you so much, John, for being here and talking to us about managing and scaling the chart of accounts in Quickbooks online. It was great having you. And it was a fruitful discussion. So thank you.

John Silverstein: No problem.

Interrelationships and dependencies between GL codes in ERP systems

Find out interesting insights with Dave Sackett, VP of Finance at Percy Moon Technologies

Moderated by Emily, Digital Transformation Consultant at Hyperbots

Don’t want to watch a video? Read the interview transcript below.

Emily: Hey, everyone, this is Emily and I’m a digital transformation consultant with Hyperbots. And today we have the privilege of speaking with Dave Sackett, who is the VP of Finance at Percy Moon Technologies. So thank you so much for joining us today, Dave.

Dave Sackett: Yeah. Thank you, Emily. A pleasure to be here.

Emily: The topic we’d be discussing today is interrelationships and dependencies between GL codes and different ERP solutions. To start, Dave, can you please explain the importance of understanding the interrelationships and the dependencies between different GL codes in an organization’s financial reporting?

Dave Sackett: Yeah. It all starts with the chart of accounts and the way you structure it. You’ll have interrelationships between them. For example, revenue, COGS, expenses, assets, liabilities, and taxes. These are fundamental to accurate financial reporting and management. Revenue and COGS directly impact gross profit, while assets and liabilities are crucial for maintaining the balance sheet. Mismanagement or misclassification of any of these can lead to inaccurate financial reporting.

Emily: Got it. So, Dave, how do different ERP systems like SAP S/4HANA or Microsoft Dynamics 365 help maintain these interrelationships effectively?

Dave Sackett: ERP systems like SAP and Microsoft Dynamics are designed with a robust financial model that enables these relationships to be maintained accurately. SAP uses a universal journal that consolidates financial and managerial accounts into a single data source, making it easy to track dependencies and dimensions and advanced account structures to categorize and report financial data flexibly, ensuring that all interrelated GL accounts are consistently updated through the workflows and approval process.

Emily: Understood. Could you also please elaborate on these specific features in NetSuite and Sage Intacct that help maintain interdependencies between these GL codes?

Dave Sackett: Certainly. NetSuite provides a segmented chart of accounts and real-time reporting, which allows clear tracking of management interdependencies. Its revenue management module automates revenue recognition and ensures alignment with expenses, which is critical for accurate financial reporting. On the other hand, Sage Intacct is known for its dimensional chart of accounts, allowing for a more granular and flexible approach to managing GL codes. It supports automatic allocations and offers robust audit trails, ensuring that changes in GL codes are documented and those dependencies are maintained accurately by the accounting staff.

Emily: Understood. And, Dave, what about ERP solutions like QuickBooks, which are, you know, often used by small to medium-sized businesses? How do they handle these interrelationships?

Dave Sackett: With QuickBooks, it’s a very simple system, but there are essential tools to manage these interrelationships between GL codes. It uses linked accounts to automatically update related GL codes when transactions are recorded, ensuring the basic dependencies are still maintained. For example, when an invoice is generated, it automatically updates the revenue account and accounts receivable. This simplicity is beneficial for small businesses that don’t have complex financial needs and still require accuracy in their financial reporting.

Emily: Got it. So, talking a little bit about, you know, regulated environments such as companies in the government or contracting sector, how does ERP like Deltek Costpoint help maintain these interrelationships?

Dave Sackett: One of the specialties of Deltek Costpoint is that it’s specifically designed for government contractors and heavily regulated environments. It offers project-based accounting that links revenue, COGS, and expenses to specific projects and contracts, ensuring compliance with strict government regulations. Costpoint’s multi-entity and multi-currency management features help keep accurate interdependencies across different entities and countries, while its automated billing and revenue recognition ensures that revenue and related costs are properly matched and reported. Many government-type jobs are cost-plus, meaning that the government is going to have access to your cost records. So, you need to have it set up logically and structured for that audit and that review as part of your sale to the government.

Emily: Understood. Also, how important are third-party AI tools in maintaining these GL codes and the interrelationships for various ERPs?

Dave Sackett: The more complex your system, the more important it is for your ERP system to maintain GL code interrelationships. While ERPs like SAP, NetSuite, and Microsoft Dynamics come with built-in automation and analytic tools, third-party AI tools offer advanced capabilities, such as predictive analytics, anomaly detection, intelligent automation, and flux analysis. For example, AI tools can automatically identify patterns and anomalies in transactions that could affect multiple GL accounts, such as unusual spikes or unexpected expense increases, and suggest corrective actions. So that’s your flux analysis where it’s looking and saying, “Hey, this data doesn’t belong here. It’s not in the normal spec.” That’ll help users of that AI zero in and figure out why it’s doing that. Then, once they find that anomaly, they can train the bot to process it normally or still keep it as an exception, depending on the nature of the anomaly.

Emily: That’s amazing. So, Dave, can you provide an example of how an ERP system might handle a complex transaction that affects multiple GL codes?

Dave Sackett: Yeah, certainly. Let’s take an example of a sales transaction involving inventory in SAP. While the inventory is sold, the system automatically decreases the inventory asset account, increases the COGS expense, increases the revenue, and at the same time, calculates and records tax liability based on the tax rules that are set up in the system. All of these entries are done automatically, ensuring that every GL code involved in this transaction is accurate, and it’s being updated in real-time. Not only does it maintain interdependencies, but it also ensures compliance with accounting standards as it’s programmed specifically that way.

Emily: Got it. So finally, to wind things up, one last question, Dave. How can CFOs leverage these ERP systems to ensure continuous improvement in financial management and reporting?

Dave Sackett: CFOs can leverage ERP systems by utilizing advanced features like real-time reporting, automated workflows, and data analytics to continually monitor and improve financial performance. Regularly reviewing configurations, such as account structures, financial dimensions, and chart of accounts, ensures alignment with the company’s evolving needs. Additionally, investing in training and leveraging ERP vendor support can help maximize the use of these systems. By doing so, CFOs can ensure that financial management processes remain efficient, accurate, and compliant with regulations. Your ERP system is an investment, and you want to constantly check it to make sure it’s meeting your needs and your future needs. So, it’s not a one-time investment. It’s something that you want to have to grow with the company and continue to invest in that technology to give you better and better reporting.

Emily: Got it. Thank you so much, Dave, for sharing your insights on this complex yet essential topic. It was great having you, and this discussion was truly fruitful. So, thank you so much.

Dave Sackett: Yeah, thank you, Emily.

Chart of Accounts (COA) and GL coding in Sage intacct

Find out interesting insights with Dave Sackett, VP of finance at Persimmon Technologies

Moderated by Emily, Digital Transformation Consultant at Hyperbots

Don’t want to watch a video? Read the interview transcript below.

Emily: Hi, everyone. This is Emily, and I’m a digital transformation consultant at Hyperbots. I’m really pleased to have Dave Sackett, the VP of finance at Persimmon Technologies, on the call with me. So thank you so much for joining us, Dave.

Dave Sackett: Yeah. Thanks, Emily.

Emily: So, Dave, today we’ll be discussing the chart of accounts in Sage Intacct. Let’s quickly dive into the first question. Could you please explain the key components of an effective GL coding scheme in Sage Intacct, and how exactly it benefits financial management?

Dave Sackett: Yep, what you want to do is set up your chart of accounts with logic, using a numerical scheme. One could be assets, two could be liabilities, four for revenue, and three for equity. Having that range, so that all your assets begin with one and all your liabilities begin with two, sets up a logical format for any chart of accounts. This is useful for report writers or using an AI model to categorize your data logically. When creating your chart of accounts, you should have gaps in there, so you’re not just adding one account to the next.

Dave Sackett: As you add new ones, plan for expansion. My suggestion would be to space out your accounts by at least five spaces across. So, whatever your number is—dot 005, dot 010, dot 015—if you need to place accounts in between, you can structure them without having to remap them with a report writer.

Emily: Got it. So apart from what you just mentioned, Dave, are there any other best practices you’d recommend when setting up or maintaining a chart of accounts in Sage Intacct?

Dave Sackett: Yes. You want to avoid miscellaneous as best as you can because people are always asking, “What’s in miscellaneous?” So if you can understand your business and code things to the right place in the chart of accounts, reporting becomes easier. But at the same time, you don’t want to go overboard and capture everything with a separate account. 

Dave Sackett: One exception to that might be project accounting, where you want to track all the costs for a specific project. But for prepaid, for example, you don’t need one for every vendor. You want general accounts to cover prepaid marketing expenses or prepaid insurance expenses. Even if you have multiple policies or meetings, you’re still grouping similar assets into one category without cluttering your chart of accounts. You don’t want your chart of accounts to be 40 pages long like they used to be. Today, people prefer a cleaner, more succinct chart of accounts. If they want details, they can extract those from another report if the chart of accounts is set up properly.

Emily: Got it. Now, shifting gears to common mistakes or errors companies make when creating or managing a chart of accounts, what are some of those?

Dave Sackett: One common mistake is taking the existing account structure and trying to force it into a new system without considering future needs. Businesses change—new revenue models emerge. So anytime you have the opportunity to review your chart of accounts, don’t just copy what you did before. Take a new perspective and ask, “What’s my goal with this chart of accounts? What will future reports look like?”I like to think of the end goal and work backward. So, look at the future management reports you want, then figure out what you need to set up in the chart of accounts to achieve that final output. By doing this, you can avoid missing accounts or setting things up incorrectly.

Emily: Understood. So how would you suggest a company build a flexible and scalable chart of accounts to accommodate growth?

Dave Sackett: You need to structure it logically, so automation can assist you. For instance, using ChatGPT to look at examples of charts of accounts might reveal new things like leases or new accounting rules that require new accounts. For example, right-of-use asset or right-of-use liability accounts are now needed due to new accounting rules. Having an eye on both the present and future will help ensure your chart of accounts is flexible and scalable.

Emily: Understood. How can AI help maintain the integrity of the chart of accounts in Sage Intacct?

Dave Sackett: The benefit of AI is that it loves patterns and data. An ERP system structures things in a way that’s easy for AI to understand. It can analyze ranges, and you can train your model based on your logically-kept data. AI can easily find assets, liabilities, and other categories based on account ranges. If your chart of accounts is clean and logical, AI will have a much easier job, reducing errors in your modeling process.

Emily: Got it. Can you provide an example of how a fast-growing company might benefit from using AI to manage its chart of accounts in Sage?

Dave Sackett: AI can provide suggestions and perform flux analysis on the chart of accounts. It can analyze what accounts are missing, what accounts are not being used, or if any settings are wrong. AI can also flag anomalies in the chart of accounts. This can help the company diagnose issues in the account structure, making it easier for AI to assist in improving the system.

Emily: Got it. Is there any advice you’d like to give companies transitioning from a smaller accounting solution like QuickBooks to a more robust system like Sage?

Dave Sackett: Yes, as a company grows, transitioning to a more robust system is essential. Sage offers far more features and is more future-focused than QuickBooks. Using AI to assist in the transition can be a significant time saver. I’m personally transitioning from QuickBooks to Epicor, and similar principles apply.

Emily: To wrap things up, how often should a company review and update its chart of accounts, and what triggers these reviews?

Dave Sackett: Typically, reviews are triggered by changes in the business, such as new revenue models, different departments, or new reporting requirements. If your business changes direction, you need to ensure your chart of accounts is ready. Attend budget and forecast meetings to understand where the business is going, and prepare the chart of accounts accordingly. I recommend reviewing it at least once a year or as needed based on new developments.

Emily: That’s great advice. Thank you so much, Dave, for sharing your insights on managing the chart of accounts in Sage Intacct, leveraging AI, and planning for growth. Your expertise is invaluable for any company looking to optimize its financial management processes. Thank you for being here.

Dave Sackett: Yeah, thank you, Emily.

GL coding in the Chart of Accounts(COA)

Find out interesting insights with Jon Naseath, CEO/Founder Cantu Capital Inc

Moderated by Sherry, Financial Technology Consultant at Hyperbots

Don’t want to watch a video? Read the interview transcript below.

Sherry: Hello, and welcome to all our viewers on CFO  Insight. I am Sherry, a financial technology consultant at Hyperbots, and today we are speaking with Jon Naseath, who is an accomplished executive with expertise in AI, machine learning, and computer vision driving impactful technology solutions in education, healthcare, and business. Thank you so much for joining us today, John. Today we’ll be discussing the importance of GL coding in the chart of accounts, common mistakes companies make, and how technology can help maintain coding integrity. So let’s dive right in. Can you briefly explain what GL coding is, and why it is so important in the chart of accounts?

Jon Naseath: So just briefly, what GL coding is, and I’ll tell you an example of the importance. GL throughout the entire business. People are doing their work. They’re spending money, earning revenue, buying things, or investing in product development. Whatever you’re doing throughout the entire business. That translates into equity. You’re making money for investors or making customers happy. Whatever is your role, there’s a representation of that in the GL. We have to make sure that what you’re doing, what you’re spending, and what revenue you’re making is accurately represented in what’s going to turn out later to be the P&L or your balance sheet. You know, what did we invest in on the balance sheet? And what did we spend, and how much revenue did we make on the P&L? If we don’t map things correctly to the GL, then the rolled-up reporting numbers will be wrong. There are all these very formal GAP accounting rules over how things exactly have to be mapped. The story example I wanted to raise real quick was just a few hours ago. I got an email from a very good friend of mine. I used to work at a large organization, and he’s a leader in that organization. He spends his whole day talking to big companies around the world about how to reduce the cost of IT and cloud spending, and how to help them with strategy. He pinged me and asked me, “Where can I find the right definition of revenue?” I chuckled when I saw that because, I mean, there are people’s whole careers spent helping companies figure out how to define revenue for their business. He asked, “What’s the definition of net revenue?” I spent a year working with a company where there were actually seven definitions of revenue just within that company. They called it gross revenue, sales revenue, RevOps, net revenue, and all these different things. But the reality is, if you ask an accounting person, there’s only one definition of revenue, and there are actual policies around how that’s defined. The reason I bring it up is, that if you’ve mapped all these different things that you do in your business to the GL, and then you map that GL to management reporting, different management reporting people will want to see how what they’re doing impacts revenue in this example. They can make up their definitions, but they should define that there’s one thing that is accounting GAP, you know, audited revenue. All the other stuff is management reporting. If you’ve mapped stuff in wrong, then the core number is wrong. If you map stuff wrong, then the other pieces are wrong. Just bluntly, if you do it intentionally and you’re trying to hide things, people go to jail. So that’s why it matters. But also so investors can understand what they’re doing, and management can have clear views of how they’re managing the business. Long answer to a short question, but it was a pretty loaded question.

Sherry: And in your opinion, what are some common coding schemes that companies should follow when setting up the chart of accounts? Can you provide examples from different industries?

Jon Naseath: Most simply, think about it as your P&L and your balance sheet. As you walk down your P&L, you know, revenue, cost of goods, operating expenses, whatever you have in your P&L. As you walk down your balance sheet, assets, liabilities, etc. All it is is a number that represents walking down your P&L and balance sheet.  The root of your question, though, is within different industries, there’s become quasi-standards around how they’re doing their business. Every company within that industry is also going to try to find its competitive advantage, so they’ll do something unique to them. When they do roll up their P&L and balance sheet, I remember I was in a job where my job was to take that from the accounting team, roll it up into these investor analyst reports, and then we’d hit submit to go live at quarter-end. There was an army of like 60 investor analysts whose whole job seemed to be to find any errors we had in any of those numbers. What they’re doing is mapping that financial statement to other ones in the same industry and seeing if we’re different, wanting to compare them. So to some degree, you want to be similar to your peers in the industry, but for others, you want to innovate. I was at Equinix, which is an innovator in space. We impacted how the industry looks at metrics like FFO and other REIT-related revenues. We made sure we were compliant with revenue. There were lots of things besides just data center buildings that we had as revenue, and we had to account for them correctly.

Sherry: What are some common mistakes you’ve seen companies make with their GL coding structures? Can you provide examples from various industries?

Jon Naseath: One mistake is in the way companies add dimensions to the GL, like region, department, or sales channel. You might see the initial chart of the account code, and then different dimensions get added as “dash something else.” This lets you slice and dice to understand costs by department, region, or product type. But bloating the GL by adding too much detail, like putting all your product SKUs into the chart of accounts, can make it unmanageable. Over time, old codes and new codes can create complications. Another issue is the lack of standardization. It’s important to align with industry standards so reporting can be compared. Insufficient detail is another problem, where management wants specific insights to reduce costs or invest more, but all they have is a generic code for product costs. You need to break things up by what should be capitalized and what should be expensed. Finally, there’s inadequate training and documentation. If people aren’t trained well, they can tag transactions incorrectly, which impacts the rolled-up reporting. That’s why visibility and proper training are key.

Sherry: How do these mistakes impact a company’s financial management and reporting?

Jon Naseath: From a financial perspective, it creates a lot of unnecessary work. Ideally, you could just roll things up and have it reconciled, and everything makes sense. But often, you do plan vs. actuals or month-over-month, and something’s off. You might have a gut feeling that a number isn’t right, and sure enough, you unpack it, find a miscode, and need to reclassify. The impact includes inaccurate or inefficient financial statements, upset executives, and hours of rework. It can lead to compliance risks, resource wastage, and worse, damage a company’s credibility. If a CFO has too many reporting errors, they could lose their job.

Sherry: How do you think technology can help maintain GL coding integrity and reduce these mistakes?

Jon Naseath: Technology is excellent at reconciling across different dimensions and sources. It can tie everything together, but it’s not perfect—AI can sometimes hallucinate. There are automation tools and AI that help, but there needs to be a balance between understanding numbers and producing accurate outputs. For example, I was talking to the controller of a large global organization. They have a complex ERP system and are transitioning to a new version. They’ve gone through the business planning, and they know what they want that future state GL and reporting metrics to look like. And they finish that. But it’s gonna be another at least a year and a half, maybe 2 or 3 years, until they get this full ERP fully implemented, all trained, and are in the new future state system. In the meantime, they’ve got a year and a half and 2 years or more, because things always go wrong in those projects. There’s always some reporting that’s missing, even if they say they go live. It’s never right at first. However, even with what I just said, it’s never right at first. I believe there’s an opportunity here where if you define what you want your future state reporting to look like, and you have that data coming in. And you’ve created this mapping thing that you’re gonna give off to some developers and they’re gonna rebuild the system based on that new mapping tables and then you have to extract the data from the old table, load it into the new table once it’s developed and then wait. Maybe the reports work, but they don’t. And it’s huge UAT testing.  Anyone who’s been through that knows it’s painful. I think AI can do a lot of that stuff. I think you can take from your legacy system, your current system. You can say, here’s what I want my master tables to look like. Here’s what I want my reporting outputs to look like and it can help produce those. Now, again, it’s going to hallucinate. You have to code it the right way to make sure that it gives you the right outputs. But a lot of the pain, which is real pain, or a lot of the late nights because there’s an error, and there’s rework. You have to go through a lot of the cost of hiring an army of people to fix an error that was in there historically and rebuilding reporting.  A lot of that, I believe, will be able to be fixed by AI. And it’s no longer for me just a belief. I know it’s real, because I’m seeing it happening in different companies I’m talking to or working with and it’s fun. And frankly, I’ll just give you guys a shout-out. You’re on your track with the products you guys develop. I’m seeing good things. It’s exciting to see what you’re building, and where this will lead to.

Sherry: Thank you so much, Jon, and from your experience in the finance industry, can you provide an example of how automation might improve GL coding practices in a specific industry?

Jon Naseath: Yeah. The manufacturing industry is complex a bit, because it’s not all just kind of in the cloud, SaaS, and I’ll say relatively easy. So there are so many different stages of raw materials, work in progress, finished goods, making sure you’re coding things all to the right place and then, making sure it’s current. I think that speed aspect is really important, because then, if you don’t get it right in time, you’re making accruals, and you have to fix them later. So I think that can reduce a lot of human error and complexities when things go away. And I think automation will fix a lot of that stuff.

Sherry: And what best practices would you recommend for companies, or for our viewers looking to implement or improve their GL coding system?

Jon Naseath: Sure. Don’t get overloaded is the way I like to describe it in your GL. Keep it relatively simple. Think about what is the core dimension of your GL, and then what the sub-dimensions, and sub-ledgers that tie into that. Make sure people have the training they need so that they’re not screwing your stuff up. I remember a friend of mine was in accounts payable, and he had a paper on his screen. He would just keep, and all he was doing was coding things to those key numbers, and that master table. When I come into a new company, I’ll, based on that, go around and ask the people in these types of roles: “Show me your kind of cheat sheet. What’s that master thing for mapping that you rely on?” And they all have them. They all pull out, “Well, this is what I look at, this is what I rely on.”I like to take those cheat sheets, standardize them into policy, and make them real. Use technology wherever possible. I do think AI is great, but I think that there’s lots and lots, you know, throughout my whole career there’s been automation of things. So there are lots of things that are proven as technology automation, use them. We don’t need to reinvent AI just to do something that’s already fully automated. And then use AI for stuff that couldn’t have been automated previously. That is now enabled. And the combination of those two things is where you get really powerful results and then just basic, I’ll call them controls. Reconciliations, making sure that things are coded correctly, doing budgeting, and making sure you’re doing those plans versus actuals. The best call out here is to partner with FP&A, finance, and accounting. Accounting wants to get their numbers right. They’re very proud of that. But then it’s FP&A that is creating the management reporting a lot of times and a lot of the forecasting. So if those numbers are off, work together to make sure they’re right before you go spread it all over the business and tell them that they’re idiots because they screwed up some number when it was an accounting-finance disconnect. That never happens, but just hypothetically.

Sherry: Thank you so much, Jon, for these valuable insights on GL coding practices, and how technology can play a crucial role in maintaining financial integrity.

Jon Naseath: My pleasure, always fun.

Differences in Chart of Accounts (COA) across ERPs

Find out interesting insights with Jon Naseath, COO Osmo

Moderated by Sherry, Financial Technology Consultant at Hyperbots

Don’t want to watch a video? Read the interview transcript below.

Sherry: Hello, and welcome to all of you on CFO Insight. I am Sherry, a financial technology consultant at Hyperbots and I’m very excited to have Jon Naseath here with me. He is an accomplished executive with expertise in AI, machine learning, and computer vision driving impactful technology solutions in education, healthcare, and business. Thank you so much for joining us today, Jon. Our discussion will focus on the differences, similarities, and reasons for variations in the chart of accounts across different ERP systems. Let’s dive right into it. Can you briefly explain what a chart of accounts is, and its importance in financial management?

Jon Naseath: Sure. So I approach the chart of accounts a little differently than others might because I have a background in information systems. And so, from my perspective, the chart of accounts is kind of like a master data table that defines a standard structure that you’re gonna use for how you want to manage your business. In the simplest way of thinking about it, it’s a listing of the most detailed level that includes all P&L records, like the drill down to the P&L at the base level, and then also it includes the drill down for the balance sheet at its base level. So, it includes all of them. And then from there, you’re going to have other tables that will have accounts receivable and accounts payable and other sub-ledgers they’re called, so a general ledger chart of accounts sub-ledger. This chart of accounts is the master data that you use to structure how you’re gonna roll everything up to the P&L and balance sheet. Just one more piece there. So if it’s the most detailed level down, then you might have like these five types of revenue, and then you’ll roll them up to be your revenue number in a financial statement as an example, or whatever the summary numbers are you see in your management reporting. The core foundation of those financial statements is your chart of accounts.

Sherry: And in your experience, how would you say the chart of accounts is structured differently across the five ERP systems like Sage Intacct, QuickBooks Online, Dynamics, SAP Hana, and NetSuite?

Jon Naseath: The way I would describe it is that each of those companies has a default out-of-the-box chart of accounts that they’ll present to you as a potential customer using their product. Each of them has different target markets. QuickBooks and Sage Intacct are focusing on one business entity at a time, so they want to present a relatively simple chart of accounts, while SAP Hana, Dynamics, and NetSuite want to present that they have flexibility and can handle more complex businesses and dimensions. The reality, though, is with rare exceptions, I’ve ever seen a company who can just adopt whatever is the chart of accounts from any of those systems and then adopt it going forward. Usually, there’s some level of customization that’s required anyway, so the systems are just saying, “What’s the best way we can give a starting point for that customization?”

Sherry: And why would you say ERP systems like SAP Hana and Dynamics have more detailed and segmented GL codes compared to others like QuickBooks Online?

Jon Naseath: The reason I’m pausing is that from my perspective and a pure database design perspective, they’re not different. It’s just designed for how you need to support the customer. They’re still going to be your revenue, the numbers that apply to your business. There are systems designed to support businesses that have different parts of dimensions for each data center, for example. So, it comes down to what are the different ways that you want to slice and dice the chart of accounts. What slicing and dicing dimensions are you going to build into your chart of accounts codes versus other sub-ledgers outside your general ledger chart of accounts?

Sherry: And how do localization requirements affect the chart of account structures in different ERPs? Could you provide an example?

Jon Naseath: Yeah. So, like NetSuite and SAP Hana, oftentimes they’re designed to support global operations. There might be different tax codes, GAAP rules, and IFRS rules, and you’ll design your chart of accounts to support those roll-ups. For example, QuickBooks might focus more on the U.S. market and try to present a simplified structure, while global organizations would require more complexity to consolidate their financials. Without systems that can handle this complexity, you might end up doing roll-ups manually in Excel, which can be painful.

Sherry: As you touched upon customization in ERP systems, what role does customization play in determining the differences in the chart of accounts across these ERP systems?

Jon Naseath: Two quick examples come to mind. I was working with a company where their new finance leader got them to switch from NetSuite to QuickBooks. However, they soon ran into complexities, such as a lack of flexibility for different locations and vendors. They ended up mapping dimensions manually, creating what I like to describe as a “bloated” chart of accounts. The worst case is when companies put all their products as different codes in the chart of accounts. Initially, the accounting team thinks it’s great, but months later, they’re just tagging stuff to the simplest codes, and many codes remain unused.

Sherry: Can you also discuss the similarities in the chart of account structures across these ERPs, and why these similarities are important?

Jon Naseath: At the end of the day, it’s about the P&L and the balance sheet. You’re talking about revenue, cost of goods sold, gross margin, and operating costs. These core elements of the financials are what you need your chart of accounts to support. The beauty of a chart of accounts is that it includes both the P&L and balance sheet, ensuring that adjustments are reflected consistently across both when you understand the system, it’s pretty straightforward. It’s just another master data table in your database that defines how you run the operations of your business.

Sherry: Could you provide a specific example of how a particular industry might benefit from the unique chart of account features of an ERP like SAP Hana or Dynamics?

Jon Naseath: SAP Hana is known for inventory management. It allows businesses to track costs per revenue, per product line, per region, and business unit. For global companies with complex operations, this level of granularity is essential for understanding profitability across multiple dimensions. Dynamics has similar capabilities, allowing for multi-dimensional analysis without overly complicating the system.

Sherry: And why might a smaller company prefer an ERP like QuickBooks Online or Sage Intacct over SAP Hana or NetSuite?

Jon Naseath: A smaller company might prefer QuickBooks or Sage Intacct because they offer straightforward solutions. When your business operations are simple, these systems have all the features and functionality you need without the complexity of larger ERP systems. When businesses get more complicated, they might outgrow these systems and need to upgrade to something like NetSuite or SA then you need other plug-on tools. I have another. Just no, he wants your questions. I have some other thoughts, but we’ll see if your questions bring him up. Go ahead.

Sherry: And how do integration needs impact the differences in the chart of accounts across these ERPs? And can you provide an example for the same?

Jon Naseath: Okay. Now, that wasn’t planned. But that was the next thing I was gonna bring up. So that’s cool. Oftentimes, when you’re talking about ERP systems, it’s kind of this catch-22 because you have your accounting team that wants the data from throughout the business. Maybe 10 years ago, the plan was, well, let’s get everyone Oracle licenses within accounts payable. Let’s get everyone, whatever. Even different business leaders outside of accounting finance needed to have access to that ERP system, and I’m sure ERP sales reps want that to be the case. But I think this somewhat fell apart when the ERP system started buying other integration systems. So now you have your HR system, your expense management system, and other tools, which bluntly, have a little bit nicer user interface, ease of use, and maybe apps that are cool, focused on specific business roles.Those systems, which back in the day, we used to custom-build just so people would use them, because there’s nothing worse than making someone log in, click multiple times, and then finally get to what they need. So give them what they need with a simple user interface. But then, that can feed straight into the general ledger, chart of accounts where needed, or sub-ledger, ensuring it’s coded correctly and avoiding errors.

Sherry: And looking forward, how do you see the differences in the chart of accounts across ERPs evolving as businesses continue to grow and adopt new technology?

Jon Naseath: You know, a lot of the challenge I’m seeing is businesses are evolving quickly. Their business models are evolving quickly. They’re doing M&A, adding new revenue lines, cutting costs, or adding new divisions. Every time you make that fundamental change to a business, in theory, your chart of accounts should update or align to support that. But often, it doesn’t, so you end up creating a new account code, tagging everything to it, and leaving the old ones behind. This results in the chart of accounts being out of sync and not applicable. Technology can help here because, typically, finance ends up creating a mapping of the chart of accounts in a spreadsheet to management reporting needs, along with allocation logic for dividing costs among departments or divisions. And while that’s fine, it’s manual. What AI and technology can now do is help automate this mapping. Based on historical mapping data, AI can generate management reporting and reduce errors caused by manual processes. A lot of manual mapping, revenue discrepancies, and errors in cell linking or extracting data into reporting tools can now be simplified. AI can even map transactions to reporting directly, bypassing the GL in some cases. The GL, being a summary view, still needs reconciliation to sub-ledgers and other systems. AI can help make this process faster and more accurate by automating checks across systems. So, closing the books could become much faster as AI ties the sub-ledger directly to the GL, ensuring it’s complete and accurate.

Sherry: Thank you so much for these insights, Jon. It’s clear from this conversation that the differences in charts across ERPs are shaped by a variety of factors from the size and complexity of the business to the need for localization, customization, and integration. This conversation has been incredibly informative for understanding how businesses can choose the right ERP for their financial management needs.

Jon Naseath: My pleasure.

Why organizations skip POs and how to fix the problem

Find out interesting insights with Jon Naseath , CFO & Strategic advisor

Moderated by Emily, Digital Transformation Consultant at Hyperbots

Don’t want to watch a video? Read the interview transcript below.

Emily: Hello, everyone! This is Emily, and I’m a digital transformation consultant at Hyperbots. I am very pleased to have Jon on the call with me. Jon is a seasoned CFO. With experience in larger companies as well as startups and public companies. I’m so glad to have you on the call with us, Jon.

Jon Naseath: Appreciate it.

Emily: So the topic for today, Jon, is purchasing without purchase orders. This is an area that many organizations grapple with, and I’m looking forward to your insights. So let’s just dive into the 1st thing that I’d want to ask you is, what are the common reasons that you’ve observed? That leads to an organization, you know, to make purchases without using a purchase order.

Jon Naseath: Yup. A lot of times it comes down to using a purchase order may not be a key control, and it’s just an additional process. So they find ways to work around it if they need to. A lot of times. The ERP systems, whatever one you’re using, have complicated interfaces and so I’ve seen companies avoid not wanting to have to give everyone logins to those systems and looking for others. Well, they could be open to other ways. But that’s a key challenge to the system itself.

Emily: Got it. Can you provide examples of situations where you know bypassing the PO process might seem justifiable?

Jon Naseath: Well, I would argue that there are times when it is justifiable. I usually work and figure out where the threshold is. And so, if purchases are needed, they are below a threshold. There could be times when you decide as a company. We’re not going to do PO’s there. In those situations. What I usually do also is we’ll either provide a credit card for individuals for those smaller purchases that have a set limit to still control it or you could do kind of what we call a blanket PO for certain areas. So it’s not specified to a given vendor, but it allows them a defined budget that they can use within that function or project.

Emily: Got it, and any risks that you see associated with making purchases without a purchase order?

Jon Naseath: Well the purchase order itself is a tool, and I remember a situation where it was very difficult for projects and for different departments to understand how much budget they had, and they were constantly going over budget. And so we needed to find a way that enabled direct visibility to how much budget they had, and how much they were within budget to spend something and allow them the authority to control their own department or function or project budgets. In that example, we found that Pos could be a powerful tool because they’re already doing all this work to figure out the budgets and their projects. They want to feel like they own that budget so allocating that budget out into different POs for what the project says. Vendors are going to need, or for a blanket PO to catch. The remainder was a powerful tool.

Emily: Got it. And from your experience, Jon, how does the absence of a PO process affect vendor relationships and negotiation power?

Jon Naseath: Yeah so especially when there’s a large vendor or a strategic vendor you’ll negotiate terms, and there’s so much work that goes into establishing those contracts and all the terms around it. And so then opening up the PO, based on that contract, is a nice way to control and keep everything transparent and open. Now there are often situations where you might not use all of the PO, so it’s important to have visibility to how much is being used, and it’s not just purchase orders, but the purchase requests that then feed into those and then at the same time being able to see for vendor management how much available capacity is still on that old purchase order. For when you need to do the next project, and maybe you have to discuss it. Can we roll that over into the next purchase order that wasn’t used? Or is that money needed to be held back for the budget for another department?

Emily: Got it understood. And so how do you view the cost and complexity of implementing a PO system, particularly for smaller businesses?

Jon Naseath: Sure. I don’t know if it’s about the size, but also the operational maturity of the organization. You know, if you’re just starting. It’s not your biggest priority. You just have to get customers in the door and make sales or if you’re just in the process of scaling and you have tight you you feel like you’re in control of the spending. That’s happening. Then that’s fine. But when you reach that point where you, as an organization, are so big and so complex that you don’t know or have control over the demands of spending. And you people need to be able to, in different departments, own their budgets, instead of having kind of a centralized finance, be approving every spend as it goes out. The nice thing about pos is that kind of pre. It’s kind of a pre-approval for future spending. And so it’s allocating out budgets in an approved way so I’d look for the complexity when it becomes when you need a solution, and you’re looking for a way to control your spending. The whole process of that procurement process can be very helpful.

Emily: Got it makes sense. So, Jon, do you believe there is a you know. One-size-fits-all approaches to whether organizations should adopt a peer-driven process And why or why not?

Jon Naseath: I don’t think that there is just a 1 way. Many businesses are different. One example is you have recurring, spending that’s happening, or if all of your stuff is just transactional, and one-time spending there are also opportunities to do a lot of similar controls through different types of credit cards, and where you can get cash back from credit cards but especially with larger spends. You know, doing a purchase order, or purchase request process is a powerful way to do it. Again, I want to call out that concept of an open PO or a blanket PO for things that you. You can still allocate it to a department or a project, but then they can spend it against that blanket PO where it’s not exactly known how much it’s going to be. The other one, I’d call out, is for different utilities, or or recurring subscriptions. You might not need a Po, for, because you’re not getting an invoice, you’re just paying a recurring bill, but still creating that blanket open PO for your internal controls and budgeting can be helpful. You don’t need to tell the customer or the supplier about that PO but it’s just a way to control budgets.

Emily: Sure understood. And what alternative approaches can organizations take if they find a full peer-driven process? You know, too rigid or cumbersome.

Jon Naseath: Yeah again, it’s based on the size, the size, and the complexity of the organization. If you feel like you’re controlling it through your own active communication of people in real-time. Then that’s fine. It’s just when it becomes too complex. Like, I remember a situation where I had a product manager, set up a strategic planning workshop with one of his best friends who was a vendor, and they were amazing at doing what they were doing. It was an awesome strategy and marketing workshop over a few days. You know, they flew a large team in, and there were dinners that we thought they were paying for and I only got invited to one of the dinners. When I said that, we thought that this product manager was being paid by them. I attended one of the dinners, and I started talking to them at the dinner and realized that they were going to be charging us for everything back through that ended up being like 1.5 or almost 2 million dollars for their advisory consulting project that didn’t result in any transformational change that we did. So that was problematic. So avoiding those is kind of like spending. And just, it’s just a way of controlling spending is a nice way of thinking about it, and there can be. Usually, it gets put in place when something happens that shouldn’t have happened. Oftentimes, when I see it come into place it’s a way to tighten up controls.

Emily: Makes sense.

Jon Naseath: Sorry. One more point there. It’s oftentimes not the key control for Sarmeans, Oxley, or something. So it’s something that might not be required, for you know what accounting would push for but as , I think that as a finance leader is a very helpful tool from an FP and a perspective and again, just watching for where the demand is. That’s where it adds value.

Emily: Okay that’s pretty insightful. So in your opinion, what should organizations prioritize when deciding whether to implement a PO-driven process?

Jon Naseath:  I like to look at finance from the perspective of a finance business partner, and so a lot of times where there are lots of departments or lots of projects that are all asking for money literally. The terms are purchase, request, and purchase order. So I remember one time sitting down with a product development team and an organization where we had many different teams doing lots of different development. And they all had requests and I sat down with them, and we did a lean 6 Sigma style process map and mapped out the current state. And then we looked at it and looked for waste in the process, and we looked at how we could optimize what was happening and through that process of discussing, how can we help these teams fix their purchase request problems. I wrote in the box on the future state diagram. I said, this is a purchase request, and you guys make a purchase request when you need money, and then that gets approved. And this is a purchase order, and when it’s approved becomes a purchase order, and then you get a spend. And they were like, Wow! That’s a great idea. We should do that all the time, and if I had just gone in from the beginning and said, Oh, your answer is, you need personal purchase orders, and let’s put it in place. I’m sure there would have been pushback, but when you approach your app, your question is like, When is it needed? And my answer is when your different departments and teams your business partners in the business are asking for support, getting the funding that they need. This is a nice way of helping them feel like they’re at least participants and have a process for requesting funds. That’s literally what it is.

Emily: Funny. So just one last question to summarize everything. Jon. you know AI is the birth of the town. So how can AI help automate the PO process?

Jon Naseath: Yeah. I think it’s exciting what AI will be able to do for it because a lot of you know, even if companies don’t have what an accountant might call a purchase, order, purchase, request, procurement process. Every company is doing procurement. Every company is figuring out how to buy things in their way. So the idea of taking that current state process and saying, Well, how can AI enable that procurement process in whatever way it is? Maybe there’s a future state where, based on different insights that AI can do, you can make it so that AI will be able to approve more of the purchase requests without needing so much manual approval or manual touches. And certainly, there’s a threshold where you have to have the manual touch and manual check. But I think that AI could alert for risks when it needs to be double-checked or I look at AI as providing a kind of that 1st sanity check on things. And then it’s good at identifying problematic areas. But overall, it should be able to simplify and expedite that purchase request process. You never want to end up in a situation where the business departments feel like they’re not able to spend money because they’re waiting on a PO. They’re waiting on a purchase request, approval. And so whether it’s helping the AI could help identify the risks related to that purchase request, or it could help identify threshold approvals where certain ones can just be approved without manual touches. I think of it similarly to how I mean just a parallel example. Similarly to how, when you do your taxes say you’re using TurboTax as an example, and you’ll come. You’ll prepare your taxes. Think of that as kind of quasi, like a purchase request, and then, when TurboTax, it will go through everything, and it will say, Oh, we don’t see any issues in this, and if there are issues we’ll support you in mitigating them. But we think this will be fine and I’m a Cpa. I’ll confess I still use TurboTax, advanced stuff for my accounting in different ways and I think that similarly AI could be used for purchase requests and purchase orders to do that risk profile and help the person who’s submitting it. Usually, it’s stupid, simple things that might be wrong or might not be appropriate in a purchase order. I think that AI can help identify those for the person submitting it so they can modify them if needed, and get everything to go through faster.

Emily: Got it. Got it. Thank you so much, Jon, for sharing your insights, you know it’s clear that a peer-driven process offers many benefits. It’s not without its challenges. So your perspective on finding a balanced approach and leveraging AI to streamline the process will certainly help organizations make more informed decisions. So thank you so much for joining us today. It was great having you.

Jon Naseath: Pleasure have a great day.

Revenue heads in the Chart of Accounts (COA)

Find out interesting insights with Dave Sackett, Finance Persimmon Technologies

Moderated by Jane, a financial technology consultant at Hyperbots

Don’t want to watch a video? Read the interview transcript below.

Jane: Hello, everyone! This is Jane, a financial technology consultant here at Hyperbots, and today we are joined by Dave Sackett, who is the VP of Persimmon Technologies. Welcome, Dave. Thank you for joining in.

Dave Sackett: Yeah, thanks, Jane.

Jane: Let’s dive straight into it. The topic we’ll be discussing today is revenue heads in the chart of accounts. This topic is critical for effective financial management and strategic decision-making in any organization. To start, can you please tell us why structuring revenue heads properly in the chart of accounts is so important for organizations, especially across different industries?

Dave Sackett: Yeah. So what you have are compliance issues, and different stakeholders need to know revenue accounts to manage the business properly. Depending on the industry you’re in, it can vary significantly. If you’re a SaaS company, you’re looking at usage, internet clicks, etc. If you’re a manufacturing company, you have product revenue. In a service company, the revenue structure differs again. So, regardless of the industry, you may have vastly different ways to look at revenue.

Jane: Understood. What are some common mistakes or errors accountants make when creating revenue heads in the chart of accounts?

Dave Sackett: People who like data often want everything at their fingertips. They might create a revenue structure with very tight granularity, capturing every detail. But in reality, it works better to have a simplified chart of accounts and use other reports for additional details. This helps focus the audience on the right revenue and keeps everyone on target. When you have new business lines or revenue streams, that’s the right time to expand how you look at revenue.

Jane: Got it. Can you share some best practices for structuring revenue heads to avoid these common mistakes?

Dave Sackett: Yep. You want to meet with your stakeholders and figure out what your end product and reports will look like, and who needs the data. It may be for regulatory compliance or reporting to a parent company that consolidates results. Revenue tracking can be critical, especially for accounting eliminations. It’s important that everyone is on the same page when it comes to revenue, and you want to avoid overcomplicating it.

Jane: Understood. How can AI help improve the management and structuring of revenue heads in the chart of accounts?

Dave Sackett: Luckily, we’re in the age of AI, where advancements are happening quickly. AI can support you not only in creating revenue accounts but also in analyzing revenue changes, performing flux analysis, and digging into variances. So, AI has become almost a partner in accounting and finance. Focus on the problem first, then see how AI can support it. As technology progresses, AI’s ability to help will only increase.

Jane: Understood. Can you provide an example of how a specific industry, such as retail or manufacturing, benefits from an AI-validated chart of account structure for revenue heads?

Dave Sackett: Yes. I work in a manufacturing company where we make robots. AI helps us by analyzing variances and providing guidance on whether transactions are going to the correct accounts, or if revenue should be structured differently. AI can alert you if you have transactions that look incorrect based on descriptions, helping guide you in setting up revenue accounts and suggesting whether to add or consolidate accounts. It’s like having another set of eyes to assist in your accounting work.

Jane: Got it. How often should organizations review and update their revenue heads in the chart of accounts, and what factors should trigger these reviews?

Dave Sackett: Right now, I’m transitioning to a new ERP system, which is a great time to revisit revenue categorization. My goal is to keep things simple and basic, and as the business grows and new revenue streams come in, we’ll add accounts but starting with a strong foundation and adding as necessary is key. I wouldn’t recommend changing revenue categorizations frequently, but major milestones like a new compliance report or a new product or service might trigger a review. If no major events occur, an annual review, perhaps during budget planning, is a good rule of thumb.

Jane: Understood. Finally, what advice would you give to CFOs or financial managers looking to optimize their revenue structures in the chart of accounts?

Dave Sackett: Look to the future. Consider tools available today that weren’t available two or five years ago and see how they can help you. AI is very powerful now, especially with advancements in large language models. These AI systems can now really understand your business, and you can train them to support your efforts in tracking revenue.

Jane: Understood. That’s it. Thank you, Dave, for sharing your valuable insights on managing revenue heads in the chart of accounts. Your guidance will surely help many organizations optimize their financial structures and enhance their decision-making processes.

Dave Sackett: Great, thanks, Jane.

Jane: Thank you.

Managing variability in the chart of accounts

Find out interesting insights with Anthony Peltier, CEO Coast to Coast Finance

Moderated by Pat, Digital Transformation Consultant at Hyperbots

Don’t want to watch a video? Read the interview transcript below.

Pat: Hello, and welcome to CFO Insights by Hyperbots. Welcome to today’s discussion on the variability of the chart of accounts (COA) across different industries, companies, and ERP systems. Joining us is Anthony Peltier, the CEO at Coast to Coast Finance, who will share insights on how the COA can differ, based on several factors. Welcome, Anthony.

Anthony Peltier: Thank you. Glad to be here.

Pat: Alright, so let’s just dive straight in. Can you start by explaining what a chart of accounts is and why it’s essential for organizations?

Anthony Peltier: Yeah. A chart of accounts, or COA, is a list that categorizes all the financial accounts in the general ledger. It serves as a framework for recording and reporting financial transactions. The COA is essential as it provides the structure needed for consistent reporting, compliance, and analysis. It helps ensure that all financial data is captured accurately and can be reported in a way that aligns with both internal and external requirements.

Pat: Alright, that makes sense. How does the structure of the COA vary between different industries?

Anthony Peltier: It varies significantly between industries because each industry has unique reporting needs. For example, a manufacturing company might have raw materials, work in progress (WIP), or finished goods under their cost of goods sold (COGS), while a service company, such as a consulting firm, would have accounts that focus more on labor costs, direct service costs. A retail company may emphasize inventory accounts and sales revenue, while a financial services company might have specialized accounts for interest income, loan loss provisions, and brokerage fees.

Pat: Okay. So we talked about how COA might vary between different industries, but what are some specific examples of how two companies within the same industry might have different COAs altogether?

Anthony Peltier: Sure, even in the same industry, companies can have different charts of accounts based on their business models or operating costs. In the technology industry, a more product-focused company might have detailed accounts for hardware production, software development, and cloud infrastructure, whereas a service-oriented tech company might focus more on support costs, software-as-a-service operations, and professional services. Even two retail companies could differ. One with a brick-and-mortar presence might have detailed accounts for store rent and overhead, while an e-commerce company might emphasize digital marketing and logistics costs.

Pat: What factors typically drive these differences in the COA structure from one company to another within the same industry?

Anthony Peltier: Several factors, like company size, business model, geographic location, and regulatory environment, can drive these differences. For instance, a global company might have a more complex chart of accounts to manage various currencies, tax jurisdictions, and intercompany transactions, whereas a smaller company might have a simpler COA, but still reflective of its focus. Risk appetite, management style, and strategic goals also influence COA structure.

Pat: Could the same company have different charts of accounts for different ERP systems? And if so, why would that be the case?

Anthony Peltier: They could. Different ERP systems might require different COA structures due to specific functionalities and reporting capabilities. One ERP system might be designed to meet local statutory requirements, necessitating a more granular chart of accounts for tax reporting or currency differences. Another ERP, used at a global level, might emphasize standardization and consolidation across geographies, leading to a different COA structure. Variations in ERP configurations and how the systems integrate with other financial tools could also contribute to COA differences.

Pat: What challenges do these differences in the chart of accounts pose for financial reporting and management?

Anthony Peltier: The main challenge is maintaining consistency in financial reporting. If a company has different charts of accounts across business units, consolidating financial statements can become complex and time-consuming. There’s a risk of errors that could affect the accuracy of the reports. Additionally, differing charts of accounts can complicate internal management processes, making it harder to compare performance across divisions or subsidiaries and ensure compliance with accounting standards.

Pat: How can companies manage these challenges and ensure effective financial management?

Anthony Peltier: Companies should aim for a balance between standardization and flexibility. Having a master chart of accounts that can be mapped to different local or business-specific charts allows for consistency while permitting some customization. Regular audits and reconciliations can help ensure alignment leveraging technology like consolidation tools and implementing governance policies is also key. Additionally, continuous communication and training between finance teams across different units are essential for maintaining clarity and coherence.

Pat: Alright, that makes a lot of sense. What trends do you see in how companies are approaching chart of accounts design and management in the future?

Anthony Peltier: There’s a trend toward increased standardization and automation. Companies are looking to simplify and streamline their COAs, enabling faster decision-making. There’s also a move towards global standards, especially for multinational companies, to reduce complexity and improve comparability. AI and machine learning are becoming more prominent in finance, helping companies automatically categorize transactions and even suggesting optimal COA structures. This shift will continue as companies seek greater efficiency and agility in their financial operations.

Pat: Alright, I think that’s very insightful. Thank you so much, Anthony, for sharing these valuable insights on the variability in the chart of accounts and its impact on financial management. It’s clear that the chart of accounts is more than just a list of accounts; it’s a strategic tool that requires careful design and management.

Anthony Peltier: Yeah, thanks for having me. It’s an important topic.

Pat: Thank you so much.

Effective matching strategies for blanket purchase orders

Find out interesting insights with Mike Vaishnav , CFO & Strategic advisor

Moderated by Sherry, Financial technology consultant at Hyperbots

Don’t want to watch a video? Read the interview transcript below.

Sherry: Hello and welcome to all our viewers on CFO Insights. I am Sherry, a financial technology consultant at Hyperbots, and I’m very excited to have Mike Vaishnav here with me, an experienced finance executive with experience in global operations, strategic leadership, and a proven track record in driving results across finance, M&A, controllership, and corporate strategy in diverse industries. Thank you so much for joining us today, Mike, to discuss the challenges and strategies for matching invoices with blanket purchase orders. First, could you briefly explain the key differences between a blanket PO and a specific PO?

Mike Vaishnav: Sure. Thanks, Sherry. The blanket PO is used for ongoing purchases with a predetermined amount or quantity. It is open for a specific period of time or amount where you’re going to receive goods, but there’s no perfect quantity or fixed price. The amount is set, but the exact quantity for each purchase may vary. A specific PO, on the other hand, is tied to a one-time purchase with a fixed quantity and amount. You know exactly what you want to order, and it ensures that the exact amount of goods or services will be delivered. For example, with a blanket PO, you might decide to buy 1,000 units over the next six months for $100,000. The quantity can come in multiple deliveries, and you would match the quantity received against the PO, such as 100 or 200 units at a time. Another example of a blanket PO is for consulting services or projects. You might set up a blanket PO to cover a specific project with a set budget, including services like legal or audit fees. Payments are matched against the progress of the services rendered. A specific PO, however, is for ordering a specific quantity of goods in a one-time or limited purchase.

Sherry: And given the open-ended nature of blanket POs, how do you approach the matching of incoming invoices with these POs?

Mike Vaishnav: Matching can sometimes be tricky with partial deliveries, but you need to match the delivery of the product or service to the PO. For product-based blanket POs, it’s relatively straightforward you receive 100 units, and you deduct that from the total PO amount. For services, it depends on the deliverables and how the service is invoiced. If it’s based on time, such as contractor hours, you can match the timecards to the PO but service-based blanket POs can be more challenging to match than goods, where quantities and delivery schedules are clearer.

Sherry: And how do you track the cumulative spend and quantities against a blanket PO to ensure the limits are not exceeded?

Mike Vaishnav: There are various ways to track this. One method is using a cumulative tracking system within the accounts payable function. The accounts payable team monitors what goods have been received and how much of the PO has been used. This allows for continuous monitoring of the remaining quantities and amounts, ensuring that invoices don’t exceed the PO limits. Some companies use integrated systems to track this automatically, while others may use add-on solutions or manual tracking to ensure compliance.

Sherry: And what role do tolerance levels play in the matching process for blanket POs?

Mike Vaishnav: Tolerance levels are crucial. They set the acceptable range for discrepancies in price or quantity, determined by the company based on the materiality of the item. Some products may have higher or lower thresholds depending on their nature. If the variance is within the tolerance level, say 5% plus or minus, the system can approve the invoice automatically. However, if the discrepancy exceeds the threshold, it requires further review and approval.

Sherry: From your vast experience, could you describe the approval workflow for invoices that exceed the set tolerance levels?

Mike Vaishnav: If the invoice exceeds the set tolerance levels, it triggers a workflow for approval. Based on the company’s workflow, it will route the invoice to the appropriate person for review, following the approval hierarchy and limits. If the variance is minor, a lower-level manager might approve it. However, if it’s significantly higher than the threshold, it escalates to higher-level management or even executive approval. The rationale behind the variance must be justified, whether it’s due to contractual terms or other factors like the vendor shipping more to clear out their inventory.

Sherry: Since AI has taken the finance industry by storm, I have to ask, how can AI enhance the efficiency of matching invoices with blanket POs?

Mike Vaishnav: AI significantly enhances the efficiency of matching invoices with blanket POs. It can analyze and flag discrepancies that require manual intervention by predicting potential mismatches based on past trends and patterns. AI can also streamline the process with ERP systems to match quantities and flag issues in real time, helping catch errors more quickly. It also speeds up workflow approvals, enabling faster resolution of any problems and ensuring compliance through predictive analytics.

Sherry: And since we’re talking about efficiencies, what are some best practices you follow to ensure effective matching of invoices with blanket POs?

Mike Vaishnav: First, establishing a robust process is key, whether through an ERP system or using AI-based tools. Regularly reviewing and auditing the PO matching process helps identify any discrepancies early. Clear communication with vendors is also essential. Discrepancies often arise from mismatches in received quantities or incorrect invoices. Timely reporting, reconciliation, and monitoring of open POs to address why they haven’t been matched yet are also critical.

Sherry: Finally, how do you ensure compliance and control in the process of matching invoices with blanket POs?

Mike Vaishnav: Compliance is ensured through strong processes. Setting up proper tracking and tolerance levels, implementing approval workflows, and following internal policies help maintain control. Regular audits, reconciliations, and system-based controls further ensure that blanket POs are handled efficiently and accurately. AI can assist in monitoring for unusual activity and ensuring that any issues are addressed promptly, improving overall compliance.

Sherry: Thank you so much for these insights, Mike. This has been a very informative discussion on the complexities and strategies for managing blanket POs.

Mike Vaishnav: Thank you. Nice to be here.